Phoenix Wealth Services Limited

FCA action

fine

1

in fines

£1.80m

most recent

September 2013

• Fined £1.8m on 16 September 2013

  On 12 September 2013 the FCA imposed a financial penalty of £1,802,200 on AXA Wealth Services Ltd (AXA or the Firm) for breaches of Principle 9 (Customers: relationships of trust) of the FCA's Principles for Businesses (the Principles) and Rules in the Conduct of Business Sourcebook (COBS). The breaches occurred between 15 September 2010 and 30 April 2012 (the Relevant Period). AXA agreed to settle at an early stage of the FCA's investigation. The Firm therefore qualified for a 30% (Stage 1) discount under the FCA's executive settlement procedures. Were it not for this discount, the FCA would have imposed a financial penalty of £2,574,595 on AXA. In the Relevant Period there were a number of serious deficiencies in AXA's processes for advising customers about investment products. In particular, AXA: 1) until 31 October 2011 failed to have an adequate process in place for establishing the level of risk its customers were willing and able to take with their investments. In particular, AXA: (a) asked customers to indicate their attitude to investment risk by selecting from a number of categories which described risk in unclear terms. AXA did not ensure that sales advisers checked customers' attitude to, and understanding of, the level of risk they would be taking with their investments; and (b) failed to ensure that sales advisers adequately considered whether customers were able financially to bear the risks associated with the investment products recommended to them (capacity for loss); 2) failed to have an adequate process in place to ensure its sales advisers gathered and took into account all of the information they were required to obtain from customers before making investment recommendations to them. Relevant information about customers, including their knowledge and experience of investments, was missing from many AXA sales files. There was no evidence in the files that this missing information was gathered at all; 3) failed to have an adequate process to ensure sales advisers appropriately considered customers' investment objectives when assessing the suitability of investment products for them; 4) failed to have adequate guidance in place for advising customers on the impact of charges applicable to investments recommended to them; 5) failed to ensure that customers were provided with adequate explanations as to why investment recommendations were considered to be suitable for them in view of their circumstances. The Authority reviewed 24 suitability reports and in all cases the reports failed to contain sufficient information to justify the recommendations made to customers. The majority of sales advisers subject to mystery shopping conducted on behalf of AXA failed to provide sufficient explanations of their recommendations to customers during meetings with them; 6) failed to have effective controls in place over the incentives paid to sales advisers. In the absence of these controls, there was an unacceptable risk of sales advisers making inappropriate recommendations to customers in order to qualify for bonus payments; and 7) failed to put in place adequate procedures for monitoring sales of investment products. AXA's compliance monitoring staff failed to identify promptly and investigate effectively potentially unsuitable sales. In 2012, an external consultant appointed by AXA disagreed with the compliance staff's assessments of sales files in 79% of cases because they were not demonstrably suitable. The Authority considers AXA's failings to be serious because: 1) customers were exposed to a significant risk of making investments which were unsuitable for them and of not being adequately informed about their features and risks. The failings were widespread across AXA's sales process for investment products and potentially affected a large number of customers, including investors who were inexperienced or may have been vulnerable (for example, due to their age, medicr other personal circumstances); and 2) the Authority has repeatedly stressed in its publications the importance of firms taking appropriate steps to ensure suitable investment advice is given to customers. The Authority recognises that AXA proactively made a number of improvements to its sales process over the Relevant Period. This included AXA reviewing its processes in response to the Authority's Guidance Consultation of January 2011 (and Finalised Guidance of March 2011) titled Assessing Suitability: Establishing the risks that a customer is willing and able to take and making a suitable investment selection', together with the Authority's letter dated 14 June 2011 to chief executive officers of wealth management firms. In July 2011 AXA also instructed third party consultants to review parts of its sales process and a sample of sales files. However, AXA failed overall to exercise reasonable care to ensure its recommendations to customers were suitable until 30 April 2012.