AXA Advisors LLC a securities broker dealer headquartered in New York New York has been censured and fined $600,000.00 by Financial industry Regulatory Authority (FINRA) based on findings that (1) AXA Advisors made misrepresentations about the bonds sold to the firm’s retirement account customers and (2) AXA Advisors neglected to supervise its practices to ensure accuracy of information concerning ratings of bond funds available to participants in the firm’s group annuity contract. Letter of Acceptance, Waiver and Consent No. 2015047560501 (May 2, 2019).
According to the AWC, group annuity contracts issued through one of the firm’s affiliate insurance companies had been sold to customers of AXA. Apparently, the firm serviced the contracts in addition to selling them, and was paid based on how much of the retirement plan assets had been placed into the annuities.
Apparently, the annuities that had been sold by AXA contained investment options that consisted of mutual funds investing in bonds and stocks. Apparently, the retirement plan sponsors were sent information from AXA which explained the bond funds available to the customers. Evidently, plan sponsors were also provided with enrollment forms by AXA detailing the mutual fund investments made available to investors. Eventually, the information found within the investment options attachments and enrollment forms was utilized by plan sponsors to determine which mutual fund options to select inside of group annuity contracts. AXA’s registered representatives were apparently responsible for assisting 401(k) plan sponsors decide what funds to place in group annuity contracts.
The AWC stated that the investment options, enrollment forms and other documentation that AXA provided customers contained misrepresentations about at least five bond funds which were available for group annuity contracts. Supposedly, the bond funds were classified by AXA as being investment grade despite junk bonds or high-yield bonds comprising the majority of investments held in the funds. In one case, FINRA stated that one fund which most participants selected was described as investment grade; however, approximately two-thirds of the portfolio contained high-yield bonds.
Consequently, thousands of documents distributed by AXA contained misleading and inaccurate representations about the risks of the investments. In particular, a total of 2,500 investment options attachments and 14,500 enrollment forms contained misrepresentations about the credit quality of the funds. The AWC stated that between September of 2010 and November of 2015, a total of 6,200 plan participants within an estimated 800 retirement plans had been exposed to the misrepresentations.
The AWC further revealed that because of the misrepresentations, plan participants and sponsors may have unknowingly invested in riskier investments because of the sub-investment grade debt containing larger risk levels. FINRA found the firm’s activities in this regard to be violative of FINRA Rule 2010.
The AWC additionally stated that AXA was aware, or should have been aware, of the fact that investment options attachments, enrollment forms, among other documentation, contained misrepresentations about the credit quality of investments it offered to customers of the firm. Consequently, FINRA found the firm’s conduct to be violative of FINRA Rules 2010, 2210(d)(1)(B) and National Association of Securities Dealers (NASD) Rule 2210(d)(1)(B).
Moreover, FINRA stated that AXA neglected to supervise its business practices to make sure that it was compliant with securities rules, regulations and laws. Particularly, a life insurance company affiliated with AXA had been called upon to classify the group annuity contract’s bond fund options. However, there were no written supervisory procedures or supervision systems utilized by the firm that were geared towards complying with FINRA’s advertising rules and content standards because the firm did not supervise the accuracy of the credit quality of bonds held in bond fund documentation and forms provided to plan sponsors by AXA’s life insurance company affiliate. Moreover, there were no spot checks or reviews executed by AXA to assess if the bond fund credit quality was correctly identified on the documentation. FINRA found the firm’s failure to supervise the accuracy of investment related information to be violative of FINRA Rules 2010, 3110 and National Association of Securities Dealers (NASD) Rule 3010.
