Restitution Ordered; Firm Ordered to Send Corrective Disclosures to Affected Plan Participants
WASHINGTON — FINRA announced today that it has fined AXA Advisors, LLC (AXA) $600,000 and ordered the firm to pay approximately $172,000 in restitution to affected 401(k) retirement plan participants for distributing materials that negligently misrepresented that certain bond funds offered for 401(k) plans were “investment-grade” when, in fact, a substantial portion of the funds’ portfolios consisted of high-yield or junk bonds. As part of the settlement, FINRA also required AXA to send corrective disclosures to all affected plan participants.
AXA sells and services group annuity contracts for employer-sponsored 401(k) retirement plans that an affiliated life insurance company issues and administers. AXA registered representatives worked with retirement plan sponsors (i.e., employers) to help them determine what funds should be included within the group annuity contracts for 401(k) plans they offered to plan participants (i.e., employees). To that end, AXA distributed various documents created by its affiliated life insurance company to retirement plan sponsors. These documents contained a list of available investment options, including available bond funds, organized by the type of underlying investment.
FINRA found that from September 2010 through November 2015, AXA distributed documents that negligently misrepresented that five bond funds offered with some of its group annuity contracts were “investment-grade,” when, in fact, a substantial portion of the funds’ portfolios consisted of high-yield or junk bonds. For example, the fund that affected the largest number of plans and participants, which was represented as an investment-grade fund, in fact held approximately 65 percent of its bond portfolio in high-yield or junk bonds as of March 31, 2015.
As a result of the misclassifications, AXA distributed thousands of enrollment forms, investment options attachments, and other documents to plan sponsors that were inaccurate and misleading. Specifically, AXA distributed approximately 14,500 enrollment forms and 2,500 investment options attachments that misclassified the credit quality of the five bond funds. The misrepresentations affected approximately 800 retirement plans and 6,200 plan participants during the relevant period.
Moreover, AXA failed to have supervisory systems or written supervisory procedures reasonably designed to achieve compliance with FINRA rules related to the accuracy of the descriptions of the credit quality of the bond funds. Instead, the firm relied on its affiliated life insurance company to classify the bond funds in the group annuity contracts. AXA has agreed to pay restitution to participants who were invested in one or more of the five relevant bond funds and may have been adversely impacted by the misclassification.
“401(k) plans are among the most important and prevalent retirement savings options available to investors,” said Susan Schroeder, FINRA’s Executive Vice President, Department of Enforcement. “Investors need accurate information to make informed decisions about their retirement savings, and member firms play a critical role in providing complete and accurate information to retirement plan sponsors.”
In settling this matter, AXA neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.
FINRA is a not-for-profit organization dedicated to investor protection and market integrity. It regulates one critical part of the securities industry – brokerage firms doing business with the public in the United States. FINRA, overseen by the SEC, writes rules, examines for and enforces compliance with FINRA rules and federal securities laws, registers broker-dealer personnel and offers them education and training, and informs the investing public. In addition, FINRA provides surveillance and other regulatory services for equities and options markets, as well as trade reporting and other industry utilities. FINRA also administers a dispute resolution forum for investors and brokerage firms and their registered employees. For more information, visit www.finra.org.