FINRA fined AXA Advisors $600,000 and ordered the firm to pay about $172,000 in restitution for distributing materials that negligently misrepresented the holdings of certain bond funds offered for 401(k) plans.
AXA negligently misrepresented to affected 401(k) retirement plan participants 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, according to the FINRA letter.
As part of the settlement, FINRA also required AXA to send corrective disclosures to all affected plan participants.
“401(k) plans are among the most important and prevalent retirement savings options available to investors,” Susan Schroeder, FINRA’s executive vice president of enforcement, said in a statement. “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.”
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 employers to help them determine what funds should be included within the group annuity contracts for 401(k) plans they offered to employees.
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% 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, according to FINRA, 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 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.
An AXA spokesperson said in a statement, “We remain committed to transparency and accuracy in all communications and we regret this occurred. We are pleased to have resolved this matter and are providing remediation to those who may have been adversely impacted.” —Related on ThinkAdvisor: