Wednesday, September 5, 2007
The regulators continue to fine securities firms for marketing fee-based accounts to investors for whom the arrangement was not suitable because of the infrequency of their trading activity. FINRA announced that it has fined AXA Advisors, LLC, $1.2 million for failing to adequately supervise its fee-based brokerage business and distributing misleading sales literature for its fee-based brokerage account program, CapAdvantage, between 2001 and 2005.
FINRA also ordered AXA Advisors to return $1.4 million in fees to approximately 1,800 customers who were inappropriately placed or kept in fee-based brokerage accounts. The firm is voluntarily refunding customers an additional $1.2 million, making the total amount returned to CapAdvantage customers more than $2.6 million. AXA Advisors also unilaterally took steps to enhance its system and procedures and to close accounts that were not appropriate for CapAdvantage. FINRA considered these steps taken by AXA Advisors in determining the sanctions in this case.
FINRA found that AXA Advisors allowed many investors with less than $50,000 in assets to open CapAdvantage accounts. For example, one customer opened a fee-based account with just $2,000 and AXA Advisors assessed fees until the account was depleted of all funds. The firm also allowed numerous customers to maintain accounts in the program and pay for those accounts even though they did no trading for years. For example, one customer maintained an average account balance of more than $3.5 million, but did no trades from 2002 through 2004. Yet, during that period, the firm deducted approximately $73,000 in asset-based fees.
In settling this matter, the firm neither admitted nor denied the charges, but consented to the entry of FINRA's findings.