AXA calls for SOAs to include 'impact of gearing' statement

Statements of Advice should include a clear explanation of the leveraging impact of any gearing accompanying investments, according to a submission by AXA to the Parliamentary Joint Committee on Corporations and Financial Services.

The explanation should, in particular, include additional exposure to the downside in the event of falling investment, and this disclosure should also make clear any margin loan trigger points, AXA’s submission said.

It also called for Statements Of Advice to be modified to ensure an adviser is making a clear recommendation in relation to whether the financial plan incorporates gearing and the parameters of such arrangements.

AXA chief executive officer Andrew Penn said in the submission that “inappropriate gearing of investments has served to hasten and exaggerate the fall experienced by clients when financial markets started to decline".

“This has been compounded by margin loan triggers that have crystallised investor losses.”

Penn said the inclusion of gearing in financial strategies appears to be at least in part exacerbated by aggressive lending practices and the existence of arrangements between financial advice firms and lenders.

“In some cases there appears to have been ambiguity regarding the specific gearing arrangements and, in particular, ownership of the assets against which the loans have been secured.

“This led to clients’ assets being the subject of margin calls of which they were unaware." Penn said the Government should commit to undertaking a review of the effectiveness of its credit reforms by the end of 2012 and implement any further changes if necessary.