CII Says AXA’s De Castries Believes Rough Times Have Strengthened the Industry

September 20, 2004

  • October 9, 2004 at 8:02 am
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    Axa trustees reduced fund to ruins
    Fundsmutual.com targets insurance giant

    Canadian Colin Alexander of Ottawa has posted the website http://fundsmutual.com/ It targets Axa, the worldwide French insurance company and parent of the world’s third largest mutual fund company, Alliance Capital. Mr. Alexander says that Axa Royal Exchange totally destroyed his family trust. But when he asked Axa’s CEO Henri de Castries for compensation, they said, in effect: Get lost!

    Mr. Alexander says that to get an inflation-adjusted million pounds, the trustees would have had to start with a hundred million pounds, and far more if you wanted an inflation-adjusted place to live in England.

    In 1928 Axa Royal Exchange, as professional trustees, took on a trust set up by Mr. Alexander’s grandfather. The JO Robinson trust had unlimited investment powers, and paid the income first to his grandmother, and then to his mother and his aunts. His one-third share of the Trust was worth £20,000 (US$90,000) in 1928. Sixty-eight years later, on the death of his mother in 1996, the trustees paid out just £18,233 (US$27,500) for the entire capital in that one-third share.

    According to independent London-based actuary Solomon J Green, Mr. Alexander should have received a minimum of £2 million (US$3.7) in 2004 money on the basis of what “adequate but unexceptional trustees” ought to have achieved. But Mr. Green’s minimum is little more than what Mr. Alexander’s share of the family home would have been worth in 2004, with the other 85 percent of the investments flushed down the drain.

    As an example of what happened, in 1946 the trustees bought the fixed-interest Beechams 10% preferred shares at nearly three times their par value and let them decline to redemption at par, for a 63 percent capital loss and a 75 percent loss after inflation. But over the eight years the Trust held those shares, dividends on the UK’s CSFB Equities Index increased by 69 percent.

    Axa say they have a complete defense because they relied on advice from the stockbroking firm Rowe & Pitman. But a nineteenth-century court judgment says that trustees cannot delegate their trust even to competent persons so as to terminate their own responsibility.

    Axa Royal Exchange paid so little attention to the brokers’ semi-annual lists of securities that they failed even check them for accuracy, let alone for the suitability of the investments. At various times the brokers reported the Trust as owning the common shares of a company in which it owned the preferred shares, they omitted securities that reappeared in later lists, they reported the Trust as still holding investments that had been sold, and they miscalculated the extensions for the values.

    Given Axa’s irrational and unyielding denial of liability, Mr. Alexander had to consider the merits of litigation, an internet website or letting Axa get away with it. The decision to proceed with the website took into account the fact that the budget to go to trial in London required £500,000 (US$900,000), at least five years in time, and an immense personal commitment with a cost far beyond money.

    Mr. Alexander believes the public should know about the conflict between Axa’s claims to professional competence and ethical standards on the one hand, and the real-time experience with his family trust on the other. Axa companies’ promotional advertising says: “Protect Your Assets With a Trust”; “Our performance matters above all else. Whether and to what extent we succeed is not a contest for our clients; it can change their lives.”; and “Our ethics can never be compromised.”

    The website quotes judges saying that the prudent trustees have always had to adjust their investment policy to fit in with market conditions, and that specifically includes the impact of inflation. In fact, Axa are promoting their equity mutual funds today by emphasizing the need to consider inflation, and by showing the performance of US equities since 1926.

    “Axa’s official Policy Statement on Ethics is so muddleheaded,” says Mr. Alexander, “that unconscionable conduct comes as no surprise. You’d think that Axa’s CEO in Paris, Henri de Castries, might have learned something about ethics from the disasters at Enron and Worldcom, and the scandals in the mutual fund industry.”

    Website link Fundsmutual.com



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