August 26, 2016
After five years of litigation culminating in a 25-day trial, a New Jersey federal court yesterday granted AXA Equitable Life Insurance Company (“AXA Equitable”) and its wholly-owned subsidiary, AXA Equitable Funds Management Group, LLC (“FMG LLC” and together with AXA Equitable, “AXA US”), a significant victory in ruling that AXA US did not receive excessive compensation for managing and administering certain of its mutual funds. (In the matters entitled Mary Ann Sivolella v. AXA Equitable Life Insurance Company and AXA Equitable Funds Management Group, LLC and Sanford et al. v. AXA Equitable Funds Management Group, LLC (Civil Action No. 3:11-cv-04194 (D.N.J.)).
Dave S. Hattem, Senior Executive Director and General Counsel of AXA Equitable commented that “While it is quite unusual for cases of this type and magnitude to be tried in Court to decision, AXA US strongly believed that the lawsuits were without merit and that we provide quality services to our clients. We have consistently defended our business structure, our conduct and the conduct of EQ Advisors Trust’s (“EQAT”) independent trustees and are extremely pleased that the Court thoughtfully applied the well-established law to our facts and found that the fees charged were fair and reasonable.”
In a lengthy 159-page opinion, Judge Peter G. Sheridan meticulously detailed the Court’s decision that plaintiffs had failed to meet the burden of proving their case. With respect to the primary allegations made by plaintiffs that FMG LLC charged “exorbitant fees” while delegating “all of the services” to sub-advisers or a sub-administrator for a “nominal amount” and that the EQAT Board was not impartial, careful or conscientious in approving the advisory and administrative services fees charged, the Court found “that FMG continued to perform significant administrative and investment management duties, despite the fact that some were delegated to subs. The managerial role that FMG plays in coordinating with sub-advisers and sub-administrators is extensive. … The duties performed by FMG are far more extensive than Plaintiffs’ contention that FMG delegated all of its work to the subs.” With respect to the role and conduct of the EQAT Board, the Court found “that the Board’s makeup is sufficiently diverse and independent, and the procedures it followed demonstrate that the Board robustly reviewed FMG’s compensation.”
The Court’s decision vindicates FMG LLC’s “manager-of-managers” structure, whereby FMG LLC provides essential services to the funds and at its own expense and engages third-party service providers to provide certain limited investment and administrative services. Steven M. Joenk, Managing Director of AXA Equitable and President and Chief Executive Officer of FMG LLC, added that “our structure allows us to continue to offer shareholders a diverse menu of investment options. We applaud the court’s ruling and look forward to continuing to help our clients meet their financial goals. We also appreciate the Court’s recognition of the independence, care and diligence of the independent trustees who annually review the compensation received by FMG LLC.”
The AXA US case is the first Section 36(b) excessive case to go to trial since 2009 and is the first of the numerous cases that recently have been filed challenging the manager of managers structure. AXA US firmly believes that the rigorous and well-established processes that have been put in place with respect to the services provided, and the fees charged, to its mutual funds, as well as the Board’s conduct, factored heavily in the Court’s decision. As noted by the Court, “In disputing the services that FMG and AXA perform, Plaintiffs simply point to contract provisions from the various agreements. However, to adopt Plaintiff’s position would ignore voluminous testimony of credible witnesses.”
“AXA” (also referred to as “AXA US”) is a brand name of AXA Equitable Financial Services, LLC and its family of companies, including AXA Equitable Life Insurance Company (NY, NY), MONY Life Insurance Company of America (AZ stock company, administrative office: Jersey City, NJ), AXA Advisors, LLC, and AXA Distributors, LLC. In business since 1859, AXA Equitable Life Insurance Company is a leading financial protection company and one of the nation’s premier providers of life insurance and annuity products distributed to individuals and business owners through its retail distribution channel, AXA Advisors, LLC (member FINRA, SIPC) and to the financial services market through its wholesale distribution channel, AXA Distributors, LLC (member FINRA, SIPC)
AXA S.A. (also referred to as “AXA Group”) is a Paris-headquartered holding company for a group of international insurance and financial services companies, including AXA Equitable Financial Services, LLC companies. AXA S.A. is a worldwide leader in financial protection strategies and wealth management with 103 million clients in 64 countries as of Dec. 31, 2015. AXA S.A. has been ranked the No. 1 insurance brand in the world by Interbrand for seven consecutive years as of Oct. 5, 2015.
The obligations of AXA Equitable Life Insurance Company and MONY Life Insurance Company of America are backed solely by their claims-paying ability. Find AXA on Facebook, Twitter and LinkedIn. For more information, visit www.axa.com.