Finra arbitrators on Thursday ordered UBS Financial Services Inc. to pay $468,126 to customers who invested in a complex options strategy, following a ruling in last month by a separate panel of arbitrators that dismissed a similar case.
The case decided on Thursday centered on a claim by Barbara M. Estay, who is the trustee of a trust in her name. Barbara and her husband, Dan Estay, a former executive at Abbott Laboratories, were clients in a UBS Chicago office in February 2018 when brokers recommended that they invest stock options in the trust in a product called the Yield Enhancement Strategy.
The strategy consists of borrowing against an existing portfolio to purchase and sell S&P 500 options. The approach is meant to generate increased returns during periods of low market volatility but can produce losses in turbulent markets.
The Estay Trust held the YES investments from early 2018 until the summer of 2019 and incurred substantial losses. Barbara Estay filed an arbitration claim in April 2020 citing fraud, misrepresentation and unsuitability, among other causes of action, according to the Sept. 1 award.
A unanimous panel of three public Financial Industry Regulatory Authority Inc. arbitrators held UBS liable and ordered the firm to pay $343,389 in compensatory damages, $24,169 in costs and $100,568 in attorney’s fees for a total of $468,126 in damages. Estay originally asked for $724,774 in damages.
“It’s incredible to me that [UBS] sold [YES] as a way to decrease risk,” said Estay’s attorney, Sam Edwards, a partner at Shepherd Smith Edwards & Kantas. “The fundamental problem with YES was that the end product is not what was represented. It’s a highly levered strategy that was making market bets. When they were wrong, it was a disaster.”
A spokesperson for UBS declined to comment.
The firm has been hit with dozens of arbitration cases related to YES. Arbitrators have ruled in UBS’ favor in about half of them — deciding to dismiss the claims — but have decided in favor of customers in the other cases. UBS also reached a $25 million settlement with the Securities and Exchange Commission earlier this summer over YES recommendations.
An example of the win-some, lose-some results of YES arbitrations can be found in a decision last month. A panel of three Finra public arbitrators dismissed the claims of Chukwuemeka Okafor in a YES case, according to an Aug. 10 award. Edwards also represented Okafor.
Finra arbitrators don’t reveal the reasoning behind their rulings, which means that customers and attorneys don’t know why some YES cases prevail and other fail.
The outcome often depends on the arbitrators selected for a case, Edwards said. Some are more receptive than others to the claimants’ arguments about their alleged YES losses.
“The reality is that it’s always going to be a guessing game of sorts,” Edwards said. “It’s not obvious in a lot of cases what happened and why in terms of the result.”
Chicago-based Mesirow Fiduciary Solutions adds flexPATH's plan-level outsourced fiduciary book, boosting its retirement market reach to $164 billion.
Also, Raymond James's employee advisor channel adds breakaways from Wells Fargo and Stifel, while UBS welcomes an ex-Morgan Stanley duo in Indiana.
It promised guaranteed principal and 10% monthly returns. The SEC says it invested nothing.
Ten years after entering the fee-based annuity market, MassMutual Ascend says nearly half its lifetime sales came in the past two years alone – but barriers remain among fee-only advisors.
Amplify, WealthReach, Zeplyn and Zocks have unveiled partnerships aimed at automating portfolio management, content creation, account opening, and client communication.
Northern Trust’s Ken Lassner shows advisors how to convert volatility into after-tax portfolio gains
Dan Biagini of American Equity says the steady decline of pensions, longer lifespans and a reset in interest rates are rewriting how advisors build retirement income
