In May 2019, KlaymanToskes commenced an investigation into the Yield Enhancement Strategy (“YES”) recommended by UBS (NYSE:UBS) to its customers. Losses have increased to more than 30% for investors who continued the YES strategy through the recent market event precipitated by COVID-19. The investigation focused on UBS’s sales practices in connection with the recommendation of the high-risk YES program for customers who sought conservative investments.
UBS Presented the YES program as a Low Risk Strategy to Generate Income
High net-worth investors seeking conservative investments to preserve their principal were encouraged to participate in the YES program and were told it was a low-risk overlay strategy to generate additional income. The YES program required investors to set aside a mandate, often around $3 million, in order to participate in the program, and were charged a 1.75% fee of the mandate for their participation. The YES program utilized an options strategy, known as the Iron Condor, which created the appearance of better returns or cash flow during periods of low volatility and generated hefty fees and commissions for UBS and its financial advisors.
YES Program’s Unexpected Investor Losses
In December 2018, the market took a volatile turn and losses began piling up for investors in the YES program. UBS allegedly misrepresented the risks involved with participating in such a strategy to its investors, and these investors suffered losses they never anticipated. Recently, additional losses have been suffered by YES investors due to COVID-19 and the increased volatility in the market it has caused. Investors have eclipsed 30% in losses due to market volatility, up from 10% in December 2018. UBS characterized YES as a strategy that would have limited correlation to the market and as having downside protection. However, the YES strategy has shown significant correlation to the greater markets and limited downside protection.
UBS’s Yield Enhancement Strategy Returns and Losses Were Caused by Equity Market Exposure according to Drs. McCann, Meng, & O’Neal
KlaymanToskes has not been alone in its belief that UBS placed its customers in unexpected positions. On October 4, 2019, Drs. Craig McCann, Regina Meng, and Edward O’Neal released their findings concerning the UBS YES program in a research paper titled “UBS’s Yield Enhancement Strategy Returns – and then the Losses – Were Caused by Equity Market Exposure”. UBS claimed that the YES strategy did not take bets on the direction of the market. However, in December 2018, when the S&P 500 dropped 9.2%, UBS accounts subjected to the YES program suffered losses of 12% to 14%. (McCann, Meng and O’Neal).
UBS allegedly misrepresented the risks involved with participating in such a strategy to its investors, and these investors suffered losses they never anticipated, with total losses estimated around $1 billion. UBS further misrepresented the likely profits of the YES program. (McCann et al.) According to Dr. McCann, UBS marketing materials claimed that the YES strategy would make “the same returns if the market goes down slightly, stays flat or goes up slightly.” To support its alleged misrepresentations, UBS included figures, such as the one found below, in its marketing materials to customers to downplay the risks associated with the YES program. UBS’s marketing materials were coupled with false statements, such as those claiming the YES program “[s]eeks to provide an additional source of income to portfolios when the markets are flat, trending higher or trending lower.” (McCann et al.) The returns promised by UBS depended almost entirely on the direction of the market. UBS’ claims of no directional bias left its customers in an unexpected and vulnerable position in December 2018.
FINRA Arbitration Claims Regarding UBS Yield Enhancement Strategy (YES) Growing
Pursuant to BrokerCheck reports as of October 2019, there were 48 FINRA arbitration claims filed against UBS as a result of the YES program. KlaymanToskes believes these claims will continue to be filed and will continue to use its resources to investigate the actions of UBS and whether the Yield Enhancement Strategy deployed by UBS was suitable for UBS investors and whether UBS misrepresented its risks.
Connect with Us to Learn More about UBS Investment Losses
If you would like a free investment portfolio analysis to determine whether you have UBS Investment Losses, contact Lawrence L. Klayman, Esq. at (561) 542-5131 for a free evaluation, and download our Special Investor Report.
About KlaymanToskes
KlaymanToskes is a leading national securities and investor fraud law firm which practices exclusively in the field of securities arbitration and litigation, on behalf of retail and institutional investors throughout the world in large and complex securities matters. The firm represents high net-worth, ultra-high-net-worth, and institutional investors, such as non-profit organizations, unions, public and multi-employer pension funds. KlaymanToskes has office locations in California, Florida, New York and Puerto Rico.