Fox Business reported recently that UBS is planning to reclassify many of its clients who are invested heavily in bonds as “aggressive” investors.
While the report indicates this is being done as a result of growing bearishness in the bond market, some are speculating that this move is being done in an attempt to reduce the firm’s exposure to future litigation. How an account or an investor is categorized by a broker-dealer’s internal paperwork can have a substantial effect on how that account is treated internally – a fact many investors are unaware of when they open their account. If an injured client later sues the firm in a FINRA arbitration or in court, this classification can also have an impact on the success of their case.
Firms can change the classification of an investor/account with “non consent” or “negative consent” letters, which require no affirmative act or consent on behalf of the investor to change the account. It is reported that UBS will be using just these type of letters to reclassify its clients’ accounts.
Such a reclassification may come as a surprise to investors who invested in bonds as safe and conservative way to earn income on their investment, rather than invest in the often riskier stock market. Investors who receive these letters will likely have serious questions for their brokers, such as, “If a bond portfolio is no longer conservative, what is?” while their brokers may be left without a good answer. As a result, brokers are reportedly concerned that they will lose customers.
One has to ask the question, “If it was sold as safe, and the client wanted a safe investment, is it not a broker’s obligation to, at a minimum, have a discussion with the client as to how to adjust the portfolio to maintain safety for the client, rather than change the client’s risk profile in a form letter to protect the firm? Can this really be called good faith and fair dealing with the customer? It is hard to imagine that it can.
As major financial institutions, shouldn’t firms like UBS not simply tell their clients, “You were conservative, but now we say you’re aggressive,” but rather that they have this firm-wide, bearish outlook on bonds and suggest a more appropriate reallocation? Wouldn’t that be the more prudent and appropriate course of action?
It is the right of any and all investors who believe they may have suffered losses as a result of recommendations of their financial advisor to contact our offices to explore their legal rights and options. If you or a family member suffered such losses, contact the securities fraud lawyers at Malecki Law for a free consultation and case evaluation at (212) 943-1233.