More On Legal & Compliancefrom The Advisor's Professional Library
- Client Commission Practices and Soft Dollars RIAs should always evaluate whether the products and services they receive from broker-dealers are appropriate. The SEC suggested that an RIAs failure to stay within the scope of the Section 28(e) safe harbor may violate the advisors fiduciary duty to clients, so RIAs must evaluate their soft dollar relationships on a regular basis to ensure they are disclosed properly and that they do not negatively impact the best execution of clients transactions.
- Do’s and Don’ts of Advisory Contracts In preparation for a compliance exam, securities regulators typically will ask to see copies of an RIAs advisory agreements. An RIA must be able to produce requested contracts and the contracts must comply with applicable SEC or state rules.
UBS agreed to pay more than $1.5 billion to authorities in the United States, United Kingdom and Switzerland last Wednesday over LIBOR manipulation and related charges. It also disclosed that the resolution of these regulatory and legal issues should result in a fourth-quarter net loss of up to $2.7 billion.
With wirehouse and other broker-dealers eager to exploit another round of negative UBS news for the benefit of their recruiting efforts, AdvisorOne spoke with experts about how much heat UBS’ 7,000-plus financial advisors in the Americas are taking.
“UBS has had so many issues over the past three or four years,” said Chip Roame, head of the consultancy Tiburon Strategic Advisors, in an interview. “I must believe that it’s a bit exhausting as a frontline advisor.”
Of course, their clients are likely to ask questions and have doubts, Roame shares. “But even when they don't ask, you must wonder whether it makes clients diversify some assets away or prospects think twice about coming,” he explained.
Others see the situation even more critically.
“In the short term, this will shut down a lot of the UBS recruiting pipeline,” said executive-search consultant Mark Elzweig. “No one wants to jump from the frying pan directly into the fire.”
As some other observers have noted recently, the LIBOR scandal is not a case of a single "bad apple" rogue trader, Elzweig said. “It calls into question how well the firm itself is run from a compliance and management standpoint.”
Still, “time heals all things on Wall Street,” noted Elzweig. “If UBS continues to offer good packages, they'll return to being successful recruiters once again.”
Meanwhile, many UBS advisors will take a “been-there, done-that” attitude toward the firm’s latest reputational blemish, he shares, and “will go about their business largely undisturbed."
Nonetheless, Roame says, the LIBOR-type situation is not likely to be an uncommon occurrence for large investment banks like UBS.
“Large complex financial institutions will likely be on this course for years to come,” the consultant said. “It’s just reality that the more diverse, higher-risk firms will suffer from more issues.”
On the plus side, UBS did streamline some businesses over the past couple of years, Roame adds, “and this will help” it.
At the time of the settlement, UBS CEO Sergio Ermotti said: “We deeply regret this inappropriate and unethical behavior. No amount of profit is more important than the reputation of this firm, and we are committed to doing business with integrity.”
And Bob Mulholland, head of wealth management and investment solutions at UBS Wealth Management Americas, shared a memo with advisors on how to talk to clients about the LIBOR scandal. It contained advice on the type of apology and distancing reps could communicate, according to a Reuters report.
Mulholland also repeated the corporate position that despite the fees and other payments tied the LIBOR matter, UBS remains “one of the best capitalized banks in the world.”