UBS Financial Services has been ordered to pay more than $1.2 million for allegations that a Florida broker recommended purchase of a variable annuity with the client's retirement funds and used margin in the account.
The UBS client, Kelly Goldsmith, alleged breach of fiduciary duty; breach of contract; negligence; negligent misrepresentation; omission; common law fraud; and negligent supervision.
A panel of three public Financial Industry Regulatory Authority arbitrators said that UBS must pay $1.2 million in compensatory damages, as well as $36,335 in costs.
Bruce Oakes of Oakes & Fosher in St. Louis, who represented Goldsmith, told ThinkAdvisor on Monday in an email that his client's husband passed away in December 2012 after a year long battle with cancer.
Goldsmith "was in her early 50s at the time and her husband had a relationship with UBS. She was left with life insurance and an inherited IRA," worth $900,000, Oakes said.
The advisors at UBS, Oakes explained, put $300,000 of the IRA money in a variable annuity, $60,000 in a single-premium long-term care insurance product and the rest into a managed investment account.
Goldsmith needed around $30,000 annually to supplement her income, Oakes said.
"One of the big problems at UBS was that Mrs. Goldsmith sold her house in 2015, depositing [$]270k in the managed investment account to use later for another home purchase," Oakes said. "Instead of using those funds for the home purchase, the advisor recommended a VCL (variable credit line), which would mean she was borrowing against the assets in her account and paying UBS interest," which increased the fees that UBS earned on her portfolio.
"That along with the advisor's reactive management style resulted in her essentially breaking even on the account from 2012-2023 (she had net profits of around $90,000)," Oakes said.
"My client was very satisfied with the award and is very happy to put this period behind her," Oakes added.
UBS did not respond to a request for comment.
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