Advisor Wins Expungement Of Dispute With $400,000 Settlement

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Award Date: July 21, 2022
Hearing Site: Boston, Massachusetts
Respondent Firm: UBS Financial Services, Inc.
Claimant Representative: Doc Kennedy, MBA, J.D.

Case Objective:

In 2019, an advisor in Massachusetts with 30 years of dedication to the industry was hit with a customer dispute claiming misrepresentation of fees. The firm settled the dispute for more than $400,000 — without the advisor’s knowledge or consent. The advisor returned to AdvisorLaw to seek expungement of the matter through FINRA arbitration.

Case Summary:

In the 1960s, the customer’s family started a business that later grew to become a large collections firm, call center and claims-processing business, and a purchaser of non-performing loans. In 2002, the customer, his brother, and his brother-in-law purchased the business.

In the mid-2000s, the customer and his family became clients of our advisor with Deutsche Bank. They opened personal accounts, retirement accounts, college savings accounts, and various accounts for corporate entities and family trusts. Over the course of approximately 15 years, our advisor spoke to the customer frequently — sometimes speaking as many as ten times in a single day.

In 2008, our advisor and his partner left Deutsche Bank and joined UBS. The customer and his family signed documents to establish their accounts with UBS, wherein they agreed to a management fee of 0.68% to 0.75% for all of their accounts, with the exception of separately-managed accounts (SMAs), for which the fee would be 0.50%, plus incremental fees for outside money managers. At no time did either our advisor or his partner represent that any non-SMA accounts belonging to the family would be charged a fee of 0.50%. For over ten years, the customer and his family received monthly accounts statements — all of which indicated the management fees for all non-SMA accounts to be 0.68% to 0.75%.

In 2010, the customer wanted to use his investment portfolio as collateral on a loan. He told the advisory team that he had spoken with outside advisors, in order to negotiate an extremely-low interest rate. The advisory team was able to offer the customer a loan at 0.49%, which was the lowest rate that any client of UBS paid on a loan at that time. Between 2011 and 2019, each year, UBS attempted to increase the loan’s interest rate. On every occasion, the customer threatened to move his entire family’s business away from the firm. Our advisor strongly advocated for maintaining the low rate on the loan.

Eventually, the customer’s brother and brother-in-law retired from the family business, due to disagreements with the customer.

As of April 2019, the customer’s family held approximately 90 accounts with our advisor — valued at a total of approximately $80 million.

In April 2019, our advisor left UBS to establish his own RIA. While the customer requested that the transfer paperwork be prepared, he also spoke with a new team at UBS about negotiating better rates on the family’s accounts. UBS extended an offer to reduce the management fees.

The customer then claimed to have believed that his management fees for approximately the past 15 years had been 0.50%, rather than the 0.68% to 0.75%, to which he had agreed in writing and was reflected on each monthly statement that he had received during that time period.

The customer’s brother-in-law’s family transferred their accounts to our advisor’s RIA. The customer, on the other hand, complained about the misrepresentation of fees and received a settlement from the firm of over $400,000.

Result:

During the FINRA expungement hearing, the Arbitrator reviewed the documents submitted and listened to testimony by both the customer and our advisor, as well as arguments presented by Dochtor Kennedy, MBA, J.D.

In his FINRA Dispute Resolution Award, the Arbitrator noted that the successor team of advisors with UBS “was very aggressive in courting the customer[,] and the customer was equally aggressive in trying to leverage this competition to improve the management fee while retaining a very favorable loan rate from Respondent” and that, “[w]hile discussion was ongoing, the customer professed surprise at learning during his discussion with [UBS’s] team that not all of his accounts were charged [0.50% in fees,] but rather a blended rate of [0.68%].” He noted that, after the customer filed a complaint with UBS, UBS “agreed to address the customer’s concerns by crediting $408,934.40 allocated among varied accounts and agreeing to an advisory fee of [0.25%] per annum ‘excluding underlying management and/or investment vehicle fees.’”

The Arbitrator pointed out that our advisor had not participated in the settlement discussions and that he had “neither consented nor contributed to the settlement.” The Arbitrator stated that the customer had “clearly evidenced a casual approach to overseeing” his accounts with the advisor and that, “[a]t the hearing, he acknowledged that he did not read or review many of the account documents he signed.”

Ultimately, the Arbitrator determined that the evidence supported the conclusion that the advisor had “reasonably relied on routine account documents to keep the customer informed of the management fees” and concluded that “the reported allegation was clearly erroneous and should therefore be expunged.”

Now our advisor will have a public record with no customer disputes to deter potential clients and employers, thanks to AdvisorLaw’s Dochtor Kennedy, MBA, J.D.

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