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UBS Yield Enhancement Strategy: Investor Losses, Complaints

UBSIn recent years UBS Financial Services has recommended some of its high net worth clients invest in its Yield Enhancement Strategy. Also known as YES, the program was marketed as a low-risk strategy designed to create supplementary income for UBS clients. However, many investors are now alleging that they suffered unrealized losses through the program, which they say was riskier than UBS represented.

In basic terms, UBS’s Yield Enhancement Strategy is an options investment program that promises higher yield for investors during periods of stable market activity and low interest rates. Investors participating in YES use an options strategy described as the Iron Condor. For reference, options are investment products based around a contract between a buyer and a seller: they consist of put options, which allow the investor to sell an underlying asset at a specified price—or “strike”—by a specified expiry date; and call options, which allow the owner to purchase the underlying asset for a specified price at a specified time. In other words, an option contract gives its buyer the right to purchase or sell a given financial product. The YES Iron Condor strategy consists of an investment in four options contracts for S&P 500 index futures, each with the same expiration date but varying strikes. According to Wealth Management, the strategy uses investors’ assets as collateral in a margin account. Generally speaking, this can be a measured approach designed to mitigate risk and provide a humble return: if the price remains between certain breakeven points, the investor will enjoy returns. Success, that is, depends on stability.

An analysis of the Iron Condor approach by one options expert describes four primary advantages of the strategy: a potential to double the premium the investor would receive for setting up a spread of one leg (that is, either a put or a call); the potential to receive the same premium as with a single leg, but with less risk; a “100% chance that one side of your iron condor will expire worthless,” allowing the investor to keep the amount of the premium received for that expired spread; and the ability to add a second leg, or “upgrade” a spread into an Iron Condor, without adding margin or capital. The analysis also lists two drawbacks: “by betting against specific moves both to the upside AND the downside,” the expert writes, “you double the ways you can lose money. If it’s true that one leg is guaranteed to expire worthless, it’s also true that there’s an increased chance that the other side will be threatened or even breached at some point during your holding period.” The expert’s other drawback is that “it can be difficult, if not impossible,” to repair trades that yield unfavorable results to the investor. For this reason, that expert refuses to use iron condors in his own trading activity.

Although the iron condor is generally describes as a low-risk approach, market volatility at the end of 2018 resulted in losses of as much as 20% for some investors in the UBS Yield Enhancement Strategy program. Investors who have filed claims against UBS in connection with the YES program allege that its risks were not fully disclosed; some also assert that the strategy was not adequately executed, or that it was unsuitable for their portfolios. UBS claims that risks were fully disclosed to investors, according to the Wealth Management report. However, one “high-net-worth investor” told the publication that he would not have participated in the YES program “if he knew about the potential downside,” and said as much in a complaint filed against the firm. This investor reportedly told his investment adviser he wished to keep at least 80% of his funds invested in municipal bonds, and the adviser recommended the Yield Enhancement Strategy in early 2017 as a means of increasing returns on his portfolio. The adviser reportedly told his client that YES involved “very low correlation to equities and bonds,” instead making use of options contracts to stave off upside and downside exposures. Although this investor reportedly was resistant to the YES’s steep fee—1.75%, on top of a “percentage fee on assets used as collateral”—his adviser asserted that YES was a popular strategy with a maximum risk of about 10-15% of assets.

Wealth Management reports that the Yield Enhancement Strategy is run by two investment professionals, Matthew Buchsbaum and Scott Rosenberg, who have operated it for more than a decade, beginning at Credit Suisse and now working out of UBS’s Flatiron Partners. According to his FINRA-maintained BrokerCheck report, Mr. Buchsbaum has received seven pending customer complaints as of May 31, 2019. All concern the Yield Enhancement Strategy, and seek damages amounts including $10 million, $2 million, $1 million, and $800,000. According to his FINRA-maintained BrokerCheck report, Mr. Rosenberg has received two pending customer complaints as of May 31, 2019. Both concern the Yield Enhancement Strategy, and one seeks $400,000 in damages.

More than one thousand investors have reportedly invested in the Yield Enhancement Strategy in recent years, according to Wealth Management, with fewer than one hundred of those customers filing FINRA complaints against the firm. In a statement to Wealth Management, UBS said: “The benefits and risks of the YES strategy were clearly disclosed to investors. Clients who participated in the strategy acknowledged in writing that significant market movements could result in losses and that they should not participate in the strategy unless they were prepared for the potential of large losses. December 2018 saw very large market swings and unsurprisingly resulted in losses for investors in the strategy.” For this reason, according to UBS, only a small amount of YES customers have taken action to recover losses.

If you or someone you know has lost money investing in the UBS Yield Enhancement Strategy, call Fitapelli Kurta at 877-238-4175 for a free consultation. You may be eligible to recoup your losses. Fitapelli Kurta accepts all cases on a contingency basis: we only get paid if and when you collect money. Time to file your claim may be limited, so we encourage you to avoid delay. Call 877-238-4175 now to speak to an attorney for free.

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