Exclusive: UBS tells brokers to keep selling risky Puerto Rico funds

Fri Oct 17, 2014 4:03pm EDT
 
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By Suzanne Barlyn

(Reuters) - UBS AG is sticking with its recommendations that some clients buy risky Puerto Rico closed-end bond funds, despite hundreds of arbitration claims by investors who blame the securities for huge losses, according to an internal document.

UBS told brokers that they may continue to recommend the funds to clients following a $5.2 million settlement last week with Puerto Rico's financial institutions regulator about sales practices involving the funds, according to an Oct. 9 internal memo reviewed by Reuters.

However, brokers "should continue to evaluate investment recommendations in a manner consistent with UBS policies and FINRA rules," the firm said in the four-page memo, written in a question and answer format. FINRA, the Financial Industry Regulatory Authority (FINRA), is Wall Street's industry-funded watchdog.

Brokers who have questions about whether a "particular investment recommendation" is suitable should contact their branch manager or the firm's compliance department, UBS wrote.

It is unclear who wrote the memo, which is unsigned.

A UBS spokeswoman did not say whether the firm planned to give more specific guidance to brokers. She said brokers consider "each client's entire range of wealth management needs and goals when devising their financial plans."

She noted that Puerto Rico municipal bonds and closed end funds provided excellent returns for more than a decade, as well as tax benefits.

FINRA requires that investment recommendations be "suitable" for investors, based on factors such as risk tolerance and age.   Continued...

 
The logo of Swiss bank UBS is seen at the entrance of an office building in Zurich July 29, 2014.   REUTERS/Arnd Wiegmann