UBS PaineWebber Succumbs to Pressure, Says It Will Not Fine Reps For 'Flipping'

After receiving hundreds of complaints from brokers, UBS PaineWebber switched gears and decided it will not penalize reps whose clients quickly sell shares in new IPOs, a practice known as "flipping." The firm issued an e-mail to brokers on Thursday, announcing its policy change. The e-mail comes just a few days after the firm began implementing the policy, which was charging brokers two times gross

After receiving hundreds of complaints from brokers, UBS PaineWebber switched gears and decided it will not penalize reps whose clients quickly sell shares in new IPOs, a practice known as "flipping."

The firm issued an e-mail to brokers on Thursday, announcing its policy change. The e-mail comes just a few days after the firm began implementing the policy, which was charging brokers two times gross commissions when clients sell a new issue within 40 trading days, providing the stock hasn’t moved up or down by 10%.

While UBS PaineWebber put a stop to one controversial policy, brokers are still in an uproar over the company charging $12 per ticket, a practice that began Thursday.

“This is actually worse than the flipping penalty,” says a West Coast-based rep from the firm. “Think about it: if you do five trades per day, over 20 trading days a month, that’s 100 trades, and if you’re charged $12 a ticket, that’s $1,200 every month, and nearly $15,000 over a year. It’s outrageous. Totally outrageous.”

In an effort to obtain a comment from UBS PaineWebber, several calls were made to the corporate communications department, yet none were returned.

Brokers will begin to see the effect of the $12 ticket policy in their February 2002 paychecks. To compound the problems, UBS PaineWebber has also cut 2002 payouts by 1% across the board.

The ramifications of the $12 ticket fines are enormous, according to reps.

“With this policy, you’d have to be crazy to trade stocks here now,” says a producer from the Southwest. “This will kill transactional brokers. Basically, the average broker does almost five tickets per days. If you’re being charged $12 a trade, it’s like you’re paying to work here. This is the type of policy that forces us [brokers] to look elsewhere, whether it’s Merrill, Smith Barney, Morgan Stanley, wherever. Anyplace but here.”

UBS PaineWebber established the controversial policies in an effort to encourage its brokerage force to go fee-based. The firm increased the payout on fee-based business by an average two to four percent net. By doing that, fee-based brokers were receiving raises while transactional brokers were taking hits.

A Louisiana-based UBS PaineWebber rep who has been transitioning to fee-based over the past year, says, “I can see how [transactional] brokers are complaining, but hey, you’ve got to change with the times and get up to speed. Fee-based business is the way to go. It’s the future and the future is now.”

Some brokers went as far as to call the “flipping” policy illegal. They also complained that UBS PaineWebber never put the policy in writing. Branch managers across the country had already begun calling in brokers to their offices at the beginning of the month, informing them of the “flipping” fines imposed on them. Some fines were as high as $20,000, according to a couple of reps.

That’s when brokers began calling the firm’s headquarters, complaining about the policy, ultimately forcing the company to change its mind.

For more on UBS PaineWebber’s controversial policies, see rrmag.com stories of Dec. 21 (UBS PaineWebber Reps Begin Taking Hits For Flipping, Reps ‘Furious’) and Nov. 30 (UBS PaineWebber Pushing Fee-Based Business, Transactional Reps Upset).

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