The New York Attorney General’s Office announced today that it is suing UBS Financial Services for allegedly defrauding thousands of customers through its InsightOne fee-based brokerage program.
The civil lawsuit argues that UBS used its InsightOne program inappropriately to overcharge clients who don’t trade much. The InsightOne program charged clients an annual fee based on assets, but “thousands” of customers would have been better served in traditional brokerage accounts where fees are assessed per transaction. Additionally, the attorney general alleges that the firm falsely promoted InsightOne as providing personalized advice and other financial-planning services. UBS denies the charges.
The attorney general’s detailed press release charges: “Asset-based fee (or ‘wrap’) accounts are inappropriate for investors who rarely trade securities or hold significant amounts of cash, no-load mutual funds or other similar assets. Rather than steering such investors away from InsightOne,” the firm lured investors in, Spitzer’s office argues. Among the examples listed in the release is a 91-year-old InsightOne client who was charged more than $35,000 for just four trades over two years—roughly $33,000 more than she would have paid in a traditional brokerage account.
According to a statement on its Web site, UBS “categorically denies that the program was designed to disadvantage clients, and intends to defend itself vigorously in this matter.”
Fees are a hot issue and have been in the regulators sights for some time. Registered Rep. wrote about the emerging debate around how to regulate fees and the implications for financial advisors in April 2006 (“Your Fees Under the Regulator Microscope”). Soon afterward, Raymond James was fined more than $1 million for alleged violations, the first case of its kind brought for so-called reverse-churning. Morgan Stanley was fined $6 million for similar violations soon after.