In May 2020, Erez Law filed a FINRA claim against UBS Financial Services for Yield Enhancement Strategy (YES) program losses with broker Allan Klenke. The Erez Law client alleges that Klenke recommended the client invest in the YES program, and due to those recommendations he suffered significant losses.
It is alleged that UBS’ YES program was represented to investors as a low-risk, market-neutral strategy that allows investors to generate enhanced yield while reducing risk, all without requiring investors to deposit additional funds into their UBS account. UBS’ YES program involves using the equity in an investor’s UBS account to pursue a low-risk options strategy involving a combination of put and call options on the S&P 500 index.
In the event the price of the underlying asset increases or decreases significantly, the purchased put or call options would provide a maximum limit to the investor’s downside risk. In the case of UBS’s YES program, the investor’s profits would also be reduced by UBS’ YES program advisory fees.
The YES strategy actively engaged in market timing and taking directional positions on the market and suffered significant losses as a result. One possible and most likely explanation for UBS’ motivation for recommending the YES program is the significant fees (1.75% investment advisory fee) it generated for UBS. It is alleged that UBS breached its fiduciary duty by placing its interests before those of their customers.
According to the filed claim, the Erez Law client alleges he placed a high degree of trust and confidence in Klenke and UBS Financial Services Inc. Regrettably, Klenke recommended the client invest in UBS’ high risk and unsuitable YES program, which he misrepresented as a safe income generating strategy with unacceptable results. UBS was targeting high net worth investors to whom to sell its lucrative and fatally flawed strategy.
UBS’ YES program was represented to investors, including the Erez Law client, as a low risk strategy that allows investors to generate enhanced modest yield while reducing risk, all without requiring investors to deposit additional funds into their UBS YES account.
UBS represented to investors and its financial advisors such as Klenke that the YES program had “excellent risk metrics and downside protection” and would allow investors to increase returns while at the same time reducing risk. In order to induce the client to invest in YES, Klenke arranged a meeting for the client with one of the YES managers.
Consistent with UBS’ marketing materials, Klenke and the YES manager represented to the client that the YES program will generate modest additional yield with low risk. Klenke further represented that YES had a stellar track record and yielded bond-like returns.
The client’s cumulative return in YES was an abysmal -26% or a loss of approximately $1.7 million. During their quarterly in-person reviews and other communications, Klenke failed to adequately disclose to the client the negative performance of YES. By failing to adequately disclose and explain the negative performance of YES, Klenke deprived the client from taking action to mitigate the losses in YES, amongst other things. Moreover, Klenke never recommended that the client terminate YES as it failed to achieve its stated objective.
In or around July 2020, Klenke terminated his employment with UBS and transferred to Morgan Stanley. The new UBS financial advisors at UBS solicited the client to keep his account with UBS. In doing so, they revealed to the client the losses of approximately $1.7 million in YES. The client was extremely surprised to learn of the loss which had not been communicated to him previously by Klenke. According to the claim, when the client confronted Klenke about the massive loss in YES and his failure to adequately disclose the loss in YES, Klenke apologized and blamed the failure on the fact that the YES account was a split account wherein the fees charged to the client were shared with financial advisors in New York. Klenke’s apology is wholly insufficient and the explanation is not an acceptable reason to fail to clearly communicate for years about the failure of YES.
It is alleged that UBS failed to adequately disclose that the client was at risk of losing a significant percentage of the funds allocated to YES. Finally, Klenke failed to adequately disclose to the Erez Law client the ongoing negative performance of YES.
Erez Law represents investors in the United States for claims against brokers and brokerage firms for wrongdoing. If and have experienced investment losses, please call us at 888-840-1571 or complete our contact form for a free consultation. Erez Law is a nationally recognized law firm representing individuals, trusts, corporations and institutions in claims against brokerage firms, banks and insurance companies on a contingency fee basis.
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