Saving Domino

UBS, Morgan Stanley, Merrill Lynch Earn Regulators' Wrath

Saving Domino
Fiduciary: one often in a position of authority who obligates himself or herself to act on behalf of another and assumes a duty to act in good faith and with care, candor, and loyalty in fulfilling the obligation.

-- As defined by Merriam-Webster

In the past, we've chronicled cases of misdeeds by brokers working with investors in the U.S. as well as around the world. A development that made headlines recently involved a particularly well-known name in global banking and financial services: UBS. 

According to the Wall Street Journal, securities regulators in Hong Kong have accused UBS Group AG with overcharging and misleading "wealthy clients for a decade without detection." As a result, the paper reported, the bank was slapped with a fine of $400 million in Hong Kong Dollars, the equivalent of $51 million in U.S. dollars. Also, UBS was told to pay another HK$200 million in "customer compensation." 1

Some 5,000 customers overpaid on about 28,700 transactions, regulators found. A UBS spokesman characterized such behavior as "unacceptable" and told the WSJ that employees involved in these illegal actions had been fired. The article also added this wasn't an isolated event, describing it as "the latest in a series of skirmishes for UBS with the Hong Kong regulator."

The case came nearly two years after UBS settled with U.S. securities regulators to pay a $3.5 million civil fine on claims by the Securities and Exchange Commission that it overcharged mutual fund investors over a five-year period. 2

Of course, brokers behaving badly isn't a new story. Of note:

  • The Office of the Comptroller of the Currency has complained that Wells Fargo, which has been embroiled in a sales scandal dating back to 2016, still must change many of its personnel-related practices "to ward off potential misconduct," per another WSJ report.3
  • The SEC has announced that another wirehouse, Morgan Stanley, settled charges that it "misrepresented its share class selection process in connection with investment recommendations made to certain retail retirement and charitable organization brokerage customers." As a result, Morgan Stanley agreed to pay disgorgement of $42,389, prejudgment interest of $3,370 and a civil monetary penalty of $1.5 million, without admitting or denying the SEC's findings, according to the regulator. 4
  • The Financial Industry Regulatory Authority, or FINRA as its commonly called, ordered the retail brokerage units of Merrill Lynch and Raymond James to pay more than $12 million in restitution to customers for "supervisory failures" involving 529 education plan investments. 5

In fact, the SEC estimated that in fiscal 2019 alone it had assessed around $4.3 billion in fines and disgorgement -- "or the return of ill-gotten gains," as reported by Reuters. That total, which included both non-financial companies as well as firms directly involved in financial services and investment management, was up from $3.9 billion a year earlier -- representing the SEC's second-highest level ever reported, according to the news service. 6

To be fair, enforcement actions like these raise red flags about shenanigans of transactional-based brokers as well as rogue advisors. At IFA, which is an independently owned and managed wealth advisory firm, we're required to act as fiduciaries. Our advisors must act in the client's best interests -- even if doing so goes against the best interests of IFA.

In general, these types of recurring headlines about misguided actions by those hired to handle investments stand as stark reminders highlighting how differently some working in financial services conduct business as compared to others. Understanding the responsibilities of a fiduciary-minded advisor as opposed to the suitability standard practiced by most brokerage firms, in our view, is key to building a successful long-term relationship with an investment professional. 

We'd also argue that good intent is just part of the story. To assist in fulfilling our fiduciary responsibility in today's investing landscape, IFA's wealth managers take advantage of a large and consistent set of risk and return data afforded to index fund investors. Along with numerous red flags tied to actively trading in and out of markets, a wealth of research gives us confidence that passive management provides our clients the best chance at achieving the highest expected returns net of fees over the long haul.


  1. The Wall Street Journal, "UBS Fined for Misleading and Overcharging Wealthy Clients for a Decade," Nov. 11, 2019. 

  2. Reuters, "SEC fines UBS $3.5 million for overcharging mutual fund customers," Oct. 27, 2017. 

  3. The Wall Street Journal, "Banking Regulator Rebukes Wells Fargo's HR Operations," Dec. 4, 2019. 

  4. U.S. Securities and Exchange Commission, press release "SEC Charges Morgan Stanley Smith Barney in Connection with Mutual Fund Sales to Retirement and Charitable Accounts," Nov. 3, 2019. 

  5. The Financial Industry Regulatory Authority, press release "FINRA Orders Merrill Lynch, Pierce, Fenner & Smith Inc., Raymond James & Associates Inc., and /Raymond James Financial Services Inc., to Pay More Than $12 million in Restitution to Customers," Nov. 6, 2019. 
  6. Reuters, "U.S. SEC enforcement activity hits second-highest level ever in 2019," Nov. 6, 2019. 


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