UBS Exec's Bullying of Brokers Illustrates Need for Best Interest Standard

Ever wonder what the fuss about a fiduciary standard is all about? Last week's Reuters article revealing how the Puerto Rico arm of UBS drove reluctant brokers to sell high-risk bond funds to their customers offers a perfect illustration.

The brokers in this case appear to have been driven by a desire to do what was best for their customers. Asked by their supervisors why they weren't selling more of the funds, they apparently "came up with a list of 22 reasons," including concerns that "the funds suffered from low liquidity, excessive leverage, oversupply and instability."

Did the firm reward them for their careful assessment of the funds and their conscientious efforts on behalf of their customers? Hardly. As caught on tape, the then-chairman of UBS Financial Services Inc. of Puerto Rico, Miguel Ferrer, railed at the brokers (in Spanish) for a recent drop in commission income and told them that if they didn't want to sell the funds, they should "go home, get a new job!" Some of the funds subsequently lost half to nearly two thirds of their value between March 2011 and October 2013 and have failed to recover since, Reuters reported.

Called to account, Ferrer reportedly responded that he had "reminded the financial advisors both during and after the sales meeting [that] it was and is up to each financial advisor to recommend only those financial products that are suitable to their individual customers' needs." And that's the point. There's a difference between what can pass as "suitable" and what is best for the customer.

A fiduciary requirement to act in their customers' best interests could have provided just the backing the brokers needed to push back against the pressure from higher ups to sell questionable funds the firm was promoting. No wonder that firms more concerned about their own bottom line than their customers' financial well-being have dug in to resist that change.