UBS to pay $1.2M for placing client in annuity, securities-backed loan

UBS has to pay more than $1.2 million to a former client whose lawyer says she saw her life savings squandered by an advisor’s annuity and investment recommendations.

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A Financial Industry Regulatory Authority arbitration panel this week ordered nearly $1.18 million in compensatory damages, along with nearly $37,000 for legal costs, over alleged breaches of fiduciary duty and other claims brought by former UBS client Kelly Goldsmith. As often happens in arbitration decisions, the three panelists in this case did not explain the reasons for their decisions.

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An annuity and a securities-backed loan to buy a new house

Goldsmith’s lawyer, Bruce Oakes of Oakes and Fosher in St. Louis, said Goldsmith accused UBS and its advisor John H. Saunders of mismanaging $900,000 in savings she had to invest following the death of her husband just over 12 years ago. Oakes said roughly a third of that money was put into an annuity — a type of insurance product that provides monthly income payments but also can come with high fees.

Separately, $270,000 from the sale of Goldsmith’s house in South Carolina went into an advisory account, where it generated management fees for UBS and also triggered the firm’s fiduciary duty to always put investors’ interests first. Oakes said his client at one point wanted to take that money and use it for the purchase of a new home in Hilton Head, North Carolina.

Rather than provide the money, Oakes said, Saunders persuaded Goldsmith to accept a securities-backed loan. That arrangement gave Saunders and UBS the double benefit of being able to collect interest on the borrowed money while still charging management fees on the savings left in his client’s advisory account, Oakes said.

“That’s apparently what the arbitration panel had a big problem with,” Oakes said. “All it did was increase the fees they were able to charge.”

UBS declined to comment for this article.

Oakes said Saunders also recommended costly trades, which he described as “trying to time the market.” Oakes said much of his case was built on expert testimony showing what Goldsmith would have made had her savings simply been invested in stocks.

“She made less than 1% in annual gains during a bull market run from 2013 to 2023,” Oakes said. “It’s amazing how poorly the account was handled.”

Saunders isn’t named in the FINRA decision against UBS. In addition to breach of fiduciary duty, Goldsmith accused the firm of breach of contract, negligence, fraud, negligent supervision and other violations. Goldsmith initially sought $400,000 in damages and later raised the amount to $2 million.

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UBS’ history of settling complaints against Saunders

Saunders has a mixed regulatory record. His BrokerCheck page shows six disputes dating to 2009. Three of them were settled; two of them were denied by UBS, and one is still pending.

Saunders has added written comments to all but the last two disputes, denying he did anything wrong. In one case from July 2014, UBS agreed to pay $100,000 to settle a client’s allegations that Saunders had failed to follow her investment instructions.

In response, Saunders wrote: “I believe that the client accepted my recommendation to enter a stop loss sell order to protect a concentrated position. This matter was settled to avoid future litigation by the client and I was not asked to contribute towards the settlement of this matter.” 

Douglas Schulz, the president of Invest Securities Consulting and a securities expert, said it’s a red flag when brokers’ records show a series of complaints filed over the course of several years.

“The vast majority of licensed Series 7 brokers have no complaints, or if they do, even then it’s maybe one,” Schulz said. “So, by definition, when you have a broker who has two or three or more, there’s a problem.”

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The difficulty of arguing a client would have been better off in stocks

Oakes said cases like Goldsmith’s against UBS are hard to win because they require showing that a client would have been much better off had it not been for an advisor’s mismanagement. As a defense, firms will often point to warnings they gave clients about the risks of investing.

“They can always say, ‘We don’t have a crystal ball,'” Oakes said.

FINRA arbitration panels have been showing some willingness lately to award investors large amounts in cases over brokers’ allegedly improper investment advice. Stifel has been hit with multiple large penalties stemming from recommendations made by the now-banned broker Chuck Roberts. One of those awards, for $132.5 million, is the single largest ever approved by a FINRA arbitration panel in a case involving retail investors.

Separately, Charles Schwab and TDAmeritrade, which Schwab acquired in 2020, were ordered in March to pay 15 investors more than $3.8 million over allegations that an advisor had “substantially concentrated their accounts in inappropriate holdings.” A Schwab spokesperson noted at the time that the advisor was not a Schwab employee and merely used the firm as a custodian to safeguard client assets.

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Goldsmith’s lawsuit over UBS’ cash sweeps policies

This week’s arbitration decision in favor of Goldsmith does not end her litigation against UBS. She is also among scores of plaintiffs suing large wealth management firms in federal court over their so-called cash sweeps policies.

“Cash sweeps” refers to brokerages’ practice of taking uninvested money sitting in investors’ accounts and moving it over to banks to be lent out at high rates. Goldsmith and other plaintiffs generally accuse firms of keeping too much of the resulting returns for themselves and sharing too little with clients.

Goldsmith’s lawsuit over UBS’ cash sweeps policies was filed in 2024 in the U.S. District Court for the Southern District of New York. In March, the judge overseeing the case, Gregory Woods, issued an order allowing Goldsmith and fellow plaintiff Andrew Davitt to continue pursuing their breach of contract claims but dismissing their unjust enrichment claims after finding them unnecessarily duplicative.