Advisor Blog

Yes, that's $2 Billion, with a B.  At least, that is the initial estimate of the loss at UBS as the result of one "rogue trader", now under arrest, in the bank's equity trading division.  UBS claims that no client funds were involved in the loss.  But, according to Forbes, this will result in UBS reporting a net loss for the quarter.  The much larger issue is the serious failure of internal risk controls. According to Reuters, UBS "got caught up in almost every industry mis-step, and one which vies with Citigroup as the firm to come out worst from the 2008-2009 financial crisis, having recorded losses of over $50 billion and having had to be rescued by the Swiss authorities".

This leads us to question why anyone would choose to do business with UBS.  This is the same outfit that facilitated the opening of offshore bank accounts and then turned the list of clients over to the US government so that they could be prosecuted for tax evasion. 

Merrill Lynch is another disaster.  In late 2007-2008, Merrill was hemmorhaging money due to losses sustained from its large and unhedged portfolio of collateralized debt obligations (CDOs) and had fired its CEO, Stanley O'Neal.  Under pressure and facing loss of confidence in its solvency, the firm was sold to Bank of America in September 2008.  Now, there are serious questions about Bank of America's ability to survive.

Of course, everyone is aware of what happened with Lehman Brothers and Bear Stearns.  Smith Barney, another victim of the financial crisis, was spun off by Citigroup to a joint venture with Morgan Stanley.  In the end, Citigroup, Merrill Lynch, UBS, Morgan Stanley, Wachovia, Credit Suisse, Lehman Brothers, Bank of America, Bear Stearns, and JP Morgan Chase all suffered massive losses on write-downs of structured products.  So, why would any reasonable person choose to do business with the survivors (or the "walking wounded") in this group?  In fact, doing so could be considered to be rewarding their bad behavior.

There is a better way.  According to many recent studies, the fastest growing segment of investment advice delivery is the Registered Investment Advisor (RIA) fiduciary model.  According to RIA Database, there are now more than 13,000 Registered Investment Advisors in the US acting as wealth managers with over $1.7 trillion dollars in assets under management.  Why?  Informed clients prefer the RIA fiduciary model over the traditional broker-dealer model.  And why wouldn't they?  Why would anyone choose to do business with a firm that can't manage their own employees, control the risks that they are exposed to, or even remain solvent?  Beyond that, why would anyone choose to do business with an advisor that chooses not to assume the role of a fiduciary to his or her clients?