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Regulatory Sanctions

Quantitatively Unsuitable Trading for Elderly Customers

March 4, 2019

by Howard Haykin


A broker with UBS agreed to an 8-month suspension to settle FINRA charges that he engaged in quantitatively unsuitable trading in the accounts of 3 senior customers. Inasmuch as he recently filed for bankruptcy, no monetary sanction was imposed on this broker. Which prompts a couple of concerns, one of which is … DID THIS BROKER GET OFF WITH TOO LIGHT A SANCTION?



WHAT WENT WRONG.    Between January 2012 and September 2016 (the "Relevant Period"), the broker engaged in quantitatively unsuitable trading in the accounts of 3 senior customers: a widow, aged 95, and a married couple in their 70s.


Among the many similarities:

  • Both the widow and the married couple each had a net worth in excess of $5 million.
  • Each had several accounts at UBS, including a brokerage account.
  • Each had the investment objective as ‘income and capital appreciation, and the risk profile as ‘moderate’.
  • Trading in each account was based entirely on the broker’s recommendations.


During the Relevant Period:

  • Annualized turnover rates: 16.07 for the widow; 25.84 for the couple.
  • Annualized cost-to-equity ratio: 31.75% for the widow; 35.05% for the couple.
  • Portfolio losses: $283,000 for the widow; $239,000 for the couple.
  • Commissions and markups: $260,000 for the widow; $210,000 for the couple.
  • The S&P 500 Index rose 70% from 1/6/2012 (1,278) to 9/30/2016 (2,168).


NOTE:  The COST-TO-EQUITY RATIO measures the amount an account has to appreciate just to cover commissions and other expenses – i.e., the break-even point where a customer may begin to see a return.


By virtue of the foregoing, the broker violated its suitability rules - NASD Rule 2310 and FINRA Rule 2111.



FINANCIALISH TAKE AWAYS.    FINRA was unequivocal in its conclusion that the broker engaged in quantitatively unsuitable trading because he has actual or de facto control over the customers’ accounts and his trading was excessive and unsuitable given the customers’ investment profiles, including their ages and risk tolerances.


  • Why Only An 8-Month Suspension … for this broker who “raked over” his wealthy elderly customers’ accounts for more than 4-1/2 years - violative conduct that was pre-meditated and purposeful?
  • Were UBS and/or its Supervisory Personnel Sanctioned …  for enabling this broker to conduct this long-running display of quantitatively unsuitable trading? One reason the firm and its branch manager might have looked the other way was they had huge incentives for the trading to continue - $470,000 in commissions and markups from just 2 accounts.



This case was reported in FINRA Disciplinary Actions for January 2019.

For further details, go to ...  FINRA Disciplinary Actions Online, and refer to Case #2017052874401.