UBS yield enhancement strategy

“Low Risk” UBS Yield Enhancement Strategy Losses

Jun 15, 2020

Have you Lost Money in the YES Strategy? Have you been the victim of the supposedly “safe” UBS Yield Investment Strategy (“YES”)?  In truth, clients seeking safety should have said “NO” to the YES program. Using the “Iron Condor” trading strategy, a name invoking an invincible James Bond-like method of investment protection, UBS reportedly marketed the YES program to clients as a neutral or low-risk way to generate returns through sophisticated options trading strategy.  The YES program, which at one point in 2018 peaked with holdings around $6 billion, used a strategy that effectively borrowed against a clients’ holdings at UBS using the proceeds to trade options. The product is like a margin loan against existing holdings. The risk is that any losses could compel an investor to put in extra cash or securities. Although clients say that their UBS financial advisers told them the strategy was conservative, in reality, it often subjected the investors to risky bets that the markets would not take large swings— a gamble resulting in many investors losing 20% or more. It has been reported that the Securities and Exchange Commission is looking into how the YES program was marketed.  Just what is the Iron Condor Strategy? According to Wealthmanagement.com, the Iron Condor strategy uses four different options contracts with the same expiration date but different exercise prices, usually for an index (YES used European-style contracts for S&P 500 Index futures). Traders create two spreads by simultaneously selling calls and puts to generate income or premium, and buying calls and puts to hedge risk and contain potential losses. As long as the price stays within the breakeven points created by the spreads, the strategy makes money. However, sudden price swings can blow past the breakeven points of the Iron Condor, resulting in losses for most of the positions and a losing trade.  Brokers were Incentivized to Sell the UBS “YES” program It has been reported that UBS incentivized its financial advisers to promote the YES strategy with promises of big commissions paid from the large fees it charged. Investors paid a fee of up to 1.75% of their so-called “mandate” – meaning the amount of collateral dedicated to the strategy – whether the assets were actually traded or not. If, for example, a client authorized a $5 million maximum for YES, only $3 million of which was used, UBS would still charge the YES fees on the full $5 million. Those charges were layered on top of any fees clients may already have been paying on the underlying assets. Because of the large fees which were paid on YES program assets, even those which were not traded, UBS  financial advisors were encouraged to solicit mandates from clients which far exceeded the amounts clients intended to commit to YES.  Recent Market Swings Can Cause the YES Investments to Decline If you have lost money in a “Yield Enhancement Strategy”, or “YES,” investment, contact the offices of Former Wall Street lawyer Melanie Cherdack for a free consultation. Because she has been in the trenches as a former Wall Street attorney, investor fraud lawyer Melanie Cherdackand her team […]

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