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FINRA Sales Practice Violations

UBS Solicitation of Puerto Rico Bond Funds May Have Violated FINRA Sales Practice Rules

UBS Financial Services of Puerto Rico failed to comply with Financial Industry Regulatory Authority (FINRA) sales practice rules and regulations concerning investments in UBS Puerto Rico Bond Funds. UBS stockbroker misconduct can take many shapes or come in different forms which can result in a legal cause of action against the wrongdoers. Such misconduct can often be classified in the following FINRA sales practice violation claims for damages.

Unsuitable Investment Advice

The suitability of a particular investment and/or investment strategy is governed by the financial services industry “know your customer” rule which requires that brokerage firms and their advisors are aware of all factors which affect an investor’s financial situation. The factors which determine the suitability of an investment include the investor’s age, employment status, tax rate, education, investment experience, investment objectives and risk tolerance. The objective of the “know your customer” rule is to only recommend “suitable” investments and/or investment strategy to customers. The suitability of an investment and/or investment strategy is to be determined based on an investor’s ability to understand and assume the risks associated with an investment. Investment losses that are the result of unsuitable investment advice can be a cause of action in a FINRA arbitration claim for damages. Read more.

Breach of Fiduciary Duty

UBS Financial Services of Puerto Rico is required to provide an investor much more than trade execution. An investor who relies upon the direction and advice of a brokerage firm and its registered representatives (stockbroker) has a fiduciary relationship. An important characteristic of a fiduciary relationship is control. A fiduciary relationship requires that the brokerage firm and their representatives have an obligation to place the investor’s best interest before that of the brokerage firm. The subordination of their interests requires the utmost diligence when making investment recommendations. Investment losses that are the result of a breach of fiduciary duty can be a cause of action in a FINRA arbitration claim for damages. Read more.


Negligence is the failure of UBS Financial Services of Puerto Rico and its representatives to act in a reasonable and prudent manner when providing financial advice. The negligence comes from the failure to adhere to the standards of care established by the securities industry promulgated through FINRA rules and regulations. The negligence does not have to be intentional to result in a viable securities arbitration claim for damages. A negligent act may not be a willful or intentional act, but simply an omission or failure to act. A brokerage firm and its representative cannot argue that it was unaware of the securities industry standards which require that it should have known based on widely held standards of care or based on the required knowledge of economic and financial matters at issue. A negligent act which results in damages Investment losses that are the result of negligence can be a cause of action in a FINRA arbitration claim for damages.Read more.

Misrepresentation or Omission of Material Facts

Full disclosure is required of all material information related to an investment. Financial advisors who fail to disclose all of the material facts related to an investment can be held liable for losses sustained from that investment. Material information includes, but is not limited to, all costs and risks associated with the investment. An investor, who does not receive full disclosure, is considered unable to ratify an investment recommendation. When a financial advisor intentionally misrepresents or withholds material information that an investor relies upon, a claim for securities fraud can be filed. Read more.

Geographic Concentration in Puerto Rico Bonds

Geographic concentration in Puerto Rico bonds held in an investment portfolio is considered to be inadequately diversified and subject to the risks of Puerto Rico issuers as well as the Puerto Rico economy. Diversification is the primary tool used to construct a portfolio to manage the risks inherent in the securities market. Failure to diversify across all asset classes including stocks, bonds and cash may result in the unintended exposure to risk. The failure to diversify is also known as security concentration because the invested assets are over-weighted in a particular sector relative to the overall securities market. Financial industry standards supported by academic studies consider any portion of an investment portfolio that exceeds ten percent of account assets, as security concentration. Losses that result from this security concentration may be a cause of action in a FINRA arbitration claim for damages. Read more.

Failure to Supervise

The securities industry requires compliance to standards of care which are promulgated through the FINRA sales practice rules and regulations. The member firms are required to supervise all activities of firm employees, including financial advisors. Failure of a brokerage firm to adequately supervise the activities of financial advisors is a violation of securities industry conduct rules which may be a cause of action in a FINRA arbitration claim for damages. Read more.

UBS Bank Loans

The use of UBS loans, from UBS or its bank affiliates, greatly increases the risks associated with investments whether held in a brokerage account or collateralized by a bank loan. Many customers allege, UBS stockbrokers fail to disclose to investors that n a brokerage account with margin can become many times more risky than the overall stock market. A margin balance occurs when securities are purchased or withdrawals are made by borrowing against brokerage account assets. During market declines, account equity declines rapidly due to the effects of margin which could result in a margin call. A margin call may require additional deposits of cash or the sale of securities at a significant loss. The brokerage firm has the right to liquidate any securities held in the brokerage account it chooses to reduce the loan balance to protect the brokerage firm’s interests. The unsuitable use of margin which results in substantial losses may be a cause of action in a FINRA arbitration claim for damages. Read more.

Conflicts of Interest

UBS Financial Services of Puerto Rico has an affirmative duty to identify potential conflicts of interest to their retail customers which relates primarily to the pursuit of revenues by the brokerage firm and its financial advisors at their customer’s expense. FINRA rules designed to reduce the effects of any conflicts of interest relies on the full disclosure of conflicts of interest to customers as an important tool. UBS Financial Services of Puerto Rico has an obligation to disclose all relevant facts and these obligations are established in various statutes, regulations and case law. Read more.

Excessive Markups/Markdowns

UBS Financial Services of Puerto Rico (UBS) is required by the Municipal Securities Rulemaking Board (MSRB) to refrain from excessive markups and markdowns for the purchase or sale of municipal bonds. According to MSRB, UBS must “deal fairly with all persons and must not engage in any deceptive, dishonest, or unfair practice.” UBS is required to disclose a complete description of security features, issuer information concerning credit quality and economic information related to the issuer which is necessary to fully assess the risks of the municipal security. Read more.