UBS Financial Services Churning Claims: Red Flags for Investors

Churning allegations are a common cause of investigations into UBS Financial Services broker fraud. Also known as excessive trading, churning occurs when a broker executes so many trades that the investor cannot profit.

The fees generated in UBS Financial Services churning claims can erode account value and set investors back in achieving their financial goals while their brokers rack up commissions.

Investors who believe the decline in their portfolios is due to churning should contact our securities fraud attorney to pursue FINRA arbitration.

UBS Financial Services Churning Claims and Suitability

FINRA Rule 2111, also called the Suitability Rule, requires brokers to recommend investments that align with their clients’ financial goals. Brokers must consult their investor’s profile, which contains key facts relating to their financial situation, including:

• Age
• Tax status
• Risk tolerance
• Net worth
• Investment goals

This rule also specifies the need for quantitative suitability, or the suitability of a series of trades. Individual trades may be suitable for your profile, but if they add up to a pattern of unsuitable trading, you may have a case of churning.

Rapid in-and-out trading piles trading fees onto the investor while generating commissions for the broker. It’s an unethical practice that exploits an investor’s trust, but it can often be detected by reviewing account statements closely.

You may not realize at first that your account is being churned. Investments like mutual funds can include complex fee structures and high commissions that investors may overlook. Asking your brokerage firm for a full explanation of fees can help you understand where your money is going and uncover signs of excessive trading.

Even if you made a profit, you can still file a churning claim.

In some cases, churning does not result in total losses. However, excessive trading can erode the value of your portfolio compared to a strategy aligned with your goals. Arbitrators may consider this lost potential value when awarding damages.

A securities fraud attorney can examine your account records and evaluate the strength of a UBS Financial Services broker fraud claim.

Proving Excessive Trading Claims

A securities fraud attorney reviewing an account with frequent trades and short holding periods may suspect churning. However, proving excessive trading requires statistical analysis.

Two key metrics are used to evaluate churning claims:

• Turnover rate: Total purchases divided by the average monthly equity. An annualized turnover rate above 6 is considered a red flag.
• Cost-to-equity ratio: Compares expenses to the account’s overall value. A ratio over 20% is typically viewed as suspicious.

While these metrics carry significant weight, they do not prove churning on their own. They must be evaluated alongside your financial situation, including:

• Risk tolerance
• Liquidity needs
• Investment goals
• Investing experience

For example, a detailed review may show that a broker’s rapid trading strategy conflicted with a client’s need for steady income during retirement.

Demonstrating that your broker exercised control over your account can also strengthen your claim. In many cases, investors rely heavily on their broker’s recommendations, which may establish de facto control.

If you regularly accepted trades without question, that pattern may support a finding that your broker controlled the account.

Reverse Churning Claims and UBS Financial Services Advisor Fraud

Reverse churning refers to the opposite problem: too little trading in an advisory account. Registered Investment Advisers (RIAs) often charge a fee based on assets under management, which can create an incentive to minimize activity while continuing to collect fees.

Unlike brokers, RIAs are not regulated by FINRA. You can learn more about the difference in our breakdown of Regulation Best Interest.

An investment fraud attorney can evaluate whether your advisor met their fiduciary obligations and help determine whether you have a viable claim.

FINRA Arbitration and UBS Financial Services Settlements

Investors work with our FINRA arbitration attorneys to resolve UBS Financial Services churning claims. In arbitration, your case is presented to a panel of neutral arbitrators who issue a binding decision.

Broker fraud cases may result in an award or settlement. If you receive compensation, damages may be market-adjusted to reflect how your portfolio would have performed without excessive trading.

An investment fraud lawyer can review your account for signs of misconduct and represent you throughout the arbitration process. They can also negotiate with the firm to pursue a stronger settlement outcome.

Do You Have a UBS Financial Services Churning Claim?

If you believe your losses may be tied to excessive trading, it is important to act quickly. Each Kurta Law securities fraud attorney has extensive experience evaluating churning claims and pursuing recovery for investors through FINRA arbitration.