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Caution Urged as UBS, HSBC Recommending Asian Structured Products to Top Clients

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With COVID-19's detrimental effect on world economic markets, firms such as UBS and HSBC reportedly began advising top clients to buy structured products such as equity-linked notes and reverse convertibles based on stocks in Asia—the very same type of complex investment vehicles regulators such as FINRA have issued Investor Alerts about, and the same type of products whose unsuitable recommendations have gotten firms fined and brokers disciplined after causing investors to lose money.

At its core, the thought process is simple and intriguing: like many stock markets around the globe, Asian stock-market values have plummeted since January—$5.5 trillion since Jan 20—due to coronavirus fears. The report specifically identifies China, Hong Kong, and Japan as targeted areas for investment.

Thus, buying into these foreign markets near theoretical rock bottom could lead to big cash windfalls once the economic recovery makes up those massive virus-related losses.

Regardless of bargain hunting appeal, however, two key facts remain clear.

First, UBS, HSBC, Singapore Bank, and DBS Bank reportedly have recommended structured products to "top clients." This is another way to say, clients whose investment profiles likely allow for risk-taking. As we previously mentioned, structured products are risky and generally unsuitable for conservative or long-term, low-risk investment horizon clients: that's why the firms are recommending them to "top clients."

Second, at the end of the day, these firms are seeking business in a down market and as FINRA/SEC decisions over the years have repeatedly demonstrated, firms sometimes solicit high-fee or otherwise harmful investments that aren't in the best interest of their customers.

Analytics firm Greenwich, for instance, found that UBS is a heavy competitor in the Asian Retail Structured Products arena.

In 2018, Risk.net named UBS as its Structured Products House of the Year.

UBS itself on its circa-2020 "Understanding Our Fees" document for structured products wrote, "Underwriters of securities compensate us for trading activities we provide on their behalf." The firm also list as compensation ongoing embedded fees charged by the issuer and additional management fees, trading/hedging activities compensation, and licensing/marketing fees for use of the index.

In other words, structured products—and specifically Asia-linked ones—remain big business for UBS, which can be fine during economic growth, but can also compound losses for investors who were unsuitably sold excessively risky products if those products perform poorly...and that's on top of all the fees or commissions associated with the complex product.

If you have invested with a broker, financial adviser, or firm whose solicitation of investment in a structured product, reverse convertible, or other complex and unsuitably risky securities product given your investment objectives has proven harmful to your investments or interests, please call an experienced FINRA arbitration attorney at The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for an investigation and consultation.

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