UBS Group, developed a portfolio called Yield Enhancement Strategy (YES) aimed at conservative investors searching for income from their investments. At its peak, the portfolio boasted $6 billion in holdings. The YES brochure claimed that the strategy limits exposure to significant upside or downside risks. With a name like YES and a conservative strategy, money poured in from average investors hoping to protect their retirement savings while generating income. Of course, nothing is ever like the message or the photos in a brochure. What UBS was actually doing was borrowing against client holdings and used the proceeds to trade options. Hardly a conservative strategy.

Things were going well for UBS when the markets remained calm. And then, as in most speculative investments, things began to unravel. In 2018, when the S&P 500 dropped 4.4%, YES lost 18%, In 2019, S&P 500 gained 31.5%, YES lost 2%. As of mid-April 2020, YES is down 15.5%. And, the kicker is, it was marketed as a conservative investment to clients.

Future Wealth’s View

The fundamental problem with these big banks is honesty. When an average investor asks their advisor  – “why does my portfolio have over 60 different holdings that are constantly changing every month”, the beautiful but always dishonest answer from the advisor at UBS, JP Morgan Chase, Morgan Stanley or Schwab and others is “this is how we mitigate risk and diversify the holdings in your portfolio”. Of course, none of it is true. One needs no more than 10 well constructed ETFs to achieve all the diversification to lower their risk in  their portfolio and more importantly, these 10 or so ETFs can be held for a long time without needing to be churned (sold and bought again) barring any major sell off in the market.

The other part that is not always obvious is the fees. The YES strategy portfolio was charging 1.75% of assets on top of the fees charged for regular management fees, not including the trading cost incurred in churning the portfolio every month. In effect, a client was paying ~3% of assets as annual fees for underperformance. To put it in perspective, a client with $1 million in assets was paying $30K a year to lose money, year after year.

At Future Wealth, we pride ourselves in providing transparency. The fee table on our website is all the fees that our clients will pay – and not a penny more – fees on $1 million portfolio is 0.7% or $7K. No funny strategies that add more risk while hiding it behind fees that the investor has no knowledge of. In the end, it comes down to one fundamental belief – we believe in treating our clients, like we like to be treated