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UBS Lawsuit Raises Broad Concerns Over Sunset Clauses

By Miriam Rozen March 19, 2019

Lawyers for UBS are scheduled to appear this week in a Riverside, Calif. federal court to argue why a judge should toss a lawsuit filed by a bankruptcy trustee against the wirehouse. The trustee’s lawsuit raises broader questions about sunset packages for FAs.

In a brief it filed before the scheduled March 19 hearing, UBS argues its “Legacy Financial Advisor Agreement” gives it the right to recoup the remaining balance that Walter J. Keating, a retired and bankrupt FA, owes on a $90,000 loan he borrowed from the wirehouse.

UBS gave Keating the loan as part of a sweetened retirement deal.

Keating worked for the wirehouse for 39 years before handing over his clients to its remaining advisors and retiring.

But Karl Anderson, the bankruptcy trustee in Keating’s case, claims in his lawsuit that UBS should turn over the $36,000 Keating owes his former employer so the monies may be distributed among the retired FA’s other creditors.

In response to UBS’s motion to dismiss, the trustee has argued UBS waived its recoupment claim. UBS is being “disingenuous” in its dismissal motion, the trustee argues. According to Keating, UBS previously filed documents stating its claims were not set off from other claimants.

In its most recent brief, UBS notes that it amended those specific documents and argues that the trustee is misplacing reliance on the initial errant documents, UBS argues.

Previously, the wirehouse’s lawyers have argued the disputed sum represents “monthly continuation fees” owed by UBS to Keating under the Legacy FA Agreement in exchange for his “services in aid of transitioning accounts to other financial advisors at UBS following his retirement from UBS” and his agreement to refrain from soliciting his former clients at UBS. It gave Keating an advance payment of about $90,000 based on those expected monthly continuation fees.

The deal between UBS and Keating: UBS would pay the continuation fees but would offset a pre-agreed amount each month as a partial repayment of its loan to him, according to UBS’s claims.

UBS and Keating share “mutual continuing obligations,” and under such circumstances the bankruptcy laws give the wirehouse the right to recoupment, its lawyers have argued.

If the federal court ultimately defines the dispute amount as deferred income, then in a bankruptcy proceeding it could order UBS pay the funds to the trustee, who would distribute the monies to Keating’s other creditors. But if the court deems they are current income, the court will allow the money to remain outside the trustee’s and Keating’s other creditors reach.

As FA-IQ reported previously, with the average age of the financial advisor workforce climbing each year, UBS is not the only wirehouse which has offered sunset packages to encourage retiring advisors to hand over clients to other reps at their firms instead of selling their book to outsiders.

Merrill Lynch, Wells Fargo Advisors and Morgan Stanley each have similar programs. Wells Fargo most recently sweetened its retirement packages.