UBS PaineWebber brokers claim their firm's "flipping" policy of charging two times gross commissions when clients sell newly issued stock is "illegal" and that the firm "has never put it in writing."
During the past 1 1/2 weeks, branch managers have been informing brokers of the fees they're being charged under the policy, and some reps have been hit to the tune of $30,000.
"This is quite a nice Christmas present, huh?" squawked one producer from the firm. "They snuck this policy in on us and they won't even put in writing because they know it's wrong. The policy clouds a registered rep's ability to give partial advice. It clouds our judgement of putting the clients needs first. The SEC's whole focus is putting the client first, and by doing this the company is making it impossible for us to give arbitrary, proper advice. How can I give proper advice to my client if I'm going to getting to dinged twice over?"
The rep goes on to say that "it's illegal to fine a sales rep like this. You can't come in charge me double of what you're paying me. What is this, communist China?"
A SEC spokesperson had not returned a phone call to clarify what its policy is on brokers being penalized by their firm for flipping.
David Walker, a UBS PaineWebber spokesperson, says: "The rational for the policy is to insure quality of distribution and to discourage flipping of securities that will protect the interest of our clients. That's all I'm going to say."
When Walker was told that brokers claim the policy has never been put in writing and that it may be illegal, he said, "I don't know if it's in writing and I don't know if it's illegal." He said he is checking on both issues, yet had not returned the phone call at post time.
Last July, Registered Rep. magazine broke the story that PaineWebber instituted a policy whereby brokers would be charged two times gross commissions when clients sell newly issued stock within 40 trading days, provided the stock hasn't moved up or down by 10%.
Since brokers claim "we never received the policy in writing, we figured it had gone away," according to a Southern-based rep from the firm.
But during the past 1 1/2 weeks, the firm has lowered the boom, informing reps of what they are being charged.
"My branch manager told me today that I'm getting hit for $6,000 gross," says a rep. "One guy I know is being hit for $10,000, and another one for -- get this -- $30,000. Can you believe management is coming in and taking this money a few days before Christmas. Heck, I can't even get them to give me a statement run."
"We're downright furious," says a West Coast-based rep. "The head office is being bombarded with calls from chairmen and president club members. The worst part about this is that [the firm] is sneaking up on us and hitting us right at Christmas. It's a disgusting way of treating employees."
The problem with the policy is this, according to a rep: "If a client purchases 1,000 shares of ABC Company, which opens at $30, and within a couple days, it goes to $32.50, the client made $2,500 and might want to take his profit and sell. But if I'm going to get dinged, what do I do? How can I give the client objective advice, knowing I'm getting fined if I do what he wants. And what happens if I discourage him to sell, just so I won't get hit, and then the stock drops $3. What do I say to my client then? It's a bad situation all the way around for the brokers, the clients and the firm."
