Marc Lussy: «UBS Sells Risk – But Transparency is Still Missing»
The script is a familiar one: the client loses money and is caught completely off guard. In the end, the bank pays—with both money and trust. UBS is replaying a classic. Yet a solution wouldn’t be all that difficult, argues fintech pioneer Marc Lussy.
If there’s one thing I’ve learned from over three decades in private banking, it’s this: mismanaging client expectations is the surest path to financial disaster. So, why does this scenario keep playing out, like clockwork?
The latest case involving UBS forex derivatives offers a sobering answer. In hundreds of instances, products were sold with risks that appeared remote, yet proved devastating. The dollar weakens – not entirely without warning – and suddenly losses emerge that no one had on their radar. Why? Because extreme risks often remain abstract to both clients and advisors, the system allows it.
This issue is further amplified by years of ultra-low interest rates. Advisors working with conservative investors face mounting pressure. When equity allocations are limited, viable alternatives are scarce – the result: a pivot into structured products with complex, opaque risks. Clients demand returns; the market offers none. So the risks are shifted, repackaged, and rationalized, until things go wrong.
Responsible Firms Show a Way Forward
But these breakdowns aren’t everywhere. And that’s the key: they are not systemic. They tend to occur at certain institutions – and even then, usually in isolated cases. In other words, the majority of firms are managing this responsibly.
So why not learn from the crowd? A systematic peer benchmarking framework, built on comparable portfolios with similar volatility profiles and daily performance data, would immediately reveal unusual developments. Whether it’s an abnormal return pattern or a volatility spike, such indicators are clear warning signals. And they’re hard to ignore.
Peer Comparison: Underused and Undervalued
That said, many banks remain hesitant. Peer comparisons only work if they are independent and free from vested interests. Building the necessary trust takes time. But here’s the paradox: the fear of being judged unfairly keeps firms from using the very tool that would enable fair, objective assessment.
The logic is clear: crowd-based comparison systems don’t just identify outliers, they help detect emerging problems before they escalate. Even in historic failures like the Madoff scheme, a simple comparison would have shown: the returns were too good to be plausible, given the associated risk.
Transparency as a Professional Standard
This isn’t about mistrust. It’s about professionalism. Portfolio managers gain a tool that supports oversight and strengthens accountability. Clients benefit from digital transparency and clearer insights.
Ultimately, it comes down to responsibility on both sides. Investors who regularly compare their portfolios to peers become better informed, more confident, and more discerning. «Trust is good, but verification is better» applies just as much in private banking. The very act of including the client in the benchmarking process would fundamentally shift behavior.
UBS Missed the Moment
Back to UBS: had such a peer-based tool been in place, the damage, at least in this magnitude, could likely have been avoided. The dollar’s movement and its impact on these derivatives would have triggered early alerts, not in hindsight, but when the issue could still have been addressed.
And no, based on what I know, UBS is unlikely to lead the shift toward peer-based transparency. I recall a former official investment strategy at the bank that, in my view, significantly understated real risk relative to its communicated risk profile. I raised the issue directly. The response? Polite—but without consequence.
The Power of the Regulator
Still, there is hope. An increasing number of banks and wealth managers are integrating peer comparisons into advisory, risk management, and compliance. The tools exist. What’s missing is the collective will to apply them broadly.
Whether Finma will accelerate this shift remains to be seen. In Bern, regulatory wheels turn slowly. But the regulator has the power to set the direction.
Marc Lussy is a fintech pioneer and Head of Business Development for German-speaking Switzerland at Investment by Objectives.
