UBS, TD Ameritrade Warn Investors on Risks of Bond Investments

Fox News and others recently reported that UBS planned a mass mailing to brokerage clients alerting them that they would be reclassified as “aggressive” investors following an increasing sentiment of bearishness in the bond market, especially over the long term. Fox News further reported that in late January UBS changed its “strategic asset allocation guidelines,” which the firm uses to classify brokerage clients according to their portfolio’s mix of stocks, bonds, and other investments. Again, the new guidelines reportedly reflect a growing concern that the bull market on bonds has almost run its course and that investors who believe their bond portfolio is conservative, must be reclassified as aggressive.

Similarly, at a recent annual conference, Fred Tomczyk, chief executive of TD Ameritrade, expressed concerns that the bond bubble may burst, and leave investors who have been stretching for yields asserting that no one told them to expect losses. TD Ameritrade’s retail division, which services do-it-yourself investors, also recently delivered a warning to its customers about bonds in an article entitled “Bonds Are Not Gravity Defying: Be Prepared,” reported Investment News.

Investment News reported that the article cautioned “Interest rates will rise and bond prices will ease. When exactly? No one knows for sure” and thus “[a]ll the more reason for fixed-income investors to pay attention.” Investment News also reported that Tomczyk stated “Too many people think [bonds] are like a CD — they put in $100,000 and they’ve always got $100,000,” but when interest rates rise, investors will see losses.

Securities attorneys see the warnings by UBS and TD Ameritrade as an attempt to insulate the firms against possible liability in the face of anticipated investor losses stemming from a downturn in the bond market.

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