UBS is scheduled to make its argument at a hearing next month for why a federal court should toss a lawsuit filed against it, raising key concerns over the nature of financial advisors’ sunset packages. In the litigation, a court-appointed bankruptcy trustee filed a complaint against the wirehouse earlier this year as part of an adversary proceeding arising from a retired UBS financial advisor’s voluntary bankruptcy.

With his lawsuit, the trustee seeks to have UBS turn over some $36,000 to distribute among the creditors of Walter J. Keating, the bankrupt retired UBS advisor. That amount represents approximately what UBS still owes Keating as part of his "Legacy Financial Advisor Agreement" – the sweetened retirement deal offered to Keating after working for UBS for 39 years and handing over his clients to other UBS advisors.

But UBS wants to apply the funds to pay off a $90,000 loan Keating previously borrowed from it.

The case raises an important question about sunset packages: Are such payments current or deferred income?

UBS filed its motion to dismiss the lawsuit in late October. The federal court, located in Riverside, Calif., will hold hearings on that motion Jan. 29 next year.

In its motion, UBS argues the disputed sum represents “monthly continuation fees,” which are owed by UBS to Keating under the Legacy Financial Advisor 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.

The wirehouse argues 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 motion.

UBS and Keating had “mutual continuing obligations,” the motion states. Under those circumstances, the motion states: “[T]he law is clear … UBS has a right of recoupment.”

If the court finds, however, that the funds are deferred income, then in a bankruptcy proceeding it will require the funds go to the trustee to be distributed to creditors. But if the court deems they are current income, the court will allow the money stay outside the reach of the trustee and Keating’s creditors.


With the financial advisor workforce’s average age 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, and Morgan Stanley all have similar programs.