UBS Group AG's U.S. wealth-management arm is taking a step back
from aggressively recruiting brokers, a common practice that is
costly for the industry. It is also moving to thin its management
ranks, while providing higher pay to selected brokers already with
the firm.
The reorganization is being led by UBS Americas President Tom
Naratil, who left his post as UBS chief financial officer to take
over the Swiss bank's U.S. wealth operations in January, with the
mandate to improve the unit's profitability.
Mr. Naratil described the shake-up as an effort to "eliminate
the bad costs," or spending tied to management overhead,
bureaucracy and recruitment. "We're shifting that into spending on
technology, people closest to advisers and compensation for
advisers who are here," Mr. Naratil said in an interview,
describing spending to support revenue producers as "good." The
news was expected to be disseminated internally late Wednesday.
The goal is to improve adviser retention, Mr. Naratil said.
His plan calls for cutting some senior and middle managers and
shifting more decision-making to branch managers. UBS also plans a
40% reduction in the number of advisers it recruits annually.
Brokerages frequently hire brokers from one another. The four
major brokerages—UBS, Morgan Stanley, Merrill Lynch and Wells Fargo
Advisors—entice advisers to jump from firm to firm by offering
hefty upfront bonuses given in the form of loans that are
forgivable over as long as nine years. Executives have referred to
the practice as a "prisoner exchange" and a "zero-sum game" as they
all pay recruitment bonuses which can range up to millions of
dollars for top-producing brokers.
UBS wants to break from that trend to spend less on enticing
advisers to join—and to give bigger cash payouts to brokers who
already work for the firm, especially those who work on teams. "The
biggest payoff comes from retaining people," Mr. Naratil said.
The firm currently has more than 7,100 advisers. UBS will scale
back its recruitment activities and work to keep its adviser force
in the 6,500 to 7,000 range—less than the more than 14,000 fielded
by Bank of America Corp.'s Merrill and the nearly 16,000 at Morgan
Stanley.
UBS recently topped its target range after hiring numerous
brokers from Credit Suisse Group AG's U.S. private-banking arm
earlier this year. That hiring came despite an exclusive recruiting
arrangement struck between Credit Suisse and Wells Fargo & Co.
in October after Credit Suisse announced plans to wind down its
U.S. private bank.
The aggressive recruitment of Credit Suisse brokers gave UBS the
breathing room it needed to pull back from recruiting, Mr. Naratil
said, calling the situation "unique." UBS's actions at the time led
Credit Suisse to file a raiding complaint with Wall Street's
self-regulator, the Financial Industry Regulatory Authority.
Glenn Shorr, an Evercore analyst who focuses on the brokerage
industry, called UBS's new plan "potentially disruptive" at a time
when yearslong retention deals handed out by Merrill and Morgan
Stanley around the financial crisis have expired or are set to wear
off in the months ahead. The other major brokerages will have to
choose how to react, Mr. Schorr said.
Mr. Naratil's plan to retain advisers calls for a simplification
of UBS's compensation plan from more than 30 pages to eight. The
new plan, which takes effect next year, will increase cash payouts,
mostly for teams of financial advisers and those who generate $1
million or more in revenue, while dropping the number of deferred
bonuses they can earn to two from five. Those remaining bonuses
will reward brokers for length of service and new assets
gained.
Mr. Naratil said no adviser will get less cash under the new
plan. But the slimming down of deferred awards could result in
smaller bonuses that vest over time for some. Teams of advisers
will now be paid based on the total assets they collectively
manage, likely shifting many team members into higher compensation
brackets.
UBS is also adding richer incentives to persuade experienced
advisers to stay with the firm and hand off their clients to
another UBS broker before retiring, versus going to a rival
brokerage for a recruitment bonus or trying to launch their own
advisory firms. Mr. Schorr said if UBS does get more advisers to
stick with the firm through their retirement, "it's a fantastic
thing for the parent company and the owners of the stock."
Broker compensation costs are likely to increase, Mr. Naratil
said, but he declined to say by how much. UBS is planning to cover
those higher costs with its management cuts and reduction in
recruitment activity.
The Swiss bank will reorganize its U.S. brokerage into four
divisions covering the Northeast, Central, Southeast and Western
regions of the U.S., while rejiggering its "complexes" into 43
markets. Those market heads will oversee a total of 208 brokerage
branches. Previously, it was structured as two divisions, with
eight regional heads, 63 complexes and 189 branches.
Some support employees related to those managers and
headquarters staff will also be reassigned or let go, but the plan
is mostly aimed at a net head count reduction in senior and middle
managers, Mr. Naratil said.
Brian Hull will continue to oversee UBS's divisions as head of
its client advisory group. The management changes take effect July
1.
UBS's management reorganization follows similar efforts to slim
management ranks by its rivals, such as Morgan Stanley, since the
financial crisis. Brokerages have been focused on managing or
cutting costs and tend to focus on reductions around employees who
don't directly produce revenue.
Write to Michael Wursthorn at Michael.Wursthorn@wsj.com
(END) Dow Jones Newswires
June 08, 2016 20:35 ET (00:35 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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