UBS sweetens incentives for targeting wealthier clients

Next year, the wirehouse will increase expense accounts and other incentives to help advisers attract clients with the most money to invest

By Trevor Hunnicutt

Dec 4, 2013 @ 11:47 am (Updated 6:17 pm) EST

UBS, wirehouse, compensation, grid
Bloomberg News

UBS Wealth Management Americas on Tuesday issued a new salvo in its battle for the world’s wealthiest clients, tweaking its compensation plan to create new financial incentives for its advisers to focus on rainmaking accounts.

Next year, the fourth-largest American wirehouse will also cut revenue sharing and bonus pay for lower-producing advisers as it increases expense accounts and other incentives for attracting clients with the most money to invest, executives said in a video message to brokers.

Taken together, the adjustments to the grid that determines an individual broker’s pay reinforce a push by the wirehouse to retain the largest accounts and the advisers who can lure them. UBS has also made a strategic choice in recruiting new advisers to focus on those with a concentration of wealthy clients.

“When we think about financial adviser compensation, we really think about it in a strategic context of how we’re trying to drive the business,” said Jason Chandler, head of the Wealth Management Advisor Group at UBS Wealth Management Americas. “If they’re growing their business and focusing on wealthier clients, they’re going to make more money.”

UBS is focused on clients with more than $1 million to invest, and so far that focus is paying off, according to Mr. Chandler. Revenue from households between $1 million and $10 million invested with the firm has grown 52% in the last three years, Mr. Chandler said, and revenue has grown 80% on accounts over $10 million, which the firm calls the ultrahigh-net-worth clients.

“You can only have good relationships with a certain number of people,” Mr. Chandler said. “We try and encourage them to have deeper relationships with larger clients.”

The new tiered compensation scheme, which was first reported by the Wall Street Journal, drives up bonuses for large accounts and high amounts of new client assets while reining in the amount the company spends on lower-producing advisers.

For instance, advisers who earn more than $550,000 in commissions and fees annually will see increased expense accounts — from $500 to $10,000 based on their productivity, according to Mr. Chandler.

The firm’s new compensation plan enhances incentives for advisers to develop formal financial plans with their clients. Mr. Chandler said the plan also increases by 10 percentage points the kickback to advisers’ expense accounts for drawing up financial plans for customers. (Advisers are now paid 50% of the surcharge to customers and receive 15% credit to their expense accounts, according to UBS.)

“This is an innovative way to incrementally reward the financial adviser for having that financial plan done,” said Andrew Tasnady, whose firm consults wirehouses on compensation and related issues. He said UBS joins Wells Fargo & Co., a major competitor, in emphasizing these plans. “When done, and done well, it definitely pays and many of the advisers have already figured that out, but there’s a lot of barriers to doing that. It does take a lot more involvement, a lot of clients don’t want to go through the process.”

But the company will not pay advisers for working with households with less than $100,000, up from $75,000.

And advisers with eight or more years of experience will have to produce at least $350,000 in 2014 to earn the minimum 28% payout from the firm in 2015, according to Mr. Chandler. That is up from $325,000 this year. Top rates still stand at a possible 48% for revenue of $3 million or more.

Production quotas do not exist for advisers with fewer than eight years of experience.

Payouts will be reduced for some advisers who generate between $300,000 and $600,000.

The firm is encouraging advisers to shift their less wealthy clients to a phone-based advice service. So far this year, 52,000 households have switched to phone-based service. (Advisers earn referral fees for sending clients to the service.)

UBS Wealth Management Americas spent $2.4 billion to compensate 7,059 advisers last year through its payout grid on top of $679 million in recruitment bonuses. While that group of advisers has grown by a little more than 1%, compensation through the grid has grown by nearly 14% so far this year.

Client assets have also grown substantially this year, lifted by an upward trend in the U.S. stock market.

“The changes we made really support financial planning and they really support giving advice beyond investing,” said Mr. Chandler.