UBS advisers’ comp falls amid flat revenue

UBS Wealth Management Americas’ nearly 7,000 financial advisers saw a slight decline in average pay for the first quarter as a result of flat revenue driven by lower client activity and declining transaction revenue.
Compensation for financial advisers, which is mostly calculated as a share of the revenue they generate, declined $26 million, or around 3%, to $731 million from the fourth quarter, marking the first consecutive decline in several quarters. The drop was attributed to “lower performance-based compensation and slightly lower compensable revenues,” according to the firm’s first-quarter earnings release.
Annualized revenue per adviser at UBS was still the highest in comparison to its wirehouse peers but declined slightly to $1,088,000 from $1,091,000 in the previous quarter. The firm’s overall revenue came in at $1.9 billion for the quarter, a decline of 1% from the previous quarter and slight increase of 2% year-over-year.
Comp changes
UBS also made changes this year to its compensation formula, which increased deferral rates for some top advisers’ bonuses, such as the wealth management award, which pays out as 70% cash and 30% equity over six years.
In February, Tom Naratil, the chief financial officer of UBS Group AG said on an earnings call that he expected compensation changes in 2015 would help to “normalize” compensation. The plan also provides rewards for so-called noncompensable revenue, such as lending, which can provide better margins and is not paid through the traditional grid-based formula.
Morgan Stanley Wealth Management also posted a decline in its compensation expenses for the first quarter after it made changes to defer a greater portion of its advisers’ pay.
Lower client activity
Profit in the quarter was $268 million, down 1% from the first quarter last year.
That slowdown was driven in part by lower transaction-based income, which fell 8% from the first quarter last year and 4% from the fourth quarter to $432 million, the firm said. The firm attributed the decline to “lower client activity,” according to the earnings release.
Commission-based revenue has been on the decline for the major brokerage firms as they shift to focus more on fee-based accounts, but recurring fee revenue did not offset the declines in the first quarter. Recurring net fee income was flat from the fourth quarter at $1.19 billion, and up 6% from the first quarter last year. Last year, fee-based revenue was growing more than double that rate, averaging 14% per quarter compared with 2013.
Around 34% of the firm’s $1.05 trillion of invested assets were in fee-based accounts at the end of the quarter, according to the release.
A spokesman for the firm did not immediately return a request for comment on the slower growth in fee-based revenue. At the end of the third quarter last year, the firm converted clients into institutional share classes, which do not charge annual distribution and marketing fees.
The number of advisers declined 2% in the past year to 6,982 from 7,113. The firm said, however, that the number was still consistent with its strategy to focus on retaining top producers, and revenue per adviser has continued to increase over that same period.
The firm also brought in an additional $4.8 billion in net new money for the quarter, mostly from advisers who had been with the firm for over one year, according to the release. Total client assets were $1.104 trillion, up 6% from the first quarter last year.