On Advice

UBS buckles under uproar from brokers over non-solicit agreements

The firm's shift in policy this week puts spotlight on the fight over who controls the client

Dec 5, 2018 @ 3:47 pm

By Bruce Kelly

After causing an uproar earlier this year with its advisers and brokers, management at UBS Financial Services Inc. should be commended for coming to its senses, paying attention to its field force and reversing an unpopular policy that potentially interfered with advisers' relationships with their clients.

Always present, the fight for the ownership of the relationship with the client at Wall Street's wirehouses has intensified of late. The big question is, whose client is it, the adviser's or the firm's? UBS' shift in policy this week puts a spotlight on that fight.

Advisers rightly believe the relationship, for the most part belongs to them. Advisers hustle, strive and work for years to develop those relationships. And many can't hack the business and ultimately fail, making those who succeed even more valuable.

Wall Street wirehouses — Merrill Lynch, Morgan Stanley, UBS and Wells Fargo Advisors — disagree. The firm is at the center of the relationship with the client. The firms pay for the branding and marketing that advisers use to attract clients; the firms routinely hand advisers sales leads who often end up being good clients.

While there is clearly some truth to that argument, advisers are at the heart of any relationship with a customer. The firm ultimately comes in second.

In other words, when it comes to clients, advisers are the meat, and firms are the potatoes.

The kerfuffle at UBS first came to the fore in February. That's when the firm dropped a financial bombshell on its more than 6,900 financial advisers and brokers, linking an annual bonus paid to advisers to them signing contracts with new non-solicitation agreements. Many in the industry at the time interpreted the proposed contract as a threat to advisers' ability to leave UBS, work with clients and start anew at a competitor or an independent registered investment adviser.

Most of the wirehouses, including UBS, have cut back on recruiting, and instead are focusing on myriad ways, including technology and compensation, to tether their advisers more tightly to the mothership. The strategy is simple and effective. The closer the firm holds the adviser, the closer it holds his or her clients.

UBS' decision is not all that surprising; it indicated in September that it was backing away from any insertion of such non-solicit language in next year's contracts linked to those bonuses.

But in a memo on Monday to its 6,900 financial advisers and brokers, Brian Hull, head of wealth management USA, UBS put its intentions into writing.

"As you know, earlier this year we inadvertently introduced new non-solicit language to the 2018 [strategic objective bonus] without proper senior management review," according to the memo, which was obtained by InvestmentNews and also signed by Jason R. Chandler, co-head, investment platforms and solutions. "We listened and, based on advisers' feedback, we rolled back the changes" and will not introduce them at this time and are likely not to in the future.

"As a leadership team, we strive for openness, for always listening to feedback and for taking action to better serve the needs of our clients, our employees and our shareholders — and that includes changing course when necessary," according to the memo. "A big part of that is encouraging dialogue and creating a culture of transparency and accountability."

A spokesman for UBS, Peter Stack, declined to comment.

UBS realized it was in danger of losing advisers if it had stuck with the original non-solicitation plan, said one industry observer.

"Obviously, every UBS adviser was up in arms about this and their opinions were heard," said Louis Diamond, an industry recruiter. "It was pretty clear that lot of their advisers had been expecting the contract with the non-solicitation agreement to happen. And they said that they wouldn't sign to get the bonus."

UBS, for now, has backed away from an unpopular policy with its financial advisers. But the fight for over who controls the relationship with the client — the firm or the adviser — is bound to continue.

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