It’s rare for a firm of any size to admit it’s losing financial advisors to competitors for any reason. Such honesty has always been in short supply on and off Wall Street.
In the world of corporate speech and thought, advisors never cross the street to join a rival for better pay or more control over their practices, what they sell and how they treat clients.
Financial advisors never leave a firm willingly, the corporate group think goes. They retire or sell their practices to the mothership and then drift off to the great golf course of no more meetings with clients.
That’s why an unusual, honest set of statements from a senior UBS AG executive about discontent in the ranks due to some recent changes in pay is so stunning.
On Tuesday, UBS chief financial officer Todd Tuckner admitted that, yes indeed, recent changes in the firm’s compensation plan to roughly 6,000 financial advisors in the US are motivating some to head for the exits.
“In the US, our efforts to align financial advisor incentives with our strategic priorities may result in a short-term increase in FA attrition, creating an additional headwind for net new assets in the coming months,” Tuckner said during a conference call with analysts to discuss 2024 results. “We therefore maintain our net new asset ambition of around $100 billion for 2025.”
Attrition is industry jargon for advisor movement from a firm.
Toward the end of last year, UBS said it was redrawing its pay plan for advisors and in 2025 would cut a bonus for teams that was unique in the industry, according to industry sources. It also cut rates on its pay grid that will squeeze advisors who are the lower producers of revenue, a long-running tactic by large firms to boost margins.
Such changes “are more aligned to what we believe or observe are the comp models at our competitors as well,” Tuckner said. “We had certain features we think that were perhaps off-market, and we are looking more to align with what our peers do.”
The problem UBS wealth management in the US is facing is its profitability, and these changes are looking to boost the firm’s bottom line, even as some financial advisors search for greener pastures.
UBS wealth management in the Americas is targeting a 15-percent profit margin by 2027, up from about 10 percent right now.
That’s going to be a reach. UBS’s much larger direct competitors, Morgan Stanley and Bank of America, have wealth management businesses that with profit margins that hover slightly below 30 percent.
Those who support UBS believe that the firm’s recent changes, including those in pay, brought the firm in line with its peers. Advisors will either be ok with that or look to leave. Advisor compensation is one piece of the firm’s push to profitability, which includes widening the scope of clients and not just focusing on the ultra- rich.
Others disagree.
“When compensation policies shift in ways that feel misaligned with advisors, it should come as no surprise that the prospect of attrition will follow,” said Lou Diamond, an industry recruiter.
“While UBS may boost its profit margin in the short term, with less scale and fewer successful and growing advisors, the results will be underwhelming over the long run,” Diamond said. “Advisors have more options than ever, and firms prioritizing stability and alignment will have the edge in attracting and keeping top talent.”
It’s evident that UBS wealth management, which historically has had the highest-revenue-producing financial advisors in the wealth management industry, has been looking for a competitive advantage.
Several years ago, and under different management, the firm worked to launch a platform for its advisors to work as independent contractors rather than employees, meaning they would pocket a bigger percentage of revenue. The firm got cold feet at the last minute and ditched the plan.
Strike one.
Then, in early 2022, UBS said it was buying robo-advisor Wealthfront for $1.4 billion but called that deal off right before Labor Day.
Strike two.
Last May, UBS hired Michael Camacho, a 30-plus-year veteran of JPMorgan, to help rework the US wealth-management business.
Cutting advisor pay certainly may not turn into strike three for UBS, but right now it certainly doesn’t look like a home run.
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