Will UBS Blandishments Keep Veteran Brokers from Going Independent?
Will the new compensation plan and a revamped field structure be enough to cancel Independence Day for some top brokers at UBS Wealth Management Americas?
To me, the sweeteners that UBS’s top brass unveiled with much fanfare in mid-June to veteran, successful brokers seem a smart response to the lure of going independent. It marks the first major offensive wirehouses have taken in the major culture war that has been taking place between them and the registered investments advisors, independent broker-dealers and regional firms that offer more autonomy and, in many cases, higher payouts.
The indies’ ability to market ownership, autonomy, freedom and the promise of a collegial culture long gone from the wirehouses has proved more engaging than sky-high recruiting bonuses to some high producers, including billion-dollar brokers.
When it comes to those no-win (for the firm) recruiting packages, UBS Wealth Americas new president Tom Naratil also deserves congratulations for saying enough is enough. Just six months into his tenure, he is pulling back from the expensive (but then-necessary) growth years orchestrated by his predecessor, Robert McCann. Naratil, a veteran of PaineWebber who also served as chief financial officer of Swiss parent company UBS Group, freely admits that the prisoner exchange (the swapping of top talent among wires at a cost of 300%-plus trailing 12 revenue) just doesn’t work, financially or culturally.
“At current volume and expense levels, this relentless recruiting is bad for the industry,” he wrote following the changes. “It doesn’t provide direct benefits to clients, it detracts from the culture of wealth management firms, and it weighs on the returns we generate for shareholders.”
To be sure, part of that is nothing but PR at a time when the Swiss are pressuring all line executives to cut costs and increase margins. There’s no doubt that the latest changes, including Naratil’s 40% reduction in recruiting goals, were calculated with expenses in mind. (Those Credit Suisse brokers didn’t come cheap).
Cutting out a layer of regional management and reducing the complexes, the other part of the big plan Naratil unveiled last month, is a common tune that a newcomer at a big firm plays to “reduce inefficiencies.” Brokers recognize reorgs for what they are rather than for the ideal solution explanation that comes with each rollout. Clearly, with the Swiss parent company’s hands tightly on the reins, no one will adopt McCann-type spending any time soon.
But UBS is also betting that advisors will buy into the new model. More branches, fewer complexes and no regions means more power to the field management and, possibly, less bureaucracy. Lower recruiting targets means more money for veteran producers who stay. And a new practice-succession plan gives brokers as young as 50 the chance to start monetizing their businesses as long as they agree to stay and keep their clients with UBS. In another aim to create stickiness, UBS is upping payout under certain conditions for brokers who work on teams.
I don’t know how Naratil pitched the strategy to top brass in Zurich, but this “new direction” is exactly what the Indies have been selling for the last 5 years.
The aggregator firms sell their direct management and ability to get things done efficiently at the local level as a huge plus. Indies don’t use big upfront cash but they take pains to describe how their firms are built to serve their employees, not the other way around. The equity that many offer gives brokers at least as much incentive as deferred stock that the wires give.
Will UBS’s changes make it more successful than rivals in retaining top brokers? Will it reduce the lure of the indies, and will other wirehouses follow?
My feeling is the changes may very well stem the tide of desertions, and take some thunder from the indy recruiting pitch. But talk is one thing. Now we’ll see whether advisors buy in.
The constant reorganization at the wires over the past five years has not done much for building trust.
This is not the end of the war, but only the end of the beginning. And independents also have to recognize that their initial selling points aren’t going to be enough to differentiate them in the next decade.