UBS Withdraws Bonus Handcuffs—Until Next Year
Responding to an outcry from its U.S. brokers, UBS is modifying contract language that would have restricted their ability to leave if they took their 2017 bonus money for achieving sales objectives but will impose the language next year.
The decision, disclosed in a weekend memo to brokers, managers and administrators by the Swiss bank’s top two U.S. wealth management executives, reverses a bonus agreement the firm tried to slip through last week that provoked broker protest.
The Strategic Objective Award contract brokers were being asked to sign differed from those given in previous years, was not flagged as a change and permitted the firm to sue them if they called former clients within 12 months of leaving UBS.
“By now you know that there was a breakdown in our normally thoughtful and rigorous process, resulting in agreements being distributed to you that had not been properly considered or reviewed by senior management,” UBS AG’s Wealth Co-President Tom Naratil and U.S. salesforce head Brian Hull wrote in the e-mail that was reviewed by AdvisorHub. “You should know that we always welcome and appreciate your constructive feedback, and that we read every email you send us and value every conversation with you.”
UBS will distribute the revised agreements that “revert” to the previous year’s bonus language this week, along with instructions to brokers who already signed them on how to amend them, the e-mail said. The revised language allows the firm to enforce non-solicit clauses for a year only against brokers who leave with unpaid balances on promissory note loan agreements and voids them once balances are paid.
In a further attempt to build credibility about their candor, the executives wrote that UBS will reinstate the more onerous restrictions in 2018 agreements distributed next February. The disclosure is “consistent with our practice of transparency,” the email said.
Several brokers have said that if UBS had succeeded in imposing the restrictive non-solicit language this year, the firm could have been emboldened to lower their compensation grids going forward since so few would be likely to leave and forego bonuses. Naratil and Hull have been focusing on retaining experienced brokers rather than the more expensive route of recruiting them from other firms.
The decision to modify the document will likely deter potential lawsuits, as well as defections made out of anger, at least in the short run, said lawyers who represent brokers in employment lawsuits.
“UBS pushed, but probably realized that the bad will and image issues weren’t worth it,” said Steven J. Insel, a lawyer at Elkins Kalt Weintraub Reuben Gartside in Los Angeles. Several advisers told him last week they might forego their bonuses rather than lock themselves in, he said.
The non-solicit clauses were meant to put teeth behind behind UBS’s recent decision to leave the Protocol for Broker Recruiting, which allows brokers moving among signatory firms to bring vital client-contact information with them, lawyers and headhunters said. UBS’s employment and other contracts with brokers are not as tightly drawn as those of rival Morgan Stanley, which also left the Protocol last year and which has pursued several exiting brokers in court.
In addition to leaving the Protocol in December, UBS has cut its recruiting budget and articulated a strategy to build customer assets by retaining experienced brokers.
In their email, Naratil and Hull raised the touchy subject of the model that big brokerage firms use for determining brokers’ core pay.
“We are also underscoring our conviction that our operating model is the right one for you and for our clients by including language in the 2019 SOA agreement (for calendar year 2018)” that would void the non-solicitation provisions if the comp model undergoes major changes, Naratil and Hull wrote in the email.
Specifically, they said the non-solicit will be voided if UBS changes from the traditional grid-payout compensation scheme in which brokers keep a revenue-scaled percentage of the fees and commissions they collect to a salary-and-bonus plan. The latter model is common at European banks and is generally much less lucrative to brokers.
The non-solicit provision also would be nulled if the grid rate that determines brokers’ payout, combined with their “length-of-service” bonuses, fall by 5% or more in 2019 and 2020 from levels earned in the previous year, it said.
Initial reaction to the assurances were mooted.
“No one expects anything drastic in the short run, but comp changes are a concern to most of us,” said one East Coast, broker speaking on condition of anonymity. Even if the firm doesn’t lower payout grids to avoid nullifying non-solicitations, it is likely to raise breakpoints on the grid that determine payout percentages, he said.
“I wouldn’t call [the changes] a victory for the UBS financial advisors,” said Robert Girard, a securities litigation and employment lawyer in Los Angeles who has represented brokers at the firm. “[UBS] is going to get them into the new agreements one way or another.”
UBS’s general decision to modify the non-solicitation language in the 2017 award contract was reported earlier by “On Wall Street.”
-Mason Braswell contributed reporting.