UBS Broker Headcount Slipped Again in First Quarter
UBS Group AG’s battle to burnish the profitability of its U.S. wealth management business, the largest component of its flagship wealth operations, ended in a standoff in this year’s first quarter.
The Americas unit continued to lose experienced brokers, but for the first time in 12 months the almost 7,000 that remain at the firm brought in more net assets from customers than left the bank’s U.S. coffers.
The Swiss bank has taken a calculated risk in the past two years under Tom Naratil, its American cohead of global wealth management. It was the first of the major broker-dealers to slash its recruiting budget for high-priced brokers, betting that it could revamp compensation policies sufficiently to offset departures of its salesforce and their customers.
The bank on Monday gave a mixed report on how effectively it has managed to improve retention by rewarding longevity and team-based productivity. It ended the quarter with 6,956 brokers, down just 14 from 12 months earlier but 134 higher than at the end of 2017.
The reported increase was helped by including brokers in Latin America (and a few Swiss-based brokers servicing Latin American clients) for the first time in the Americas count, the company said. It did not break out the numbers, but UBS executives conceded that they are still fighting to curb attrition.
“The level of net recruiting outflows has come down a bit, and we expect recruiting outflows to come further down,” UBS AG Chief Financial Officer Kirt Gardner said on a conference call with analysts, noting that attrition is at record lows. “Our goal overall would be to have net recruiting remain neutral, and most of our growth through same-store FAs.”
Several U.S. brokers said the number of departures has accelerated in recent months if Latin America and the small group of ultra-high-net-worth private wealth brokers are excluded.
“There’s a bleed,” said one, noting that the 6,507 brokers in his U.S. wealth management peer group is 99 fewer than on January 1. In the first three weeks of April alone, he said speaking on condition of anonymity, dozens of brokers appear to have left.
A UBS spokesman in New York declined to break out specifics about the tally, which several brokers attested to after looking at their rankings. UBS executives have said previously that they can prosper with a U.S. brokerage force as small as 6,500, a total less than half the size of direct competitors Morgan Stanley, Merrill Lynch and Wells Fargo Advisors. It is not a number the firm likes to publicize, however.
If correct, the net departures this year are occurring despite UBS’s exit from the Protocol for Broker Recruiting late last year and its other efforts to curb brokers’ ability to call former customers if they leave.
“We have exited, and there’s really not a lot more to say,” Gardner told analysts. “We think structurally that was the right thing to happen in the U.S.”
To be sure, profit within the Americas segment of UBS Wealth rebounded in the first quarter of 2018 due to a declining overhang of recruitment loans and rising productivity among brokers who remain. Costs fell $150 million annualized compared to the first quarter of 2017 because of a lower level of recruiting loans on the balance sheet, Gardner said.
On the revenue side, brokers in the Americas generated $11 billion of new assets from existing and new clients during the quarter while losing $3.5 billion from those who pulled assets. They also continued to march to UBS’s push for new mortgages and other loans from their investment clients, generating $57 billion of new loans or almost 49% of total loans in UBS’s global wealth unit as measured in Swiss francs.
The Americas unit overall posted $400 million in pretax profits, a 19% increase from the year-ago quarter. It was the most profitable of the Swiss bank’s four regions, which also include Switzerland, Asia Pacific and Europe/Middle East and Africa), representing 33% of the division’s profit .
Overall, however, UBS AG’s first-quarter results under management’s new directive to focus on wealth management over capital markets and investment banking activities missed analysts’ forecasts.
UBS AG shares ended trading on Monday in New York down 2.97%, or 52 cents a share, at $17.12. The S&P 500 ended the day flat, up .01%.