UBS Changes Calculation of Client Advisory Fees
UBS Wealth Management USA is changing its calculation of advisory account fees to reflect average daily balances over a quarter rather than beginning-of-quarter balances that can confuse clients who examine their statements.
The daily calculation began on October 1, and will be reflected in adjustments to customers’ fourth-quarter fees in January 2021, they wrote.
UBS credited new technology from Broadridge Financial Solutions with giving it the ability to perform the daily calculation.
UBS and Broadridge announced a plan for advisor platform improvements two years ago. Chandler and Mattus said it remains ”the foundation for the future of our wealth management platform” and described the new fee methodology as one of the platform’s “building blocks.”
Advisors should appreciate the billing method because their customers will now be charged on assets that “reflect changes in market value in addition to contributions and/or withdrawals,” Chandler and Mattus wrote.
Morgan Stanley at the beginning of 2020 began billing clients monthly instead of quarterly. The change was aimed at offering customers “more clarity, simplicity and consistency as the balance on their monthly statements will directly align to the fee they are charged,” its executives told advisors. A senior Morgan Stanley wealth executive has said the firm’s technology finesse allowed it to get ahead of some competitors.
Consultants said they expect more firms to adopt similar changes, which regulators also have been endorsing as part of efforts to improve disclosure.
“It avoids issues that might come up due to market peaks and valleys,” said Andy Tasnady, a Long Island-based compensation consultant to brokerage firms.
Since most firms continue to charge clients on cash assets in advisory accounts, it also helps firms’ bottom lines and advisor credits by trying to “game the fee rate by withdrawing cash before the quarter-end,” he said.
The shift also could affect quarterly profit reports to shareholders. UBS attributed a 37.2% drop in second-quarter net income in its Wealth Management Americas unit to “lower invested assets at the beginning of the second quarter of 2020, which drives the billing reference levels.”