UBS Rushes Out Comp Changes Ahead of DOL Implementation Deadline

(Updates with additional details throughout.)

In the 11th hour before the Department of Labor’s fiduciary rule goes into effect at the end of next week, UBS Wealth Management Americas is giving brokers details of how it expects to comply with the “best interests” standard and rolling out a temporary change in compensation.

UBS, the last of the four major wirehouse firms to announce its changes, will allow its almost 7,000 brokers to maintain commission-based retirement accounts but will temporarily suspend its grid-based payout formula, which pays brokers a share of the revenue they generate, for retirement accounts, a broker at the firm said, confirming earlier reports. The plans were outlined to brokers in meetings on Thursday afternoon after market close.

To reduce the appearance of a conflict, UBS will pay its brokers a flat fee based on the overall retirement assets that they manage in both fee and commission accounts. That payout rate will be pegged to the broker’s 2016 production but may be adjusted up or down incrementally as assets in the account rise or fall.

The grid-based payout formula will not change for non-retirement assets. UBS executives left open the possibility of reverting to a traditional grid payout on retirement assets if the DOL’s rule is modified, UBS wealth management Americas president Tom Naratil told the Wall Street Journal.

A UBS spokeswoman did not return a request for comment.

While UBS is still granting brokers liberal use of the BIC, it is restricting some products in commission-based retirement accounts, including initial public offerings and proprietary structured products, according to the Wall Street Journal report. That mirrors similar changes at Wells Fargo Advisors which last week said it would excise A-share and C-share mutual funds as well as various preferred stock and structured products.

Bank of America Merrill Lynch has almost entirely eliminated commissions from retirement accounts.

The changes are in effect until January 1, 2018, the deadline for full compliance with the rule. The DOL may further delay or curtail the rule, which remains under review following guidance from the Trump administration. The Securities and Exchange Commission on Thursday also indicated it may step in to draft its own version of the rule, according to reports.

UBS had been holding out on announcing major changes but appears to have been forced to make accommodations after the Department of Labor last week made clear it would proceed with the first wave of implementation that requires advisors to abide by customer loyalty and prudence standards, meaning that “advice must be based on the interests of the customer, rather than the competing financial interest of the adviser or firm.”

UBS argued in an April comment letter to the DOL following the initial delay that the agency’s approach was “whimsical” and that the June 9 implementation date would cause “reduction in the availability of advice, services and investment options.”

“The uncertainty to date about when the rule will actually become applicable has resulted in communications, training and implementation of policies and procedures being halted as financial institutions hesitated spending hundreds of millions of dollars that will be needed to complete their compliance activities associated with the rule,” wrote UBS Group Americas general counsel Michael Crowl along with Jason Chandler, head of investment platforms and solutions.