UBS to Curtail Expense-Account Benefit Due to Virus Constraints
Brokerage firm executives have broadly lauded the operational flexibility of their systems and emotional flexibility of their employees during the work-from-home limitations caused by the coronavirus pandemic. But UBS Wealth Management USA acknowledged this week that it could not find a solution to one issue that has been disturbing advisors: How to claim reimbursement for “business development” expenses they are not using but which is being deducted from their pay.
Since travel and entertainment came to a brutal halt in early March, UBS is aware of the “potential for substantial unused funds” accumulating in the so-called Business Builder expense accounts, Jason Chandler, head of UBS Wealth Management USA wrote in a memo to employees on Monday that was reviewed by Advisor Hub.
“[I]n close consultation with our Advisors and Field Leaders, we will discontinue contributions to Business Builder as of September 1, 2020,” Chandler wrote.
UBS recognizes that different advisors have different preferences, but was told by tax and regulatory experts that it had to adopt a one-size-fits-all formula for its approximately 6,000 U.S. advisors. “Our only option is one that affects all our Advisors in the same way — either leave Business Builder unchanged for all, or turn it off for all,” Chandler wrote.
Advisors will continue to have until year-end 2020 to use funds that accumulate in their expense accounts or to make a one-time election in October to allocate remaining balances to sales assistants. Going forward, UBS will explore ways “to restructure or build a new expense program that would create opportunities for flexibility,” Chandler wrote.
But brokers who had been sending meals to clients as part of virtual meetings in hopes of claiming them as expenses got some bad news. Under recent guidance from Finra, Chandwrote, such expenses are considered a gift, not business entertainment.
UBS and its competitors have for years offered the tax-benefit expense accounts as a perquisite to advisors, with deductions and reimbursements keyed to production leveels.
A spokesman for UBS declined to comment.
The unexpected way in which a pretax reimbursable deduction has turned into an albatross is, to be sure, an industrywide issue.
Wells Fargo Advisors is working on options to create flexibility “while being mindful of IRS regulations,” a spokeswoman said last week, without elaborating. As of Tuesday, the company had not suggested alternatives, according to a branch manager.
Morgan Stanley typically gives advisors an opportunity to adjust some of their pay-deducted contributions to its expense account program in August, but allowed them to make the adjustment in May because of the pandemic constrictions, said a person familiar with the changes to what it calls its Alternative Flexible Grid program.
A spokesman at Merrill Lynch did not return a request for comment on whether it is addressing the expense issue.
Chandler’s memo updated other work-from-home issues, including clarifications on what documents could be printed from personal devices without violating firm and client confidentiality issues and questions about video communication with clients.
“We recognize that some clients may have a preference for Zoom,” Chandler wrote about the communication alternatives, and may not be familiar with the Skype or Webex technologies that UBS has approved.
Advisors who receive Zoom invitations from clients may use the audio feature, he wrote, but cannot initiate Zoom meetings nor use the technology firm’s video, chat or document-sharing functionality. The overnight popularity of Zoom has also created a “Zoom-bombing” phenomenon in which outsiders insert themselves into video meetings, sometimes making slurs and threats.
“We continue to be in active conversations with Zoom and other providers to create safe communication channels to best enable you to engage with clients,” Chandler wrote.
He also said that UBS will “shortly” roll out a “Microsoft Teams” application that should enhance advisor-client communications.
Morgan Stanley permits its brokers to use a limited, “customized” version of Zoom, said a person familiar with the company’s procedures. Merrill Lynch encourages its brokers to stick with WebEx, according to a spokesman.
Chandler’s memo said advisers can send research reports marked with an email icon on their ConsultWorks workstation through their personal email and use other devices outside the UBS network to print certain single-security research reports from the firm, its investment bank and outside research firm CFRA.
But he emphasized that as a general rule firm documents cannot be sent or forwarded to any third party to ensure the safeguarding of “client and firm information.”
While firms and brokers have generally applauded the way back-up procedures have functioned during the work-from-home period, they also have struggled with client communication.
“How do you get new account forms to clients who don’t want to use the e-delivery methods we offer,” lamented one Morgan Stanley broker. “I met an elderly man in a parking lot with masks on the other day, then it took me two weeks to get them through to assistants and the understaffed operations people.”
Because of the time delay, the client was charged maximum account fees that the broker had planned to discount.
Chandler opened his memo with an appreciation of employees’ flexibility during the coronavirus crisis.
“I continue to be impressed with how we’ve adapted the current environment with our ongoing focus on delivering the best for our clients and growing our business,” Chandler wrote. “Recognizing the challenges we have been facing, we continue to strive for ways to make it easier for you to do business.”
-Vicky Ge Huang and Jed Horowitz contributed to this story.