UBS Tweaks 2017 Comp Plan After Broker Backlash
(Corrects production number to qualify for top LOS bonus to $5 million, not $500 million, in seventh paragraph.)
UBS has tweaked the controversial 2017 financial advisor compensation plan it unveiled for U.S. brokers in June after some of them complained about elimination of a potentially lucrative bonus for building fee-based business.
For at least two years, UBS Financial Services has given a Wealth Management Award to incentivize brokers to put clients into fee-based advisory accounts and sell them loans, insurance and financial plans. Like other major broker-dealers, UBS believes such fee-based products and annuitized services are a more stable revenue source than traditional commissions that are more sensitive to stock market conditions.
As part of a broad reorganization to cut costs, however, new UBS Americas head Tom Naratil in June ended the bonus for 2017 and instead strengthened incentives for brokers to work on teams and to commit to remaining with the firm.
The strategic objective of growing fee-based assets was getting too expensive, some brokers speculated, because the bonus went as high as 6% of their “wealth management” production if at least 75% of their revenue came from fee-based accounts, banking and insurance products.
Last month, Naratil back-pedaled.
In an email, UBS told brokers they can qualify for a reconfigured Wealth Management bonus for 2017 if they rank in the top three production quintiles as measured by McLagan, the compensation consulting firm.
Under the formula, brokers whose 2016 Wealth bonus is lower than their 2017 Length-of-Service (LOS) award will get half of that wealth bonus, in addition to the LOS award, according to several sources. The bonuses will be distributed in early 2018, they said. (The LOS bonus for brokers who have been with the firm for at least five years ranges from 1.5% to 10.0% of total 2017 production, with the upper end reserved for brokers with 25 or more years of continuous service and production of at least $5 million.)
“It is not surprising that when changes are made to a plan with 7,000 advisors with different businesses the impact will vary,” according to the email that was read by an employee to AdvisorHub. UBS described the revived bonus in the email as a “one-time transition award.”
A UBS spokesman did not respond to requests for comment.
UBS changed its plans after digesting the results of an employee survey earlier this summer and after senior managers visited branches to discuss the changes, two people said.
“A lot of my buddies were p*ssed because they were making a bunch of money on the wealth management award, though the change wasn’t enough to get them to move,” said a branch manager at a regional firm who had spent several decades at UBS.
The revised plan will put some additional bonus money in virtually all experienced advisors’ pockets in 2018. “You have to be really struggling to not get it,” said a broker with about six years’ experience who got a wealth management award of almost $50,000 last year, and expects to get about half that under the “transition” plan.
“Instead of an egregious pay cut i’m getting a bad pay cut, but it doesn’t seem as bad,” said the broker who works in a large metropolitan area and spoke on condition of anonymity.
For Naratil, the reinstatement of the wealth bonus reflects the fine line he is walking between complying with the parent bank’s demand for corporate-wide expense cuts that will save $2.2 billion by the end of 2017 and his need to retain strong producers.
A former chief financial officer of UBS AG, Naratil took the reins of its American business in January and publicly announced in June that he is cutting recruiting by 40%. He also eliminated dozens of branch and complex management positions this summer and revamped managers’ compensation incentives to reward them for meeting a range of “economic targets” that override their traditional mission of hiring brokers with large books of business.
Bob McCann, Naratil’s predecessor at UBS Americas, helped slim the firm’s U.S. brokerage force and tilted advisors to more fee-based business during his rein from 2009 through 2015. But he also offered lavish signing bonuses to top brokers from other firms that left $3.2 billion of forgivable loans on its balance sheet as of the end of this year’s second quarter. Naratil does not want to see that number rising.
UBS, to be sure, is not the first big firm to modify its compensation policies after outcries from brokers. Merrill Lynch last year relented on a plan that would have penalized brokers who offered aggressive discounts on managed accounts.
“UBS is on a real cost-cutting mission, but like all big firms they often put out trial balloons,” said Rick Peterson, head of a recruiting firm near Houston, TX. “They take away a perceived gimme and see how much of a hue and cry it brings. If it’s too loud, they placate them.”