UBS Wealth Americas Loses Some Autonomy—and More Brokers
UBS Wealth Management Americas posted its third consecutive quarter of net outflows and continuing broker attrition on Monday, but its parent bank gave Americas head Tom Naratil a vote of confidence by expanding his management breadth.
In an unexpected announcement as part of the Swiss banking giant’s fourth-quarter earnings, it said it will combine its domestic, European and all global wealth businesses with the U.S. unit of just under 7,000 brokers. The Americas unit contributed 33% of the bank’s global wealth profits in 2017, and 51% of its assets, UBS said.
The global unit that will be formed next month will be co-led by Naratil—a more than 30-year veteran of UBS Wealth Americas and its PaineWebber predecessor—and by UBS Group wealth management boss Martin Blessing. They will be co-presidents of what will be known as UBS Global Wealth Management.
UBS Wealth Americas in the quarter continued to experience customer and broker withdrawal as a result of new strategies that Naratil, a former chief financial officer of UBS AG, imposed following his appointment as head of UBS Americas two years ago.
The changes, including a pullback from recruiting veteran advisors, the traditional source of new client money, impacted fourth-quarter results as both brokers and customers left the bank, the bank said.
Customers pulled a net $500 million from their accounts in the last three months of 2017, a period in which rivals Morgan Stanley and Bank of America/Merrill Lynch reported fee-based asset “inflows” of $20.9 billion and $18.2 billion respectively. The company also lost a net 39 U.S. brokers in the fourth quarter, following a net loss of 54 in the third quarter.
In a conference call with analysts, Chief Financial Officer Kirt Gardner defended UBS Wealth America’s strategy of emphasizing retention of seasoned brokers rather than expensive hiring of them from other firms. “Recruiting over time is dilutive to shareholders,” he said.
Experienced brokers in the U.S. branch system attracted $8 billion of new money in the last three months of 2017 despite the overall decline in customer assets, and retention of the veteran brokers is improving, he said.
Some of the broker exodus last quarter reflected UBS’s decision to pull out of the Protocol for Broker Recruiting during the fourth quarter, the bank said. The pact lets brokers move without fear of being sued for taking client-contact information, so some left earlier than expected when UBS gave them four days’ notice of its plans.
“Many of the leavers following the Protocol exit had recruitment loans that were nearing maturity or had matured,” Gardner said. “We see this as an acceleration versus our plan, and not as an indication of higher attrition to come.”
UBS ended 2017 with 6,822 U.S. brokers, a 1% decline from the end of September and a 3% decline from 7,025 a year ago. Wirehouse competitors Morgan Stanley, Merrill and Well Fargo Advisors each employ more than 14,500 registered representatives. In combining all global wealth businesses, UBS AG said it will have a combined total of 10,500 advisors.
UBS Americas’ adjusted profit before tax gew 9% from the year-ago quarter to $390 million from $358 million as fee and net interest revenue from managed money and lending outpaced the growth of expenses, the company said. Total revenue at the U.S. wealth business rose 7% to $2.2 billion from $2.06 billion in the year-earlier fourth quarter.
UBS AG Chief Executive Sergio Ermotti told analysts on the call that the company will continue to be “granular” in breaking out geographic wealth results and said he expects to squeeze more operational efficiencies from the reorganization.
UBS also lowered its profitability goals for its overall wealth businesses as a result of the integration of the international operations with the more expensive costs of its U.S. broker-dealer. The new global wealth unit aims for a cost-to-income (expense) ratio of 65% to 75%, while UBS Wealth Americas reported that its expenses in the quarter were 82.5% of revenue, unchanged from a year earlier.
Some analysts were skeptical about the U.S. results.
“Can you maybe explain why you’re happy with the performance?” Stefan Stalmann, an analyst with Autonomous Research, asked executives on the conference call. He called the profit margins at the U.S. wealth business “relatively underwhelming” compared with numbers that Morgan Stanley reported last week.
Gardner circled back to the continuing decline in recruiting expenses that UBS is experiencing and the expected growth in 2018 of net income revenue as brokers sell more loans and banking products to their wealthy investment customers.
—Jed Horowitz contributed to this article.