UBS recruiting costs continue downward spiral
UBS's recruiting pullback, initiated two years ago, is continuing to benefit the company's bottom line, though the lack of hiring may also be affecting the firm's ability to bring in new assets.
Pretax profits for the bank's Global Wealth Management unit, which includes U.S. operations, rose 18% year-over-year to 1.037 billion Swiss francs ($1.04 billion as of Wednesday's exchange rate), boosted in part by revenue growth of 5%, which outpaced a 1% rise in expenses.
Compensation related to financial advisor recruiting fell 22% to 144 million francs ($145 million) for the second quarter, the company reported this week. Total operating expenses amounted to 3.12 billion francs ($3.15 billion).
Recruitment loans to financial advisors dropped 10% to 2.384 billion francs ($2.4 billion), though that figure was flat from the prior quarter.
The firm pulled back from recruiting, citing the exorbitant cost such efforts required. Instead, executives said they would shift resources to advisors currently at the firm. Merrill Lynch and Morgan Stanley followed suit last year. And late last year, UBS and Morgan quit the Broker Protocol, an industrywide accord that permitted advisors switching firms to take basic client contact information with them.
Those moves are factors behind improvements in advisor attrition.
UBS's brokerage ranks in its Americas unit ticked down to 6,937 for the second quarter from 6,956 for the period, a decline of 19 brokers (the figure includes non-U.S. brokers based in Latin America). Merrill Lynch recently reported its headline only fell by nine advisors.
The hiring plans coincide with the firm's rollout of its digital advice offering, UBS Advice Advantage, which is offered through its call center.
The firm is the latest to adopt new technologies into the client-advisor relationship.
Wells Fargo, which has been dealing with fallout from banking scandals and regulatory scrutiny, reported a net decline of 172 advisors quarter-over-quarter.
UBS also continues to have the industry's most productive advisors. The firm reported annualized revenue per advisor of $1.315 million. Merrill Lynch, by contrast, reported revenue per advisor of $1.017 million.
But while recruiting related expenses fell and profits rose, the wealth management unit struggled to bring in new assets. The firm's Americas unit reported net outflows of $7.1 billion, which the company attributed to seasonal income tax payments and a single outflow from a corporate employee share program.
"It's a balancing act," headhunter Michael King says.
Recruiting experienced advisors has traditionally been a way to get a quick boost in new assets.
"Without bringing in new people, it'll be a problem," he says, noting that this will place greater focus on UBS's efforts turbocharge growth among its existing advisors.
CEO Sergio Ermotti, answering an analyst's question during a conference call, emphasized that UBS is focused on advisor productivity across its wealth management regions.
"It's very important for us that deploying technology, our focus, over time, is to make our adviser more productive as well, giving them the tools that allows them to be more productive. So, number of head count is important, we want to grow, but it's not the only lever we need to have to grow because productivity through technology has to be part of the solution," Ermotti said.