UBS adviser headcount drops again, but profits are up

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UBS Wealth Management Americas raked in a 42% year-over-year bump in profits for the first quarter even though its brokerage force shrank to its lowest level since 2015.

The Swiss bank, the last wirehouse to report earnings, announced Friday that adviser headcount for its WMA unit fell to 6,969, down 176 from the year-ago period. Morgan Stanley and Wells Fargo also dropped more than a net 100 advisers in the same span. Merrill Lynch, meanwhile, shed a net 145 advisers in the first quarter.

Yet UBS stands apart in that President Tom Naratil pledged to pull back from recruiting when he took over the unit last year. Recruitment loans to advisers have tapered off at nearly the same rate as compensation for current advisers has grown.

The company’s “radically different approach to our operating model” showed up in the earnings figures, a spokesman said. Overall headcounts have contracted over the last 12 months by 2% to 6,969, their lowest level since the third quarter of 2015.

Recruitment loans to advisers have fallen 9% over the previous year to $2.9 billion, and pay commitments to new hires have remained mostly flat at $197 million. Yet adviser compensation expenses have grown by 11% to $791 million.

The firm also posted record revenue per adviser of $1.17 million alongside pretax profits of $302 million.

UBS CFO Kirt Gardner noted in remarks to analysts that WMA executives now focus “more on increasing retention and productivity, and are de-emphasizing recruiting.”

But the change has stifled the inflow of new client assets under management, he acknowledged.

The unit took in net new assets of $1.9 billion in the first quarter, down 86% from $13.6 billion for the same period a year ago. At the same time, invested assets rose 10% to $1.153 trillion.

“As we've said in the past, profitable growth over the longer term is more important to us than quarterly net new money trends,” Gardner told analysts.

Market gains pushed up clients’ invested assets by $40 billion in the last quarter alone, according to the earnings report.

The tactical shift has also buffeted the firm’s net new AUM, however. Newly recruited advisers accounted for the majority of inflow last year, according to the firm’s quarterly earnings report. The annual growth rate in net new money has fallen to 0.7% from 5.3% over the last 12 months.

And the next quarter promises a hit to all firms’ coffers due to a factor unrelated to the recruiting pivot. Seasonal outflows for tax payments have ranged from $3 billion to $4 billion in the second quarters of each of the previous two years at WMA, Gardner noted in his remarks.

The unit makes up a sizeable chunk of the Swiss banking giant. WMA accounted for around 27% of the entire firm’s revenue, at $2.05 billion. Overall UBS profits soared 84% year-over-year to $1.269 billion Swiss francs from $707 million.

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Earnings Wirehouse advisors Wirehouses Recruiting Tom Naratil UBS UBS Wealth Management