UBS tries to tackle industry’s ‘biggest challenge’

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UBS is retooling its training program for new advisors, but it may be the firm's veterans who profit the most.

"FAs are very worried about who the next gen will be. We know we're getting older," says a middle-aged UBS broker who asked not to be named. "Part of the concern for advisors is, as they retire, who's going to buy their book?"

To allay his and other advisors' concerns that there will be capable successors in place, UBS extending trainees' salary to two years from seven months, placing them directly onto teams, and partnering with an outside firm, Jopwell, to find more diverse applicants among other changes.

The company is also cutting the size of the program as it concentrates resources; average training class size will fall to about 100 next year from approximately 175, though this doesn't affect two related programs: wealth planning analyst and intergenerational advisor.

Executives hope the amended training program will solve an industry-wide problem: Most trainees simply can't make the cut.

"We historically as an industry hired a lot of people and let the numbers take care of it," says Paul Santucci, head of field development. "I feel [these changes] will lift these people to new levels. And if you put them on teams, give them mentors and compensate them fairly and better than they've been compensated before, it'll give them far more time to be successful."

But given the industry's aging demographics and cutbacks in recruiting experienced brokers, how can the 6,915-advisor firm grow?

The answer, executives say, is partly in boosting the training program's success rate and ensuring that advisor productivity continues to rise. UBS currently boasts average annual revenue per advisor of $1.23 million, according to the company's second quarter earnings report. Merrill Lynch, by contrast, recently reported average advisor revenue of $994,000.

The Swiss firm also has made changes that executives say will boost retention rates and attract advisors who serve ultrawealthy clients. For example, UBS simplified its comp plan last year and choose to keep it largely intact for 2018, a move announced this week and which broke with more traditional wirehouse practice of making annual changes to broker pay.

"We want the most productive and skilled FAs on the Street," Santucci says.

Historically, big firms had large training programs, hiring thousands of fresh-faced advisors ― many of whom didn't succeed.

Even today, firms such as Edward Jones, which has one of the industry's largest training programs, have struggled to raise success rates. For every 100 candidates Edward Jones hires, only about 40% survive their first years in the business, an executive told On Wall Street in a 2015 interview.

Onboarding new advisors isn't cheap either. Edward Jones currently enrolls about 200 new trainees per month. The St. Louis-based firm spends approximately $117,000 per trainee in the first year alone, a spokesman said.

The industry's problem, however, is now a more pressing matter. The average age of a wirehouse advisor is north of 53-years-old, according to research firm Cerulli Associates.

"The big firm challenge is how to train new advisors to be successors for their aging salesforces," says recruiter Danny Sarch. "That's the biggest challenge for the next 10 years and it's keeping senior executives up at night."

Santucci says extending the salary will help give trainees a better glide path into the business. "Candidates would come in and seven months later they'd be facing a very different situation," Santucci says of the transition from salary to a traditional broker comp grid.

Given how challenging it can be to thrive as a solo advisor, the move to encourage more teaming is likely to boost success rates, says recruiter Jeff Bischoff.

"You'll increase the retention dramatically if you put them directly on teams," Bischoff says.

New hires at UBS will also go through its private wealth accreditation process, which trains them to work with ultrawealthy clients, a key target for the firm.

But the real test of the program may come two to three years from now, after trainees have left the program, industry insiders say. They note that many newcomers have impressive resumes; they wouldn't get in the door in the first place if they didn't. But in a relationship-driven business, finding success is an entirely different matter.

Still, top executives' biggest problem isn't going away.

"All the firms are in the same position: They need to get younger people on these teams to inherit books from older brokers," recruiter Michael King says.

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Training Recruiting Succession planning Wirehouse advisors Wirehouses Paul Santucci UBS Wealth Management UBS