UBS wealth unit's pretax profits soar 26% amid recruiting slowdown
UBS Wealth Management Americas reported strong profit growth even as its adviser headcount continued to tick down as a result of recruiting cutbacks.
Pretax profits for the unit soared 26% year-over-year, reaching $304 million from $242 million for the year-ago period, UBS reported on Friday.
The move to reduce hiring, launched by President Tom Naratil approximately a year ago, appears to be paying off. Compensation commitments with recruited advisers dropped 10%, sliding to $189 million from $209 million. And recruitment loans dropped to $2.754 billion from $3.234 billion, a 15% decline.
That reduction allows UBS to reallocate resources to its existing advisers, the company says.
Overall, the wealth management unit's revenue grew 11% to a record $2.1 billion. That growth outpaced a 9% rise in expenses, which climbed to $1.8 billion.
The firm's 6,915 advisers ― down 201 advisers from the year-ago period ― continue to lead the industry in terms of productivity. The average UBS adviser generates $1.23 million, according to the firm. Merrill Lynch, by contrast, reported average production of $1.04 million per adviser.
Like UBS, Merrill as well as Morgan Stanley announced cutbacks to recruiting efforts.
It seems that a long bull market in transition deals may be coming to an end.
"It's always nice when one poker player folds and it's down to two or three players," one recruiter says.
The wirehouse's executives think they've struck on the right formula to boost growth through a simplified comp plan, greater autonomy and an attractive retirement package.
But that didn't stop Merrill Lynch from enticing away large UBS advisers ahead of a deadline to reduce hiring. For example, last month Merrill Lynch said it nabbed a UBS team that managed $1 billion in client assets.
Net new money at UBS declined for the second quarter; the firm reported outflows of $6.4 billion, compared to a net gain $1.9 billion for the prior quarter and $2.4 billion for the year-ago period. The company attributed the outflows to adviser attrition.