UBS is stepping back from recruiting for its U.S.-based brokerage after what crosstown rival Credit Suisse described as a raid on its advisers proved successful for Switzerland's largest bank.
The head of UBS' brokerage in the U.S., Tom Naratil told the «Wall Street Journal» he wants to cut spending on management overhead, bureaucracy and recruitment, and divert funds instead to bolstering technology and on pay for the bank's existing advisers instead.
Credit Suisse Dispute
Naratil, who spent four years in Zurich as chief financial officer of UBS, said the bank has the «unique» opportunity to ease off broker hiring because it had hired aggressively from Credit Suisse, after that bank sold its U.S. wealth management arm to Wells Fargo last year. The bank plans to reduce the number of advisers it hires annually by 40 percent.
Credit Suisse's unit disposal last year led to a fight over broker hiring between the two largest Swiss banks, which is still in arbitration with Finra, which regulates U.S. broker firms. UBS currently employs 7,100 brokers, which is at the top end of a range it targets after copious hiring from Credit Suisse.
Breaking Brokerage Cycle
Naratil also unveiled a new pay scheme aimed at breaking a cycle of hiring and poaching that is commonplace among the U.S.' biggest brokerages, which also includes Morgan Stanley, Merrill Lynch and Wells Fargo.
To hire well-connected brokers in the U.S., firms offer big upfront fees – as high as several million dollars for top performers – as an incentive to jump ship. Naratil said he wants to plow more funding into keeping existing brokers at UBS, which industry analyst Glenn Shorr or Evercore said is a «potentially disruptive» industry move from the Swiss bank.
«Eat What You Kill»
Unlike the European private banking model, brokers in the U.S. take a share of fees their clients generate, a practice referred to by brokers and bankers as «eat what you kill».
Specifics of Naratil's pay plan for existing UBS brokers are higher cash pay for advisers who bring in more than $1 million in revenue, while lowering their deferred bonuses from five to two. The remaining bonuses will reward brokers for seniority and net new assets won.
«Eliminate Bad Costs»
While the move means pay costs will inevitably rise, Naratil says he hopes to offset that by chopping senior and middle management, and shift decision-making to branch managers instead. UBS is reorganizing two divisions with eight regional heads, 63 complexes and 189 branches into four regional divisions and 43 markets, in what Naratil described as a broader effort to «eliminate bad costs».
