UBS Dangles 50% Trainee Payout to Encourage Fee Programs
In the latest effort to steer a new generation of brokers away from traditional commission brokerage accounts, UBS Financial Services is offering 50% payouts to certain trainees who put their customers into asset-based wrap programs.
The extraordinarily high payout rate—which is typically reserved for only the top tier of brokers employed by large firms—aims to glue younger brokers to fee-based managed account programs.
UBS disclosed the 50% payout rate, which it labeled a “material change,” at the end of March as part of its annual ADV regulatory filing.
“New Financial Advisors (NFA) in the Development Program are eligible for a 48-month compensation structure that combines base compensation, production payout and potential awards,” says the “wrap fee brochure” update that UBS filed with the Securities and Exchange Commission on its 10 discretionary and non-discretionary programs. “The payout rate for most products ranges from 34% to 45%; however payout for asset- based fee programs is 50%.”
Officials in charge of UBS Wealth Americas’ training program referred calls to a company spokesman, who did not immediately elaborate on details of the newly developed NFA program.
The incentive is a high-profile addition to the range of carrots and sticks that firms have been unveiling in an attempt to mold a new breed of advisor who works on a team and devotes more time to servicing clients and prospecting for new ones than to recommending stocks and bonds and monitoring short-term results.
It comes in an era when investment advice has become commoditized, poor investment performance has created a floodgate of litigation and regulators have been cracking down on the conflicts associated with commissionable products.
Morgan Stanley, Merrill Lynch, UBS and Wells Fargo Advisors — the large national firms known as wirehouses — have been offering bonuses to induce brokers to develop financial plans addressing clients’ long-term goals and to sell mortgages, deposits and portfolio-based loans in addition to pure investment services. But veteran advisors have proven to be set in their client-practice ways, leading firms to make major adjustments to training programs aimed at creating a new breed of advisor.
“We need to make sure we’re getting to them young, getting to them often and having them partner with existing teams to show they can be their succession plan,” Diane Gabriel, president of Wells Fargo Advisors Solutions told an interviewer recently in explaining at a small college in North Carolina.
The average age of U.S. brokers is in their late 50s, she said, another reason why UBS, Wells and others are turning their attention to the next wave of brokers.
The changes also come as the Department of Labor is phasing in a fiduciary standard that will require brokers to adopt a client-first approach favoring fee-based accounts when advising on retirement savings. The government is concerned about conflicts of interest in traditional brokerage accounts when firms and brokers sell high-commission products rather than focus on the best results for clients.
UBS’s regulatory disclosure, which it was required to deliver to clients by the end of April, notes that the new fee-account incentives can create conflicts of their own. Most of the firm’s wrap-accounts carry a list price of about 2.5% of assets kept in the accounts.
“The compensation structure creates financial incentives for New Financial Advisors to encourage clients to purchase advisory programs over other products,” the document says.