UBS Slashes Advisory Account Payout for New Advisors
(Updated Jan. 4 in sixth and seventh paragraphs.)
Trainees and their managers at UBS Wealth Management are returning from the holidays to absorb a most un-celebratory announcement about a pay shift.
As of January 1, 2017, the firm has cut the 50% payout rate it gives to “New Financial Advisors” (NFAs) on advisory accounts by five percentage points, according to an email sent to branch managers, market heads and assistant market heads right before the holiday. Parts of the announcement were reviewed by k-tcc.
As unsettling as the cut itself may be was the slapdash manner in which UBS’s executives communicated the change, said a broker in the four-year NFA program who spoke on condition of anonymity.
“Please note that this communication is NOT being sent directly to your NFAs,” said the internal message signed by divisional directors Bill Carroll, Jason Chandler, Brad Smithy and Lane Strumlauf, UBS Wealth Management Americas’ most senior “field” executives. “We will be looking to you as field leaders to ensure that this information is communicated to them. While we recognize that it is the holiday season, it is nevertheless imperative that you cascade this information to NFAs between now and December 31.”
The broker said few managers or NFA program heads were around over the holiday week to explain the payout modification. The announcement was sent to them around December 23, the broker said.
A UBS spokeswoman did not respond to questions about the announcement or the reasons for the pay change.
The shift appears to conflict with efforts by UBS and other big firms to have brokers move customers from traditional commission accounts to asset-based accounts that generate fees regardless of trading activity. However, incentives such as higher payout rates could violate the Department of Labor’s new fiduciary rule that prohibits brokers from selling or recommending retirement account products and services that are most remunerative rather than being motivated by what is in customers’ best interests.
The fiduciary rule is scheduled to take effect on April 10, though questions remain as to whether the Trump Administration will seek to delay or eliminate it.
UBS has already changed some advisory account incentives for the bulk of its approximately 7,000 brokers. In an apparent effort to eliminate payout disparities, it two years ago ended a 3-percentage point advisory account payout bonus to brokers outside the NFA program. For 2017 it has eliminated a potentially lucrative “wealth management production” bonus paid to brokers who reached certain fee-based production goals, to the chagrin of some of them.
The division directors made no direct reference to the fiduciary rule, instead couching the change for the neophyte brokers as a way to “standardize payout across all products and services” and “mitigate any potential negative impact on an individual’s payout.”
People in the NFA program, most of whom already work on brokerage teams, will receive a minimum payout of 45% in 2017 “on all compensable business (excluding credit lines and specialty business),” the email said. The payout can inch up for brokers who are on highly productive teams that qualify for so-called “combined team grid” or “highest producer grid” payouts, as outlined in the 2017 compensation plan unveiled last summer.
The executives described the New FA compensation changes in conventional sales terms rather than from the point of view of client standards of care.
“Overall, the objective of our compensation model remains the same—to reward advisors for productivity, growth and loyalty, and to grow our business for the future,” it said. “These changes to NFA Compensation are aligned to similar changes within the 2017 FA Compensation plan that has been communicated.”
UBS executives, unlike those at Merrill Lynch and Morgan Stanley, have not to date issued policies on whether brokers will be able to continue offering commission-based retirement accounts under the DOL rule, according to several branch managers and veteran brokers. Merrill has imposed a flat prohibition on commission-based retirement accounts while Morgan Stanley and Wells Fargo Advisors are allowing them subject to close oversight.
One broker in the New Advisor program complained that as of New Year’s Day participants had not received written summaries of the changes nor could they reach training program officials to answer questions. The payout cut to 45% from 50% on advisory accounts is particularly frustrating because the NFA program focuses on training brokers in wealth-planning skills that teams use to build fee-paying advisory accounts, not on conventional commission book-building techniques, he said.
Although trainees do not generally produce as much as seasoned brokers, the flat 45% of fees and commissions they will receive compares with a range of 28% to 50% that the more experienced brokers can earn in 2017.
NFAs are paid a straight salary for about the first seven months of their tenure in the program. The fixed pay drops progressively to zero over the course of the program, as the rookies transition fully to grid payout-plus-bonuses in their third and fourth years.