UBS wants to rewrite the rules of American brokerages, where it is a dwarf among giants. Nearly one year after breaking a major industry taboo, the Swiss bank has prominent support.
Zurich-based UBS said last year it would exit the costly bidding wars that rage for the most talented brokers, as part of wider scrutiny of pay, recruiting, efficiency and profits under Tom Naratil.
Pay is the key in the cut-throat industry: Seven figures simply as a sign-on aren't unheard of for top U.S. industry talents. The big packages rarely pay off for banks like UBS because too many of them move elsewhere – for an even more lucrative hiring bonus – or don't bring over enough client assets to justify the outsize paydays.
UBS picked off scores of brokers from Credit Suisse last year, which gave the Swiss bank the breathing room to look at recruiting. Naratil's intriguing plan: ease off hiring and instead spend money to keep its most lucrative brokers in place, rather than moving for a bigger paycheck.
«Thundering Herd» Follows
Naratil has just won an implicit endorsement for his plans, from none other than one of UBS' biggest rivals for business in the U.S. Merrill Lynch will also stop paying broker sign-on bonuses to join its «thundering herd» of 14,600 brokers, specialty publication «AdvisorHub» reported.
UBS' logic for the move was one of size – at 6,969 brokers, the Swiss bank is less than half the size of larger rivals. The bank simply cannot compete with the financial firepower of Merrill or others such as Morgan Stanley.
Merrill's logic as explained by CEO Brian Moynihan in February is that «not every dollar is a good dollar» – effectively saying that the brokerage should only sell products which meet the needs of clients and communities.
Instead, it wants to hire more advisors who are presumably cheaper, such as those from smaller, local firms like Edward Jones and Robert Baird and independent broker dealers.
No More «Eat What You Kill»?`
Whether the 103-year-old Merrill Lynch can shift from an «eat what you kill» culture to one of trusted advisor remains to be seen. It comes against the backdrop of a private banking industry outside the U.S. grappling with how to get clients to trade more.
UBS' wider private bank last year effectively told clients not to bother if it planned to deposit money which wouldn't earn its costs.
In the U.S., Naratil must also still prove he can generate revenue and profits without playing the talent sweepstakes.
The unit won less than $2 billion in net new money in the first quarter after it quit recruiting, which translates to a rate of net new money growth of just 0.7 percent. By contrast, pay for advisors jumped 11 percent on the year as UBS bumped pay higher as part of its retention measures.
