UBS is facing fierce competition in the U.S. for customer advisors which has forced it to make generous «golden hellos». 

UBS is a giant of wealth management in the U.S, with over $1 trillion of client assets under management, but competitors such as Morgan Stanley or J.P. Morgan are even bigger.

Wealth managers in the U.S. achieve growth mainly by poaching advisory teams from their competitors. This is based on the hard-nosed calculation that it costs less to poach staff than to build up a profitable portfolio with money from new customers, which often takes years.

One tool used to poach staff is so-called «forgivable cash loans», which are nothing more than advance payments.

These payments are calculated using the previous productivity of the customer advisors and forecasts of the proportion of customer funds likely to be transferred.

Up to 90 Percent of Annual Sales

Now UBS has raised its game on recruitment U.S. finance portal «Advisorhub» reported recently, quoting U.S. headhunters. The bank’s previous practice involved payments of 250 percent of a team’s average annual turnover. UBS then paid out this «golden hello» in the form of a combination of salary and bonuses over several years, meaning the immediate advance payment was fairly small.

But now UBS is paying out 60-90 percent of a team's annual turnover in advance, making it a more attractive employer to customer advisors, the «Advisorhub» report said. UBS declined to comment to «Advisorhub».

Alois Pirker, a research director at consultancy Aite-Novarica, sees the logic behind UBS' move. «I think UBS is in a much better environment now to make this franchise look more like a private bank than they were 20 years ago when they acquired it.»

The bank bought Paine Webber, one of the most established U.S. brokerages, in 2000 but then struggled for years to make the U.S. private banking business profitable. Lending to client advisors is also common practice in Swiss private banking, but in the U.S. it is baked into the system. At the end of 2020, UBS had around $2.6 billion in loans outstanding from its financial advisors.

More Creative Recruiting

There is merciless competition in the U.S. among the large wirehouses. Last year, for example, UBS poached several people from J.P. Morgan. However, due to higher prepayments from competitors such as Morgan Stanley, deals are also said to have fallen through. This is why UBS needed to become more creative on recruitment, California-based headhunter Richard Kronman of Kronman, Matthew & Associates said.

Louis Diamond, a headhunter from New Jersey, interpreted the change in practice at UBS as a sign that the client advisors recruited in recent years had delivered. In particular, he pointed to UBS investment bank’s services for wealthy private clients, which had met with great interest.

«UBS cracked some kind of code here,» Diamond said.

Pirker said: «UBS is actually the smallest wirehouse, but they don’t have a retail bank alongside their franchise so there’s an opportunity to be different from everyone else.»

European Compensation

Of course, UBS and other U.S. banks have protect themselves as far as the prepayments go. In many cases, they set the payment at a discount to turnover as there is always uncertainty about how many customers will actually switch banks with the advisor.

Compensation methods are also changing in many cases. Instead of customer advisors being able to take home up to 50 percent of their turnover under the traditional broker model, they now receive an annual salary with a performance-based bonus component.

Diamond said an advisor receives an annual salary of «just $400,000» in a team which makes sales of $15 million-$20 million a year.