Bob (Robert) Mulholland, 61, group managing director and second-in-command at UBS Wealth Management Americas, talks to Wealthmanagement.com about the firm’s new initiatives, catching up with competitors, production targets, mortgages and securities-backed lending and potential acquisitions.
Bob McCann (CEO of UBS Group Americas) reiterated recently how this is a great time to be in the advice business. UBS Wealth Management Americas was struggling when he took the helm back in October 2009. Today, it’s profitable and McCann recently told wealthmanagement.com that UBS WMA is “executing at the highest levels in the firm’s history.” He now talks about an “enhanced client focus.” What’s involved there?
BM: We just started Quick Wins 11, the successor of Quick Wins 1. There was bureaucracy creeping back in. We re-opened an e-mail inbox for employees to tell us what we can do more efficiently, especially on the client experience. We eliminated more bureaucracy, saving time for FAs and support staff by streamlining processes, like forms used with Power of Attorney. We revised certain householding policies.
I think the crowning achievement of a turnaround would be to enhance the culture of UBS WMA. I define that as how proud you are to work here and to wear the colors, like the hat and the sweatshirt with the UBS emblem, to the Little League games. We have a cultural initiative, Aspire, launched late last year and run by [regional] senior executives Jason Chandler and Bill Carroll. An outside firm surveyed our employees. They asked them to rank how they perceive themselves and their values; and then how they perceive where we are as a firm and how would they rank us. And there are gaps in perceptions in each column. We are trying to to close those gaps.
How close are you?
BM: It’s acceptable. That can be found in our turnover numbers, which are as low as they’ve ever been. We had an annual attrition rate of 15.3 percent in 2009 (of FAs with a minimum of $250,000 in annual production.) It was 3.0 percent in 2013. In surveys, 92 percent of our FAs said they are either satisfied or very satisfied with the firm.
BM: Advice Beyond Investing, part of Wealth Management Transformation headed by David McWilliams. David is responsible for delivering our various capabilities to clients and anticipating what will be important to them five years out. And I will tell you what the baby boomers are going to demand — take care of them for a longer span of time since life expectancies are increasing. When we poll our wealthiest clients, their number one concern is long-term health care; not being a burden to their children; being able to transfer their money to their children or to a charitable institution.
Let’s talk performance. UBS WMA has hit the big targets McCann outlined soon after he took the helm: Annual pretax profit of $1 billion and annual average broker productivity of $1 million. McCann vowed to bring down the division’s cost/income ratio further to around 75 percent as it has hovered around 85 percent in recent quarters. He set new targets for advisers in lending.
BM: As long as we can control expenses, the next dollar in would be our most profitable dollar. And there are certain lines we can grow. For example, we were relatively late in building out a good bank offering whether in securities-backed lending, residential mortgages and cards. Rosemary Berkery, head of the WMA Banking Group, has taken that to the next level. We really didn’t get a good start on that until 2011. There is a little bit of catch up to do.
Mortgage balances and securities-backed lending increased by 220 percent and 28 percent, respectively, between 2011 and 2013. Balances exceeded $25 billion in the first quarter in securities-backed lending; our mortgage balances have expanded from under $100 million to in excess of $6 billion. Our FA penetration rate is 26 percent – we want to get that to over 50 percent. [Penetration is an FA with two or more mortgages], mortgages balances rose 68 percent year-over-year. Meanwhile, overall mortgage originated volume in the US declined by 56 per cent in the same period.
One analyst said UBS is behind rivals in fee-based accounts. Last year, this grew three percent at UBS WMA. In the most recent quarter, UBS WMA had about $320 million, or 32 percent of client assets, in managed accounts. The target is 40 percent of your client assets in managed accounts in the next three years.
BM: We are a bit behind because many of the other firms had a head start on fee-based investing a long time ago. Ours has certainly grown in leaps and bounds in the last couple of years. But I go back to the client – we don’t do this solely to say to an analyst look how our fee-based business did. We do this to give the client a well-diversified, well-performing portfolio.
Net new money (NNM) at UBS WMA has been positive for the past 15 straight quarters. Some of that was boosted recently by the hiring of seasoned FAs.
As a matter of fact, last year was one of our best years in net new money, up over $20 billion. Compare that to 2009, when net new money was somewhere down around the $12 billion mark.
So you are pleased?
BM: Yes and no. Yes, I am pleased with the trend, but our trend is not going to go straight up. Part of the reason is back to our baby boomers. As long as I’ve been in the business they’ve been accumulating money for retirement. When they go from accumulation into distribution mode we need to have the necessary activities in place to bring in [more] money, or net new money, to replenish what’s going out to fund their retirements. So the need for net new money in the future will be a lot more [pressing]. So far, I am pleased about that [challenge].
McCann noted that there was more work to be done but stressed it is going to be completed. What did he have in mind?
BM: We already have the highest FA productivity on the Street. Our strategy going forward is focused on the continued growth and productivity of our FAs. Our job is to help advisors increase their productivity, and to provide advisors with the resources to do so, motivating them through leadership to aspire to double their production and to drive success.
Do you have a timeframe?
BM: I don’t. I would say it is very aspirational. I would also tell you that in the beginning of 2010 we were at about $650,000 [per FA] in productivity and now we are $1.03 million, and we are performing well. If I were to extrapolate from that, it would be six years out. Am I going to say this is exactly where we are going to be in six years? I don’t know, because a lot depends on people’s continued motivation to get to much higher levels than they’d ever imagined they’d get to. That is part of the art of leadership. Finally, the market will have a lot to do with it. If the (market value of client) assets grow at something in the high to single digits along the way, then our chances of hitting (the target) are much better. If you have a crack in the market then this aspiration is going to be affected.
Any change in FA headcount? It was 7,113 in the last quarter. That’s consistent with your trend and stated goal since late 2009.
BM: I don’t measure myself in numbers, whether I am up 100 or 50 FAs. I like to remain flat to be honest. Last year, we hired just over 300 experienced FAs from the industry, in addition to a little over 200 brand new FAs and Wealth Planning Associates who we train.
Technology, when you joined, was lacking at UBS WMA and needed improvement. Are you happy today?
BM: I am happier. Our technology, when we got here was somewhat starved and it wasn’t very stable; you hoped when you turned on your computer when you came into the office it worked. So we had a lot of work to do. Believe it or not, there are still [negative] effects from super-storm Sandy with certain components of our technology from vendors. But we are spending a lot of money on stability as we speak. We are providing new software for all of our computers in every office; turning over the hardware ever four years. By the end of the year, we will have new software in all our offices, new digital phones in every office, fibre optic lines where appropriate moving into every office that would actually give us back up lines in case we go down, but also give us more bandwidth.
How do you see the wealth management industry two years from now, further consolidation, large firms breaking up into smaller parts?
BM: My own personal view is that the consolidation of the large firms is done. You may see some more consolidation in some of the smaller firms just simply because they have to. These are smaller firms that don’t have the advantage of scale to compete in products and service necessary for the higher net worth or ultra high net worth clients -- and on the regulatory issues from a spending side. They are going to have to deal with it.
Would you see UBS making acquisitions of smaller firms in the independent space? UBS WMA has talked about this possibility recently as it looks at the RIA space and as you push for the financial planning business of households with over $1 million in assets?
BM: I can’t say yes or not, but I can tell you not yet. However, if an opportunity were to present itself we would talk about it. But that is not something we talk about every day. What we do talk about every day: How do get our 7,100 plus FAs to best serve their clients.
So the idea of an acquisition is to improve your overall performance including your FAs and platform?
BM: Maybe, maybe not. But if we bought a company that had producers substandard to us we would impede what we’ve done already. Our great achievement has been to take great producers and make them better. For example, if we acquired a firm that had average productivity of $400,000 to $500,000 per advisor, it dilutes that. To us it is so much more about quality over quantity.
Are there acquisition candidates on you radar?
BM: At this particular moment none that we are aggressively looking at.
But you have looked at some?
BM: You always look around. And we have a group within the firm, and we also have a group in Switzerland, that may be looking. But I will tell you the majority of my time is spent on what I do every day, that is trying to help our managers and our FAs do a better job. So if you were to say to me am I looking? Not specifically. And I think if you go right up to Bob McCann, the majority of his time is spent making what we have better. But you never know what the future will bring us.