UBS Wealth Management Americas, scrambling to stem the outflow of client assets, is seeing signs of hope. A big one? The pace of asset withdrawals is easing, says Bob McCann, CEO of Wealth Management Americas, who recently gave Registered Rep. an exclusive interview at his company's offices in New York.
Yes, client assets are still walking out the door: UBS Wealth Management Americas suffered net withdrawals of 7 billion Swiss francs (CHF) in the first quarter of 2010, just under 1 percent of the unit's assets. But, that's compared with the CHF11 billion that was withdrawn in the fourth quarter of last year, and CHF8.6 billion in the third quarter of fiscal 2009. Worldwide the company reported a total of CHF15 billion in overall client assets pulled from UBS in the quarter. But again, thats' a big improvement over the fourth quarter, when global outflows totaled CHF56 billion.
There is more good news, too. For the first time in several years, people familiar with UBS say, the Americas unit is finally generating net new money — among a cohort of FAs who have been at the firm 12 months or longer. McCann declined to discuss this development in detail, but speaking generally, he said UBS Wealth Management Americas is “back on the front foot winning mandates and getting assets in the door.”
The proverbial glass, as McCann sees it, is now half full. Some advisors we spoke to agreed. With new FA desktop technology and a snappy new contact management system, plus an innovative compensation plan and streamlined management, UBS today is undoubtedly a better place than it was a year ago, according to several FAs. Twelve months ago, FA turnover was hovering near a shocking 25 percent, asset outflows were much higher, and a return to profitability seemed elusive. FAs were demoralized.
“There isn't a question in my mind, as we sit here now, that we are a better company and in a better position than we were on October 26, the day I got here,” McCann said. Defections, especially among the biggest producers, have slowed “dramatically,” he says, with headcount steady at some 7,000 advisors. Though the force may range from 6,500 to 7,200 advisors, today's headcount is close to what he reckons is the right number. That's still a significant decline from about a year ago when the brokerage employed 8,607 advisors. But McCann is pleased, calling today's reduced force more nimble than those of UBS' largest peers, which have 15,000-plus advisors each.
Going Upstream
UBS Wealth Management Americas has its sights on ultra-high-net-worth and high-net-worth individuals in large markets like New York, Chicago and San Francisco, as it aims for $1 billion of pre-tax profit within the next three to five years. The new UBS brokerage will focus more on advice, but it will also ramp up offerings of banking products, such as mortgages and loans. Its platform is open architecture. “We will pay our FAs the exact same whether they sell proprietary products, or non-proprietary products, and there will be no quotas,” explained McCann.
McCann and his management team have also made it clear they will not be offering the largest recruitment packages on the Street anymore. The firm will reward loyalty, focusing on future asset growth. “We want to recruit thoughtfully,” McCann said, but not at prices that are “outlandish” by Street standards. (UBS has recently recruited a slate of FAs from Merrill Lynch and Morgan Stanley Smith Barney, according to people familiar with the firm.)
Though he declines to discuss specific details about the loss of FAs last year (aside from defections, some unprofitable and small producers were cut loose, for example), McCann thinks some departures should have been avoided. He was not impressed by the sale to Stifel, Nicolaus of a 55-branch UBS network of 320 advisors in March 2009, prior to his arrival. The branches, spread among 24 states, accounted for about $15 billion in assets. “I wouldn't have done the Stifel, Nicolaus sale. We always need good advisors who have relationships with clients,” he said. “It was penny wise and pound foolish.”
McCann said the brokerage has completed the “vast majority” of employee layoffs under the latest plans to turn around the business and streamline management, which he says had “nine layers” before he came. Layoffs included the recent dismissal of 200 employees, among them support staff and managing directors. The brokerage has funneled its savings into the likes of new broker workstation hardware and contact management tools.
The malaise among UBS advisors when McCann came on board was palpable. “Advisors were at the end of their rope with the company, not that I hadn't expected that,” McCann said. “But the group included good, talented people, who had just had it. They had had it!” he added, emphatically. Today, he says, employee morale is vastly improved.
“This isn't only about me; it is about me and the people who were here before I arrived, and the people who I recruited. I would say we have stabilized the company, and there are early signs of progress,” said McCann, sitting comfortably at a small round table after the market had closed on a clear sunny day in mid-April. McCann, the well-respected ex-Merrill brokerage chief, was offering a progress report of sorts, six months into his leadership. Insiders say the former boss has a close working relationship with UBS AG CEO Oswald Gruebel, a plus in this particular turnaround game.
The Renewal Team
Things are indeed chirpier. At the reception desk on the ground floor, a FA visiting from a UBS office in Massachusetts overheard I was headed upstairs to see McCann. “You're seeing Bob?” asked the FA, Kevin Donovan, almost incredulously. “He's the best thing that's happened at UBS in a very long time. I came from Merrill 12 months ago, and we are very happy with him. Bob has done wonders.”
McCann has wooed many more like Donovan. “If you can hear the excitement in my voice today, it is real, I don't manufacture it,” said FA Marty Halbfinger, who's a member of the 14-strong FA “Renewal Team,“ a financial advisor council created under McCann. “We all feel the new management team is just a breath of fresh air; extremely decisive. It has been refreshing to say the least,” he added.
Another council member, Lisa Chapman, praises a new company-wide communications channel. This permits employees to e-mail their questions, ideas, and fears to all members of UBS' full renewal team, which includes senior management. Chapman recently finished reading her latest share from a batch of 1,745 e-mails — which covered an astonishing 2,500 individual items — collected and divided among the renewal team. Her package could fill a book at 85 pages. Some e-mails are routed to UBS departments with the appropriate expertise. Council members also phone senders, such as the FA Chapman contacted to notify him of UBS's full arsenal of financial planning support. “People at UBS are seeing how they are getting quick responses, so they send in another e-mail, and then they tell someone else,” Chapman said, explaining the volume of e-mails. “I think it also shocked and pleased people that council members called them.”
Now the Bad News
Despite the positive signs, the Americas unit of the Swiss banking giant is still in trouble. Both within and outside the company, some think McCann is dressing it up for an eventual sale, or spin-off. McCann has consistently denied this, and recently said it won't be rebranded as PaineWebber either, the brokerage acquired by UBS in 2000 for $10.8 billion.
Industry analyst Richard Bove of Rochdale Securities says McCann has a hard task. “The fact that outflows of client assets have slowed can be viewed as a positive sign, but the outflows are still clearly a negative,” he said.
McCann does not underestimate the magnitude of what he inherited. “It has been a challenging six months, to be honest,” he said. “This was a business that had lost its way strategically, in terms of execution, and it was losing its culture.”
UBS advisors in North America have suffered more than their share of recent industry difficulties, starting with the credit crisis that began in 2007. That resulted in an astonishing $52 billion in credit losses for the Swiss bank. UBS was battered by the sale of controversial auction rate securities and, consequently, was forced by regulators to regurgitate $22 billion. Then came an embarrassing IRS tax scandal last summer.
Not surprisingly, the various problems contributed to the mass defection of advisors as nervous clients pulled their assets. Still, signs the bleeding is beginning to ease came in recent pre-announced first quarter earnings. (The Zurich-based bank said it was expecting to report first quarter pretax profit of at least CHF2.5 billion, or about $2.3 billion, in May. That would be three times the size of fourth quarter pretax profit.)
As the scale of client withdrawals abates, McCann points out that advisor defections have slowed. “Advisor turnover is down dramatically,” he said. “It is still higher than I would like, because I don't like to lose any advisor, but it is down dramatically.”
People familiar with UBS reckon that in the 12 months to mid-2009, turnover was running as high as 25 percent. To offset the losses, the embattled brokerage hired aggressively by offering some of the largest recruiting packages in the industry.
McCann acknowledges the damage caused to advisor morale. “Think of the turnover whipping through an organization and what that did for the business,” he said. “My job now is to reconfirm in some way every day to our advisors that they are working in the right place.”
McCann also said the brokerage plans to commence a training program for rookies in the next 12 months, hiring several hundred, to join with teams at UBS. “We are not ready for it yet, but we will have one where we identify, hire and develop advisors from the ground up,” he said. (The training trend is not exclusive to UBS, but more general around the industry; see “Rookie Training Makes a Comeback,“ Registered Rep., January 2010.)
Bove said McCann is not out of the woods. But he added: “I think, ultimately, UBS will have inflows, as opposed to reduced outflows, maybe at the end of this year.”
McCann, who fits client meetings into his packed working schedule, said he and his team want to send a clear message to advisors that the brokerage today at UBS is run by managers who understand and respect them. “We want to have a partnership with our advisors,” he said.