WealthManagement Magazine
Ubs Rolls Out Mortgages For Advisors

Ubs Rolls Out Mortgages For Advisors

UBS advisors welcome the firm's plans to push mortgages through the retail division. It means a little extra padding on payout when times are tight.

Financial advisors at UBS Wealth Management Americas closely watched last month as the U.S. brokerage rolled out plans to sell more of its own mortgage and lending products through its retail brokerage force. While the mortgage market has recently spelled trouble for Wall Street (think delinquent loans, toxic mortgaged-backed securities), UBS is calculating that the worst is over. Most UBS advisors, looking for added revenue in a competitive market, welcomed the UBS push.

Today, less than 20 percent of FAs at the Americas division of the Swiss banking giant have customers who originated their mortgages at UBS. That compares with up to 60 percent of advisors at UBS' peers, firms such as Merrill and JP Morgan, according to internal UBS estimates confirmed by the brokerage to Registered Rep. (UBS had 6,760 advisors as of June 30, 2010.)

The UBS division pays out the same, approximately, on all loan products, from mortgages to securities-backed lending instruments to lines of credit, said the firm. UBS did not provide Registered Rep. the exact figures, but FAs get basis points on the loan principal, which is then added to the FAs production, or revenue.

At least one FA at UBS in the U.S. had mixed feelings about selling more mortgage and loan products. The advisor said he feels loans are more of an “ancillary service” and can be frustrating to manage. But he also said that without this service, UBS might lose assets to competitors.

“It's a double-edge sword, frankly,” said the FA. “We want to advise on everything. We don't want a client to refinance, for example, without asking our opinion. Yes, it's nice to have these products, but on the other hand, mortgages are not always user-friendly for the advisor. There is a lot of paper; so much can go wrong. There's the close to handle, fees, and it can take time and energy away from your core business.”

Still, plenty of FAs at UBS in the Americas had a favorable view. Headhunter Danny Sarch, who has placed FAs at UBS, says he has heard first-hand that many UBS reps are excited about the push into mortgage loans. “It was one of the criticisms in the past at UBS — not enough opportunities to sell these products. And now this is fixed,” Sarch says. “FAs at UBS see this as a positive step.”

The Rollout

As part of the rollout, UBS Americas is reorganizing its Banking Products unit into the Banking and Lending Solutions unit and has hired new talent. It lured away Jonathan Kessler from Bank of America's Merrill Lynch to head up the new unit. Frank Destra, who ran the residential-lending business at Goldman Sachs' banking unit, will be in charge of leading mortgage sales and expanding the business.

The move is part of a bigger overhaul at UBS Americas wealth management operations, headed up by Bob McCann, who has set an annual pre-tax profit target of about $1 billion for the division. (The wealth management Americas unit reported a pre-tax loss of $61 million in the second quarter. But excluding restructuring charges, it recorded a profit of $72 million for the quarter.)

UBS Wealth Management Americas estimates that its customers have about $140 billion in mortgages outside the firm, and up to 20 percent of them refinance each year. The UBS division is aiming to originate about $3 billion to $5 billion in client mortgages from its banking unit, known as UBS Bank USA, in the next three to five years. The objective is in excess of $100 million in annual profit.

The UBS bank in the U.S. is also aiming to expand its credit cards base and to become “the card of choice” for UBS' affluent clients. At the moment, less that 10 percent of UBS client households in the Americas use their UBS credit card, UBS confirmed. Similarly, UBS wants to expand its deposit base. The bank has some $26 billion in deposits but UBS estimates that UBS clients are holding more than $300 billion in cash elsewhere.

Karina Byrne, a spokesperson for UBS told Registered Rep. that FAs would have an “incentive” to sell UBS loan products because sales would be factored into their compensation. She stressed, too, that the mortgage component of a client's portfolio will not be “handed off” to UBS mortgage specialists.

That's how it basically operates at Merrill Lynch, one large Merill producer explained to Registered Rep. He noted that Merrill offers reps “referral fees” on an annual “stepped down” basis on the mortgage products they sell each year. In other words, reps earn a percentage of the revenues generated on a declining basis each year. “You are paid on everything the banker generates from your referral,” he says, noting how the marriage of the banking side of Bank of America and the brokerage side of Merrill has opened up more opportunities in the mortgage and loan side. “It's pretty attractive.”

Adds this Merrill FA: “It's a pretty myopic view to dismiss the idea of selling loans and mortgages because having this capability is pretty attractive, and it gives you more stickiness with your client.” Merrill Lynch was not available for comment.

Destra, the new head of the mortgage unit, will embark on a campaign to recruit mortgage specialists who will work alongside advisors and clients. UBS says it currently employs “less than 10” mortgage specialists, who will work with brokers in their branches. But it is planning to increase that number to about 35 in the months ahead.

One former UBS broker, who left the Americas division in 2007, recalls that mortgage sales were a challenge when he was at UBS because rival firms offered better rates. He refinanced a home loan for one client but he didn't find mortgages an exciting or lucrative business. “The timing would seem to be better now for UBS,” he adds.

Meanwhile, the FA at UBS who had mixed feelings, admits he's already gotten some business out of it. “We're getting a lot of calls about mortgages. We already have two in the pipeline and another one on the way today — rates are low, so the environment is right.”

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