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Is UBS Turning Around? Brokerage CEO Says Yes.

Is UBS Turning Around? Brokerage CEO Says Yes.

Some financial advisors at UBS Wealth Management Americas, scrambling to stem the outflow of client assets, are seeing signs of hope: The pace of money withdrawals is easing and a core group of FAs is generating net new money for the first time in several years, Bob McCann, CEO of Wealth Management Americas, told Registered Rep. recently in an exclusive interview at his company offices at 1285 Avenues of the Americas in New York.

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, Bob McCann, CEO of Wealth Management Americas, told Registered Rep. recently in an exclusive interview at his company’s offices at 1285 Avenues of the Americas 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. But, that’s compared with the CHF11 billion that was withdrawn in the fourth quarter of last year, and CHF8.6 billion withdrawn in the third quarter of fiscal 2009. Worldwide the company reported that a total of CHF 15 billion in overall client assets were pulled from UBS in the quarter. But, again, that's a big improvement from fourth quarter, when global outflows totaled CHF56 billion.

There is more good news. 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 in any 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 with agreed. From new FA desktop technology and a snappy new contact management system, to an innovative compensation plan and streamlined management, UBS today is undoubtedly a better place than a year ago, according to several FAs we spoke to. Twelve months ago, FA turnover had been hovering near a shocking 25 percent, asset outflows were 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. He said defections, especially among the biggest producers, have slowed “dramatically” as headcount holds steady at some 7,000 advisors. Though the force may range from 6,500 to 7,200 advisors, today’s headcount is 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 as more nimble than UBS’ largest peers with 15,000-plus advisors each.

Going Upstream
UBS Wealth Management Americas has its sights on the ultra-high-net-worth and high-net-worth clients 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. The architecture, as they say, is open. “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 theirs are not the largest recruitment packages on the Street any more. They reward loyalty, focusing on future asset growth rather than the trailing 12-months’ production common at other firms. “We want to recruit thoughtfully,” McCann said, but not at prices that are “outlandish” by Street standards. (The UBS brokerage has recently recruited a slate of FAs from Merrill Lynch and Smith Barney, according to people familiar with the firm.)

Though he’s careful not to discuss specific details on 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, Nicholaus 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 turnaround the business and streamline management, which he says had “nine layers” before he came. Layoffs included the recent dismissal of 200 employees. Among them were support staff and managing directors, as the brokerage funnels the savings into the likes of new broker workstation hardware and contact management tools.

The malaise among UBS advisors by the time he 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 across from this reporter on the 14th floor, on a clear and sunny day outside after the market had closed last Thursday, 15 April. McCann, the well-respected ex-Merrill brokerage chief, was offering a progress report of sorts, six months into his leadership. Insiders say the ex-Merrill 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, an FA visiting from a UBS office in Massachusetts, overheard I was headed upstairs to see McCann. “You’re seeing Bob?” asked 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 more than this UBS rep. “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” 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 – this total covered an amazing 2,500 individual items – collected and divided among the renewal team. Her package could fill a soft back 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, Dick 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 fact is that this is 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 back 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 that I would like, because I don’t like to lose any advisor, but it is down dramatically.”

People familiar with the 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., Jan 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.

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