Fixing UBS

Fixing UBS

What Bob McCann is up against in turning around UBS' wealth management unit.

Just a few weeks into his new job, Bob McCann is already setting UBS's Wealth Management Americas division on a brave new course.

Last month, after barely a fortnight as CEO of the UBS Wealth Management Americas brokerage, McCann brought aboard four top guns who'd served Merrill at the highest ranks: Bob Mulholland in the Private Client Group; Brian Hull, who'd overseen the Private Bank and Investment Group; trading and operations vet John Brown, and marketing whiz Paula Polito. The seasoned executives join forces with other pros from the UBS division on McCann's so-called Renewal Team. Its mandate: to develop a turnaround strategy for the beleaguered?Americas business within 100 business days. The plan will be rolled out in early March.

Despite near 300 percent recruting deals at Merrill Lynch and Morgan Stanley Smith Barney of late, McCann, 51, is adamant he won't throw money around to recruit big producers. But he says he will look across the industry for talent. By all accounts, UBS, which had 7,286 advisors at the end of the third quarter, has some catching up to do. It's Wall Street peers all have bigger advisor networks, and are more quickly regaining their footing after the credit crisis slammed the brokerage business. Retaining key financial advisors, who are being vigorously pursued by rival firms, will be top on McCann's list.

UBS Is Not Merrill

Still, as McCann told Registered Rep., his strategy is not about copying the successful Merrill model. “I am not interested in creating Merrill 2.0,” he says. “What worked for us at Merrill and other businesses over the past 25 years or so was great for that time, and it was great for that company. But what I want to do here is build a culture and a business for this present time, and our position today in the marketplace.”

Analysts, however, think McCann is being a bit coy. Luring top management talent and brokers, as well as assets, from Merrill and other firms, as UBS aims to restore profitability, is a sensible strategy, according to Alois Pirker, wealth management director at Aite Group. “There's a good amount of potential talent that can be lifted out of Merrill. McCann obviously knows all those guys,” Pirker says. “A lot of executives have not been happy there with all the turmoil,” he adds, referring to the integration of Merrill into Bank of America.

UBS can significantly reduce its fixed cost structure, too, simply by increasing its advisor headcount. Don't expect FA ranks to double, though. McCann says being the biggest (think behemoths like Morgan Stanley Smith Barney, Merrill and Wells Fargo, with 15,000-plus advisors each) does not mean you are automatically the best.

That said, the fixed cost of supporting UBS' platform, its product mix and broker workstations, would drop substantially with a bigger network, analysts say. At the same time, that approach would allow UBS to ramp up spending to boost broker productivity — and play catch up.

For example, Merrill Lynch recently revamped its broker workstations, and treated its brokerage business to Client Review Center 2.0, and a new asset allocation tool, and launched for clients. “UBS' systems are at least a generation behind Merrill Lynch,” says one former Merrill and UBS producer, who recently left the advisory business. “UBS will have a hard time bringing over top players from Merrill, because its reporting capabilities just aren't up to scratch.”

Adds Dick Bove, an industry analyst at Rochdale Securities: “Technology must be first rate. Merrill has it, so does Morgan Stanley. But it is very expensive and the technology keeps improving. That's why you need a very large sales force to absorb the cost.”

Still, with McCann at the helm, recruiting is suddenly a lot easier for UBS, according to headhunter Danny Sarch at Leitner Sarch Consultants. “People love the fact there is somebody aggressive there now who is saying good things. I've gotten calls from people who once worked at Merrill and didn't want to consider UBS. Now they want to consider UBS.”

Defecting Clients

The new CEO's strategy will be a big deal considering the Swiss bank's affiliate has had such a bad year. McCann, in a battle against time, must produce a dramatic plan to stem the outflow of client assets, and return the wealth management affiliate to profitability. It's a tall order.

The Americas unit saw clients pull out some 10 billion Swiss francs (about $10 billion) in assets in the third quarter, and nearly 6 billion Swiss francs (about $6 billion) in the previous quarter, as they responded to a controversial tax lawsuit that hurt UBS' reputation. The case entailed 52,000 secret Swiss accounts, and was settled this year between Switzerland and the U.S. The U.S. government, in concert with the IRS, targeted banks like UBS, suspected of helping American clients evade taxes in overseas accounts.

Meanwhile, UBS has also lost advisors, with 653 FAs departing in the third quarter. Some were lost when UBS sold 55 branches to Stifel Financial; another 150, small producers, were let go. But others clearly left to avoid suffering more brand embarrassment, as UBS struggles to regain a financial footing and rescue its image.

McCann has to move fast. The Pittsburgh-area native, weaned on the virtues of hard work by his dad, 82, a retired Pittsburgh Press printer, seems confident he can pull it off. “I want UBS in the Americas to be the best wealth management business in America, not necessarily the biggest, but the best of the best,” McCann told Registered Rep. from his new office in Weehawken. N.J., on his first whirlwind day on the job.

At a town hall meeting that morning, hosted by UBS CEO Oswald Grubel, to acquaint the curious Americas employees of UBS with their new boss, McCann came away with positive impressions.

“I competed against UBS and PaineWebber [before it was acquired in 2000 by UBS for $10.8 billion] in different businesses, and I know they were a tough competitor,” McCann said. “You don't become a tough competitor unless you have talented people — and there are talented people here at UBS today.”

McCann's star appeal does not hurt either: he managed the mighty thundering herd, generating profit margins in the mid-20s in 2007 and was in the running for CEO of Merrill. But to boost UBS Wealth Management Americas margins to the 15 percent he is targeting, in today's markets, will be a challenge.

Prior to joining UBS, McCann told Registered Rep. that mid-sized wealth management businesses can succeed by outsourcing support services, such as research, and handing off back office functions, such as settlement, to third parties. But aside from some cost-cutting and serious reorganization, it will?also take the creative energies of McCann and his transition team to get things right.

“I am convinced Bob McCann, given his background and reputation, knows how to do all the things necessary to make UBS work better,” says Bove. “But 15 percent is a rich number.”

His success will depend as much on his new strategy as on market conditions. These are in McCann's favor, at least for now. “He has the wind at his back,” says one Merrill broker who admires McCann.

A rising market will not only boost advisory fee revenue but could also give a lift to underwriting deals, which could translate into profit opportunities for retail brokers who pass these along to clients: “In a congenial market you can sell products that are extremely profitable,” Bove says.

Still, McCann's biggest challenge will be to decide exactly where UBS fits in the overall wealth management firmament, analysts say. Among the top four, UBS wealth management Americas has been adrift. “UBS has a different problem in the U.S. brokerage space. All the other big players have made bold moves and changed their strategies forced by market conditions — Merrill had to be sold, the same thing with Smith Barney. UBS is the only wirehouse that has not made any big move,” Pirker says.

Of course, there are the frequent rumors that the parent company may sell or spin off the U.S. wealth management unit, perhaps rebranding it under the former PaineWebber name. “Everyone at UBS denies them, but clearly?these are?options,” says Pirker. “But with a retail network in the U.S., UBS becomes a household name. If they sell, they lose that market presence.”

McCann has dismissed the rumors, too. He says he didn't settle his non-compete lawsuit with his former employer, Bank of America, to take a post at UBS that would not be relevant. “We want to grow this business at UBS,” he adds. “We want to grow it as part of UBS.”

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