September 26, 2011

UBS CEO’s Departure Puts Advisors in Hot Seat

Recruiters say financial advisors are fielding calls from clients about Gruebel’s departure and their chances of winning over prospects is plummeting

On Monday, speculation continued as to whom would permanently replace former UBS CEO Oswald J. Gruebel, who resigned from the bank early Saturday, and what changes were in store for its investment bank and other operations. For UBS (UBS) financial advisors, such uncertainty means they must field sensitive calls from clients while dealing with a difficult climate for prospecting and giving at least some consideration to their career options, recruiters say.

Mindy DiamondThere is the overall perception that UBS’ wealth-management operations are its crown jewel, says Mindy Diamond (left), head of Diamond Consultants. “And UBS advisors should only be proud of what they do. But if you talk with them, it’s a tough time. They’re on the frontline and being asked by prospects and clients to defend the firm, which is hard to do if you don’t believe in it,” she said in an interview with AdvisorOne.

This can really hurt advisor efficiency, Diamond says, “If you have to spend half your time answering calls from nervous clients and bout the stability of UBS, the stability of their assets and checks and balances at the firm.”

In some ways, it’s reminiscent of 2008-2009. “It’s an awful thing to be tasked with …  and advisors are still reeling from that period. It’s just one knock after another,” explained Diamond, who recruits for wirehouse rival Morgan Stanley and other clients.

Robert McCannU.S. advisors at UBS have been upbeat about the firm over the past two years or so under the leadership of former Merrill wealth-management executives Bob McCann (left) and Bob Mulholland. “But can McCann stave off another round of attrition? Who knows?” stressed Diamond.

UBS advisors genuinely liked Gruebel, she says, thanks to his extensive roots at Credit Suisse and other factors.

As for recruiting, the attractive packages offered by UBS–which has some 6,800 advisors–may look good on paper, but it’s also part of the problem, says recruiter Rick Peterson of Peterson & Associates.

This type of negative publicity and uncertainty over leadership and operations can bring recruiting to “an absolute standstill,” Peterson said in an interview. “No one wants to go to a firm with such uncertainty on the table, in my opinion.”

Profitability is a problem for UBS, he says, because of the economies of scale of running a business with a complex number and type of products and services. “It seems to me that they are too small for the infrastructure they have to have to be in the brokerage business,” shared Peterson. “They could double their number of advisors and would not have to add a person in operations.”

Recruiting Conundrum

The “huge deals” that UBS is offering–which include 150% to 180% of yearly fees and commissions upfront and up to 200% more in other bonuses over a nine-year period–are “the biggest on street,” Peterson explains.

“As the profitable brokers leave UBS, it looks like they may have to keep offering huge deals. But that means these new advisors are unprofitable and will be so for some time. In other words, the deals are exacerbating … the unprofitability. And all that can lead to further moral problems.”

At the branch level, pressure on overall profitability can hurt the bonuses expected by managers. “These are the face of the firm for the brokers,” the Houston-based recruiter said. “If that lowers morale, it can add further uncertainty and prompt some advisors to ask ‘what are we doing here?’ ”

While both Peterson and Diamond say these are tough times for brokers overall, they say the situation at UBS is particularly difficult.

“Advisors at UBS are very, very concerned about prospecting,” Diamond concluded, and that is prompting them to consider other career choices. “You better have a Plan B,” she said.  

As for what McCann can do to rally advisors in this climate, there may be little to nothing for him to say, according to Peterson. “I don’t think McCann can tell the troops anything to put them at ease until a new [permanent] CEO is named and then can express plans for the future of the firm in the U.S. market,” he concluded.

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