UBS Group (UBS) CEO Sergio Ermotti agrees with Morgan Stanley (MS) CEO James Gorman, at least on one point: The proposed disclosure of upfront payments paid to advisors who switch broker-dealers should reduce turnover.
The transparency, he said on a call with equity analysts Tuesday, “is going to clearly prevent or slow down the amount of people, the turnover of financial advisors, in the industry.”
Over time, this means that firms like UBS and Morgan Stanley will see “a beneficial effect on compensation,” Ermotti added. “But this is not something that you will see on a quarter-by-quarter basis. It's going to take time … it's clearly a good news in respect of improving the economics of the difference.”
According to CFO Thomas Naratil, UBS is not the biggest spender on advisor recruiting on Wall Street.
“We are not the high payer for recruiting bonuses at this point in time. We have a very disciplined process on that,” Naratil said during the conference call.
“We think that we've got a very attractive model as a firm that's focused on wealth management. As a result, we don't have to pay the highest price to get the best-quality advisors. And I do think that, that's an important aspect in the model for competition. It's not about buying, it's just about compensating people for making the move.”
Today’s upfront payments “are a function of record-low levels of industry attrition. The industry … pays those amounts because people don't want to move,” Naratil added.
Earlier in the call, Ermotti and Naratil discussed UBS’ latest earnings. The firm said Tuesday that it had a third-quarter profit of 577 million Swiss francs ($644 million) vs. a $2.1 billion-franc loss in the year-ago period.
The results included charges of 586 million francs for litigation, regulatory and related matters, issues that — along with larger capital requirements — are likely to limit the bank's ability to meet its profit targets in 2015, the bank says.
“As we anticipated, the third quarter saw a number of headwinds. Client activity decreased significantly and risk aversion increased as clients intensified their focus on capital preservation,” said Naratil during the call. “Nevertheless, performance was resilient, as we delivered [an adjusted] pretax profit of CHF 484 million in a challenging quarter.”
In the latest period, the bank trimmed operating expenses and staff. Its total headcount fell to 60,635 from 62,628 last year. Also, UBS says it has set aside some $803 million to settle claims in the United States tied to mortgage-backed securities.
The unit recorded a pretax profit of $218 million, up 32% from $165 million in the year-ago quarter but down 11% from the second quarter, which had a record profit of $245 million.
Invested assets were $919 billion, an increase of 3% from $892 billion in the second quarter and up 10% from $832 billion in the year-ago period. Revenues were $1.748 billion, an improvement of 12% from $1.565 billion a year ago but down 2% compared with $1.780 billion last quarter.
“Additionally, at $1.3 billion, recurring income increased to record levels,” Naratil said. “This was offset by a decline in transaction-based fees on seasonally slower client activity, as well as higher loan loss allowances and a $20 million trading loss related to pressure on Puerto Rico municipal securities.”
The number of advisors rose to 7,137 from 7,099 in the second quarter and 7,032 a year ago.
“FA attrition remained at historical lows, and the business continues to enjoy strong momentum,” Naratil noted.
Net new money was $2.1 billion, giving the unit 13 straight quarters of positive inflows.
Average invested assets per financial advisor increased to $129 million, up 2% from Q2 and up 9% from $118 million a year ago.
Average fees and commissions per financial advisor were $994,000, down 1% from $1,005,000 in Q2 and up 12% from $890,000 in a year ago.