The latest scandal at UBS (UBS) shouldn’t financially impact its U.S.-based financial advisors, experts say, but it could weaken the wirehouse firm’s recruiting and retention efforts. This is because the trading loss of $2.3 billion comes on the heels of a host of other issues that have negatively impacted the Swiss-based firm, causing embarrassment for some advisors, they note.
The latest development means UBS loses further “credibility with big and small clients,” said recruiter Rick Peterson of Peterson & Associates in Houston in an interview with AdvisorOne.com. “I hear that from brokers, because clients are asking, ‘Is my money safe with this firm?’ And that makes brokers vote with their feet and move out.”
While there will not be any compensation changes for financial advisors with UBS due to the losses, Peterson explains, it will get “sticky” in other ways: “It has to do with the same issue that’s affected the firm for a long time: They are constantly and negatively in the press.”
In terms of retention and recruiting, Peterson says, the latest bad publicity should hurt them. “UBS is like the gang that can’t shoot straight,” the Texas-based recruiter said. “Plus, they continue to shoot themselves in the foot,” Peterson explained. “They’ve sold the wrong products, tried to take advantage of certain Swiss banking laws and then got caught doing that. Either they don’t understand due diligence or something. This is a problem.”
UBS wealth-management operations in the Americas are led by Bob McCann (left), formerly of Merrill Lynch, and include about 6,860 advisors. They have the highest average assets under management per FA of the four wirehouse firms as of the second quarter of 2011 at roughly $113 million.
News that there were losses from unauthorized trading at UBS worth an estimated $2 billion emerged on Thursday. On Sunday, though, UBS said that these losses totaled $2.3 billion and that “no client positions were affected.”
“The loss resulted from unauthorized speculative trading in various S&P 500, DAX, and EuroStoxx index futures over the last three months,” the company said in a press release. “However, the true magnitude of the risk exposure was distorted because the positions had been offset in our systems with fictitious, forward-settling, cash ETF positions, allegedly executed by the trader. These fictitious trades concealed the fact that the index futures trades violated UBS’s risk limits.”