Sale of UBS-Americas Would Be ‘Nuclear Option,’ Says Expert

As uncertainty continues over how UBS’ new interim CEO will put the company and its finances back together, UBS financial advisors in the United States are facing a barrage of calls from upset clients and eager recruiters. Still, the likelihood that the U.S. wealth operations will be spun-off, though it does exist, is somewhat remote, experts and recruiters say.

The new CEO, Sergio P. Ermotti, who is a veteran Merrill Lynch executive, is likely to do all he can to keep the advisors calm and may even introduce some cost-cutting measures, says Ron Edde, a recruiter with Armstrong Financial Group. “Or there is the nuclear option of spinning off and selling the wealth-management operations” in the Americas, he said in an interview with AdvisorOne, “but the leadership of UBS will do all they can to prevent it.”

He and other industry insiders, however, acknowledge that if there is an exodus of clients or advisors, “This option will be back on the table,” said Edde, who adds that it has been a rumored strategy for some time.

Chip Roame (left), head of Tiburon Strategic Advisors, a consulting group, agrees. “At a more radical level, and UBS repeatedly says its full-service brokerage business is not for sale, that may be its expectation. But capital constraints created by stumbles like this can change all strategies,” Roame explained in an interview.

UBS advisors are hearing from clients, according to Edde. “I just got off the phone with an advisor who said he’d spoken with a large client who said, ‘We don’t trust UBS.’ Right now, there’s a general flight to safety and security. And that prompts clients to ask, ‘If UBS can’t manage its own money, what can it do with ours.’ ”

While such perceptions may be unfair to the advisor, “Fair or not, this is the perception [of the general public], and advisors are hearing it in significant numbers,” Edde shared.

“Financial advisors are tired of addressing their firms’ investment banking business operations’ mistakes; this is another example,” Roame said. “That said, many financial advisors are under contract, so they can complain but not easily move without loan issues.

(Clients, of course, do not face such constraints when it comes to moving their money.)

“Will this challenge UBS’ ability to recruit?” asked Roame. “Yes. They may have to pay more.”