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UBS Cites FA Recruitment Pay for Q4’s Profit Drop in Americas

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UBS Group (UBS) reported a fourth-quarter 2014 net profit on Tuesday of 963 million Swiss francs ($998.3 million), a jump from 5% last year. Its overall revenue grew about 7% to 6.75 billion Swiss francs ($7 billion).

Fourth-quarter results in the group’s wealth management operations in the Americas included operating income of $1.924 billion in Q4’14, up slightly from $1.919 billion in Q3’14 and an increase of 4% from $1.852 billion in Q4’13.

The company pointed to a drop in fee-based income. 

“Recurring net fee income decreased by $10 million to $1,187 million, mainly due to lower mutual fund fees partially offset by higher managed-account fees,” it explained in its earnings report. Transaction-based income, though, improved by $7 million to hit $448 million in the fourth quarter, thanks to “slightly higher” client activity.

Wealth Management Americas’ adjusted operating profit before taxes was $217 million, a drop of 15% from the same year-ago period and from the prior quarter.

The Swiss-based firm says the profit drop stemmed from a nearly $30 million jump in personnel expenses, which totaled about $1.4 million in the fourth quarter.

“The increase was mainly due to higher financial advisor compensation … and higher variable compensation expenses,” it said in its earnings report. “Expenses for compensation commitments related to recruited financial advisors increased by $4 million to $187 million.”

UBS’ advisor headcount in the Americas was 6,997 as of Dec. 31, down 1.5% from 7,114 in the third quarter and a decrease of 2% from 7,137 a year ago.

The firm, though, says the drop in reps is “consistent with our stated strategy of retaining and attracting the top producers in U.S. wealth management and keeping our advisor force in the 6,500-7,000 range.

Plus, it says that “more than two-thirds of the advisors who left UBS were in the lowest-producing two quintiles or not ranked at all.”

Of the total veteran advisors recruited in Q4, three-quarters “were ranked in the top two quintiles,” UBS adds.

Average production, or fees and commissions per advisor, stood at $1.091 million in Q4’14, up 1% from $1.079 million in Q3’14 and up 5% from $1.042 million in Q4’13. This topped the Merrill Lynch average of roughly $1.07 million.

Averaged invested assets per advisor reached $147 million in Q4, a 3% rise from the earlier quarter and an 8% jump from a year ago. Total client assets reached $1.032 trillion as of Dec. 31, a jump of 2% from the prior period and  6% from a year ago.

Net new money (NNM) for the period was $5.5 billion vs. $4.9 billion in Q3.

“Including interest and dividends, NNM was $15.9 billion in Q4’14, up 51% from $10.5 billion in Q3’14.  The increase in NNM was driven main by advisors with UBS longer than a year (‘same-store advisors’),” UBS said in a statement.

—Check out ThinkAdvisor’s Q4 Earnings Calendar for the Finance Sector.

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