Paul Hatch, head of advice and solutions, UBS Wealth Management Americas in Weehawken, New Jersey, is responsible for 6,989 financial advisors with $992 billion of investment assets (as of mid-December 2015). Research recently asked Mr. Hatch about his background and outlook for the wealth management industry; excerpts of the conversation are below.
Please tell us about one or more of the following: (1) the beginning of your career in wealth management; (2) your first client/first boss; (3) what you learned at a broker-dealer (BD) or firm early in your career.
I spent six years in the Navy and joined E.F. Hutton on the day I left the Navy. At 7:30 in the morning, I was processed out of the U.S. Navy and by 8:00 I was working at E.F. Hutton in Washington, D.C. I started in 1984. One of the interesting stories is shortly after arriving from training, my first day in production, E.F. Hutton, a very proud and great firm, which had been around for decades, reported that they had pleaded guilty to several thousand counts of wire fraud. The firm struggled greatly after that and two years later when the great market break of ’87 came, they had to close their doors and sell to Shearson Lehman Brothers. I learned two things from that. The first one was that your reputation is all that you have in this business. It takes a lifetime to build and a moment to break it and that even great franchises have weaknesses that they have to manage.
Given the turmoil that you stepped into, how did you land your first client?
That’s a great question. Fortunately for me, I had heard that the business was very tough and difficult and, so, when I began calling people during that timeframe I anticipated that it would be difficult. Indeed it was, but I also found out that if you are honest, direct, straightforward with people that you can gain their trust. While it took longer than normal to start the business, because it was difficult and I learned in difficult times, the other lesson I found was that if you start in an environment which was tough, when it eventually gets to be more normalized, you do very, very well.
How did you wind up moving to UBS and why?
I started with E.F. Hutton; it was merged into Shearson, which was merged into Smith Barney, which became part of Citi, which ultimately merged their business into Morgan Stanley. So, after nearly 30 years, I made a decision to take a year off from the business so I could evaluate the industry and what I wanted to do in the second half of my career.
After a year of searching I determined that UBS was the very best place for me [because] I wanted to be at a global bank of which UBS was one of the very best out there. I wanted to be in wealth management [and] UBS was the only bank focused clearly on wealth management. They had a strong balance sheet, which, after the turmoil I had experienced in three decades on Wall Street, I knew was very important. And, most importantly, they had a culture that coincided with my own set of values and that I very much appreciated. I joined UBS in May 2014.
Did you return into a wealth advisory role or management?
I got into production in the ‘80s and moved into management. By the time the ‘90s came I was in field leadership. From there I moved into headquarters nearly 18 years ago in New York and did almost every job that you could from national sales to training to running our, what was then called, interactive marketing and helped build our very first website. I helped Citi launch their first online broker-dealer and then ultimately took over responsibility for individual investment businesses. One [role] that was very important for me is I took over what at the time was the successor of E.F. Hutton’s managed money program at Smith Barney, which ultimately became the industry leader in that business, and [I] have been involved in the advisory businesses ever since. And, today, I have responsibility in the U.S. for all of UBS’ investment products, capital markets business, investment strategy with the chief investment officer and financial planning.
What is/are the most significant changes you have seen at your firm, and why did they occur?
That’s the kind of question we could have a discussion with for the next hour or two, certainly, but I think the industry has evolved a great deal from a transactionally oriented business to what is continuing to evolve but is a holistic wealth management approach. And, so, while planning and lending and other parts of the business were around 30 years ago, they were a very small part of the business and a very small part of the relationship with the client. Today that’s what it’s all about. It’s about a deep and very important relationship with each client in which you really understand their needs and which is anchored by a planning process that includes the ability to understand their financial picture across all of their assets and in many cases has an advisory relationship as the anchor of the investment solution. So, all firms are focused on solving a holistic picture for clients and looking for longer lasting and deeper relationships.
What is the biggest challenge facing your broker-dealer/firm today, and how is it tackling the matter?
I think we have many of the same challenges that other people have. I think the regulatory environment is probably the most difficult challenge that all of us face. Disruptive technology is something that I view as enabling our industry, not necessarily a challenge and something that we have to be concerned about. I think it’s something that actually provides great opportunities for us. Regulation is one of those things that both the nature of it — it is constantly changing and requires us to adapt—is one of the key challenges. The uncertainty of what some of that will be makes it more difficult for smaller firms. While it’s a challenge for us, we feel comfortable responding to it and we understand the nature of that particular challenge but I think [the] biggest challenge facing the industry today is responding to the need and understanding what it is and how to do it with the least disruption to clients and advisors.
How does your office and your role in particular get involved in the nexus of addressing those challenges?
We look at the client relationship and these needs all in a holistic way. That is, we’re not trying to solve things in silos. We want to look at the relationship that we have with the client and the advisor. Our goal is to become the firm of choice for ultra-high-net-worth and high-net-worth clients and the advisors that serve them. So, we look at everything that we do as creating one single experience for the client and the advisor. How do we get our capital markets groups to work with our advisory businesses? How do we integrate planning in with the advisory solution so that when we sit down and do deep discovery with a client and truly understand their needs, how do we move from that seamlessly to solving their investment problems? The industry has been moving in this direction but we’re trying to accelerate that process so that it’s a seamless experience for the client and a positive one for the advisor.
What is the biggest issue confronting the wealth management field today, and how should the industry overall or financial advisors overall address it?
A lot of people are thinking about technology as a problem and I just wanted to go back to that because we view that as an opportunity, not a problem. Technology is something, which when harnessed properly, serves advisors and helps augment them rather than challenges them or replaces them. And, I think much of the discussion in the industry today is what happens with the advisor model? We believe that the advisor model is more relevant today than it’s ever been because of the increasing complexity associated not just with regulation but markets and world events; technology is something that enables them to manage that increasingly complex world in a way that harnesses great power for the client. In other words, the machines aren’t taking over. It is machines combined with advisors that we believe is the optimized model and the one that ultimately will dominate the industry.
What is the future of the wirehouse/full-service employee-advisor model? Why?
First I would say that the rumor of our death is greatly exaggerated and not to focus too much on Mr. Twain, but I love this question. First, the financial services business is wide and deep and there is room for many, many different models and I think it is clients and advisors that make those choices about which of those they will want to seek out. I feel very comfortable in that one of those solutions, a very vibrant one and one that we believe has great growth prospects, is a firm that is global in nature as we are.
We are the largest wealth manager in the world. It’s a global universal bank and so as the world continues to globalize and it will despite many of the political and social issues and challenges that we face, you need and clients want a strong branded presence and a strong balance sheet as we always will have. Advisors are social people and like clients. Many of them will continue to want to be, as I said, with a strong and trusted and established brand that provides an integrated experience for them and which they can rely will be here 10 years from now, 20 years from now and 100 years from now. So, as I said, I think we will do very, very well and other models will do well and that’s just fine. It’s really about client choice and about advisor choice.
Is there anything else you want to share about the industry and your role in it?
Popular culture at times vilifies this industry and I think that’s very unfortunate. I think that at times the nonfinancial media finds us a simple and easy target and shows a very simplistic and oftentimes exaggerated picture of what sometimes happens in our industry, but I have been incredibly proud and fortunate to be in this business for more than 30 years. I know our advisors and our clients incredibly well. I believe it’s a great privilege of mine to serve them. I believe the vast majority of people in our business couldn’t possibly care more for their clients than they do. They come in every single day with a view that the most important thing that they do is to serve their clients and to focus on their clients’ interests and it is the thing that I most hold dear is my responsibility and my privilege to work on their behalf and on behalf of our clients and it’s something that I will continue to do for as long as I’m given that privilege.
By the Numbers
In 2015, UBS Wealth Management Americas had pre-tax profits of $754 million on operating income of $7.7 billion. In the fourth quarter, adjusted pre-tax profits were $63 million on operating income of $1.9 billion; non-adjusted profits were $13 million; and pre-tax profits excluding certain provisions were $300 million.
The unit includes 7,140 advisors as of Dec. 31, up from 6,989 in the prior quarter and 6,997 a year earlier.
Net new money inflows approached $17 billion in Q4’15 and $21.4 billion for the full year. Including interest and dividend income, these flows were $26.2 billion and $47.8 billion, respectively.
Invested assets as of Dec. 31 were $1.03 trillion, with total client assets at nearly $1.1 trillion. The average level of invested assets per advisor stands at $145 million.
Average yearly fees and commissions (or production) per rep is $1.06 million, the highest in the industry.