UBS has delayed until July 1 an advisor compensation cut involving mutual fund 12b-1 fees that had been set to become effective on New Year's Day.
The delay in cutting advisors' compensation from 12b-1 fees — mutual fund fees that cover marketing and sales costs — is separate from other financial advisor compensation changes that UBS announced late last year, which include a reduction in payouts for advisors with production under $750,000.
Financial Advisor IQ first reported the delay on Tuesday, citing an unidentified UBS advisor who said the wirehouse postponed the cut after receiving significant pushback from advisors. The cut, which affects transaction-based accounts, is intended to push advisors to UBS' advisory program, where clients usually pay at least a 1% annual fee, the advisor told the publication.
Executive search consultant Mark Elzweig, in an interview with ThinkAdvisor on Wednesday, wondered if the delay might signal that UBS is rethinking that particular cut. If it's going to go into effect anyway in July, "then people who are upset are still going to be be upset," he said.
"I think the real issue for UBS is that they're very much in a cost-cutting mode now because they're far less profitable than the other wirehouses. And from the standpoint of an advisor ... being in a firm that's in a cost-cutting mode is not a very attractive place to be because it basically raises questions as to the kind of resources that they'll be offering" to support the growth of advisors' businesses, Elzweig said.
UBS has acknowledged that it expects a short-term increase in U.S. financial advisor attrition this year as it adjusts compensation incentives, "and it is causing them turnover," Elzweig said.
As for the delay, compensation consultant Andy Tasnady told ThinkAdvisor that if UBS aims to help shift the remaining advisors and clients who haven't moved into fee-based relationships to make that change, it "probably is a good idea to give advisors more time to have those conversations with their clients."
Tasnady said the advisors pushing back against the change are probably more senior, not on teams and not the highest producing advisors. Some teams, especially younger ones, are 100% fee-based so eliminating compensation from 12b-1 fees, which are relevant to advisors with transaction-based accounts, wouldn't affect them, he said. Those affected might leave or retire, or join a fee-based team and potentially convert some clients to a fee-based relationship.
A financial advisor could have both transaction-based and fee-based clients, Tasnady noted.
When UBS last year announced its broader changes to advisor compensation, a spokesperson said: “This plan aligns advisor compensation with our strategic growth and profitability goals in the U.S., with our belief that advisors should be rewarded for growth and longevity and with our commitment to offering one of the industry’s most competitive packages.”
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