UBS brokers in US break $1 mln average revenue barrier in Q4

Tue Feb 5, 2013 12:38pm EST

* U.S. brokers averaged $1 mln revenue in fourth quarter

* Rush of new assets in U.S. moderates poor results at parent bank

* Expenses at U.S. broker jump on compensation, litigation reserves

By Jed Horowitz

NEW YORK, Feb 5 (Reuters) - The big bonuses that UBS Wealth Management Americas has been paying to recruit top advisers appeared to pay off in the fourth quarter.

Average revenue generated by the approximately 7,000 advisers at UBS AG's U.S. brokerage topped $1 million in the fourth quarter of 2012, the Swiss bank reported on Tuesday. It was a record for the U.S. unit, and probably for any U.S. retail brokerage, consultants said.

Bank of America Corp. last month said brokers at its Merrill Lynch unit generated an average of $935,000 in fees and commissions at the end of 2012, surpassing averages reported at rivals Morgan Stanley and Wells Fargo Co's Wells Fargo Advisors.

Revenue per broker can be misleading because some companies exclude lower-producing trainees and phone-based advisers who deal with lower-income clients. But UBS impressed with other metrics as well, including a very low broker attrition rate and strong gathering of assets from clients.

"Revenue per broker is a grain of salt," said Alois Pirker, research director at Aite Group, a wealth management consulting firm. "But the new assets and attrition are good numbers, and shows they are moving in the right direction."

When Robert McCann joined as chief executive of UBS's U.S. wealth group in 2009 from Merrill Lynch, it was losing money and 17 percent of its brokerage force was leaving. In the just-ended quarter, the wealth unit's pretax profit grew 36 percent from a year ago to $216 million and its attrition rate was 2.7 percent.

Its average revenue per adviser in the quarter before McCann arrived was $686,000.

COMPENSATION IS KING

McCann and his management team have lured top advisers from rivals with industry-high signing bonuses of between three and four times what they were paid in the prior 12 months - about 50 percent more than competitors typically pay for coveted brokers. Those deals, while pumping revenues, can squeeze profits since it takes years to recoup the bonus payouts, Pirker said.

Compensating and recruiting brokers remained UBS Wealth America's biggest expense last quarter. Payouts to brokers rose 9 percent from a year ago to $627 million, while recruiting bonuses and advances jumped 11 percent from a year earlier to $173 million. Some of the bonuses and advances are deferred, subject to vesting requirement, and costs as a percent of income fell to 86.8 percent from 89.1 percent a year earlier.

The firm ended 2012 with 7,059 advisers, up a net 27 since the end of September. The total is less than half that of industry leader Morgan Stanley, but in line with the 6,500 to 7,000 range that McCann has outlined.

"You saw some vindication of McCann's belief that to improve the franchise you have to start with people," Pirker said, noting that all the top brokerage firms engage in expensive recruiting wars. "But ultimately they have to stop because it takes years to earn that bonus money back."

MONEY FLOWS

UBS advisers attracted $8.8 billion of net new money in the last quarter of 2012, up 84 percent from the third quarter and more than quadruple the $2.1 billion of a year earlier. Some critics speculated that UBS was buying flows through recruiting, but a spokeswoman said more than half the net new money came from advisers who have been with the broker for at least a year.

Net fees and commission jumped 19 percent from a year ago to $1.4 billion, despite an 8 percent decline in net trading income, the Swiss bank said.

Total pretax income at the UBS Americas unit, an outgrowth of the former PaineWebber brokerage network, climbed 36 percent from a year earlier to $216 million, but fell 7 percent from a record profit of $232 million in the third quarter of 2012.

The profit in the U.S. contrasted with disappointing fourth-quarter results at its Swiss parent. Stung by heavy withdrawals by wealthy clients in western Europe, UBS AG attracted just 2.4 billion Swiss francs from private banking clients against analysts' consensus forecast of 6.8 billion.

FEES AND FOES

Like its U.S. brokerage competitors, UBS Americas has been encouraging advisers to promote fee-based accounts as opposed to commission-based business. Recurring fees that are not subject to the whims of trading contributed to a 7 percent increase in operating income from the third quarter of 2012, UBS said.

About $34 million of the unit's $216 million profit in the fourth quarter reflected a change in accounting estimates for mutual fund and annuity fee income.

Overall expenses in the U.S. unit rose 14 percent to $1.53 billion from $1.3 billion a year ago and were 9 percent higher than in the third quarter of 2012 on charges for money set aside for litigation, regulatory and similar matters, the company said.

UBS has been battered since 2008 by fines and litigation related to aggressive marketing of auction-rate securities, helping wealthy clients evade U.S. taxes and, most recently, by a $1.5 billion fine related to its rigging of benchmark interest rates, including the London Interbank Offered Rate.

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