UBS AG's Wealth Management Americas new incentive package to keep financial advisors may be too little too late, according to several headhunters.

Industry observers expect the Swiss bank’s U.S. brokerage unit to face an uphill battle as it tries to keep its financial advisors, especially when other firms are offering significantly larger retention packages.

Changes to UBS' compensation packages had been highly anticipated by advisors as they were expected to shape expectations industry wide on the size of the packages offered, according to a group of headhunters who recently participated in a Recruiters Roundtable sponsored by On Wall Street. “These UBS advisors have been though the war and they expected to be rewarded for their loyalty,” Mindy Diamond, a recruiter based in Chester, N.J., said.  “They stuck with a firm that has been radioactive for a couple years. They needed to be rewarded for that loyalty and frankly, they may be offended by this.”

The retention program, called Growth Plus, will reward brokers who have been with the firm for more than five years and generate at least $500,000 in annual production starting next year, according to recruiters.

The recruiters said that advisors will be paid on a sliding scale, up to 65% of their production next year. Robert McCann, chief executive of UBS’ wealth management business, announced the plan at a meeting with the firm's top 300 advisors. Diamond said approximately 20% of UBS’ advisors would qualify for the payout. (Fore more on McCann's strategy for UBS read: "McCann Set Profit Targets for UBS Wealth Management")

“I think it is a noble gesture because they were in a position where they had to do something,” Diamond said. “McCann is boldly saying that retention is the most important thing and retention means bonuses, but it may be too little too late.”

A UBS spokesman said that its “Growth Plus” plan is an enhancement to its existing compensation plan for advisors. That plan is designed to allow advisors to “participate and share in the future of our firm in two ways. Participation is based on prospective 12-month— not trailing 12-month—production and secondly, Growth Plus recognizes long-term dedication to the firm. This new paradigm for compensation is aligned with our renewal efforts and our vision of becoming the best wealth management firm in the Americas.”

Paul Werlin, the president of Human Capital Resources, a St. Petersburg, Fla.-based executive search firm, said he expects 2010 will be “the toughest recruiting year in the past 20” as many wirehouses and brokerage firms “chase fewer and fewer top producers.”

He also said that “there are three to four major players who have an unlimited appetite for strong producers and they are emptying the bank to pay for them. At least six firms are looking for more than triple digits in new brokers and attracting them will require really large incentive packages.”

Werlin said that incentive packages at Morgan Stanley Smith Barney, Bank of America Merrill Lynch, and Wells Fargo are all superior to the package that UBS is offering, with Merrill offering up to 330% of their trailing 12-month production as a bonus.

“So many major players are throwing major numbers around,” Werlin said. “Merrill and Morgan Stanley have the capital to reach their targets, but everyone else will be scrambling. No one is sure about the economics, but everyone is certain that the talent pool is shrinking. Brokers can write their own ticket right now. UBS is playing with fire.”

New York-based recruiter Steve Rosen said that if these numbers are correct it would leave fewer companies—namely Merrill and Morgan Stanley Smith Barney—to vie for the biggest and best advisors.

“Merrill, Wells and Morgan Stanley have had retention packages and UBS did not,” Rosen said. “This is something that they are calling a ‘growth package,’ because if it was a retention package brokers would be insulted by it. … This is not going to keep brokers in their seat because it just isn’t competitive with the marketplace with the deals that are out there.”
Rosen said that this may just be “the first trick that is up McCann’s sleeve.”

“They clearly had to do something,” Rosen said. UBS couldn’t sit still “while the other three major wirehouses were offering their brokers 125% retention packages. This is an attempt to keep their advisors, but I just hope there is more to it.”

Diamond said that the package may be enough to keep some advisors “who are fearful of making a move.”

Rick Peterson an executive search consultant with Rick Peterson & Associates in Houston, said that details surrounding UBS’ plan remain unclear. But he expects the bonus to be higher than 65%. “The program certainly rewards guys that have been there forever, but it hasn’t been completely disclosed yet,” he said. “Anyone that says that they completely understand it or the ramifications of it is lying to you.”