Profits and advisor headcounts slipped during the fourth quarter at UBS.
UBS Wealth Management Americas reported that quarterly pretax profits dropped 15% year-over-year due to higher expenses, even while the number of advisors at the wirehouse fell.
Profits slipped to $217 million for the fourth quarter from $254 million for the year-ago period.
Total operating expenses rose 7%, climbing to $1.7 billion from $1.6 billion. This was mainly due to higher financial advisor compensation, which increased 10% year-over-year, rising to $757 million. Compensation costs for recruited advisors also rose, climbing to $187 million from $175 million for the year-ago period, a 7% increase.
"I think that compensation for new recruits tells a story as well. It has gone up, and it shows that they are focusing laser-sharp on the high-end advisors. To get them in they are paying a lot," says Alois Pirker, research director at Aite Group.
Pirker adds, "The thinking is that you get the best recruits, you get high productivity, and average production has gone up, and you'll get more at the bottom line."
Revenue grew 4%, reaching $1.92 billion from $1.85 billion.
HEADCOUNT DOWN, PRODUCTIVITY UP
Meanwhile, advisor headcount fell to 6,997, down from 7,114 for the prior quarter, and 7,137 advisors for year-ago period. This represented a 2% decrease.
"This 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," a UBS spokesperson said in an email. "In 4Q14, more than two-thirds of the advisors who left UBS were in the lowest producing two quintiles or not ranked at all. By contrast, three-quarters of the experienced advisors we hired in 4Q14 were ranked in the top two quintiles."
"Given how much they are investing in recruiting, you would think you could replenish [the headcount] the attrition with recruiting. At the moment there is a net outflow. So I think that is certainly something to watch," says Pirker.
While the ranks may have thinned, UBS advisors remain highly productive. The firm reported record revenue per advisor: $1.091 million, up 5% year-over-year.
The firm reported $5.5 billion net new money for the fourth quarter, up 12% year-over-year. UBS said the increase was mainly driven by advisors who had been with UBS for more than one year.
Client assets at UBS grew 6%, rising to $1.087 trillion from $1.025 trillion for the year-ago period.
Over the past five years, UBS has been targeting high-net-worth and ultrahigh-net-worth clients. The firm said that it now manages $403 billion in assets for clients with more than $10 million in assets, representing a 107% increase since the fourth quarter of 2009. Among clients with $1 to $10 million in assets, the firm said it now managed $455 billion in assets, up 58%.
Companywide, UBS reported that profits grew 12% year-over-year, rising to 1 billion Swiss francs from 919 francs for the year-ago period.
Revenue rose 7%, rising to 6.7 billion francs from 6.3 billion francs. Expenses climbed 6%, rising to 6.2 billion francs from 5.9 billion francs.
"I am pleased with what we have achieved in 2014. The results are strong, our capital is strong and we've completed our strategic transformation, preparing us well for the future. While it's premature to draw a conclusion about the quarter, we've had a solid start to the year," CEO Sergio Ermotti said in a statement.
Earnings per share increased to 0.27 francs from 0.24 francs for the year-ago period.