NEW YORK (Reuters) - UBS AG's American wealth management arm has pulled firmly ahead in the race to attract top brokers, using aggressive recruiting tactics and rich signing bonuses to edge out competitors.
That strategy has drawn at least 48 brokers with more than $6 billion in client assets under management since January, based on moves of top brokers tracked by Reuters, far more than the other top U.S. brokerages.
It has also reinvigorated a business whose wealth arm had trouble recruiting top brokers as recently as 2009. But the cost of acquiring these prized brokers raises questions about whether UBS's moves will pay off in profits.
Most of UBS's new hires came from Bank of America Merrill Lynch and Morgan Stanley Smith Barney.
UBS's success is part strategy and part timing. Outsized signing bonuses, including what recruiters say is up to 50 percent more money paid upfront than competitors typically offer, has led many advisers to take a hard look at UBS.
The company's emphasis on a boutique culture inside a major financial institution appeals to many long-time brokers. UBS has far fewer financial advisers in the United States - 7,000 compared with 17,000 at both Morgan Stanley Smith Barney and Merrill Lynch. The small size means brokers have more access to senior management and executives, the company said.
"We're trying not to play the scale game," said Robert McCann, chief executive of UBS Wealth Management Americas, in an interview with Reuters. "Those larger organizations have become increasingly bureaucratic, increasingly bank-like and that model is not resonating with financial advisers to the degree some people thought it would."
The Swiss bank is depending on the strength of its wealth management businesses - particularly its Americas unit - to improve its financial position after it suffered huge losses during the credit crisis, and from a U.S. probe into offshore tax evasion and later a $2 billion rogue trading scandal.
Under McCann, the Americas wealth management group has fine-tuned its adviser and asset-growth strategy. When McCann joined UBS in October 2009, "we were at a point where no one had an interest" in joining the company, said Paul Santucci, UBS's national head of recruiting.
Santucci said UBS has since regained the confidence of many brokers, who now have more trust in the company's leadership and stability. "When you can say and demonstrate that, it's a lot easier to talk to the best (financial advisers)," he said.
For the brokers UBS brought over from Merrill, including at least 25 who managed more than $4 billion in client assets, McCann is part of the attraction. He was well-liked by many brokers at Merrill during his nearly three decades there, even though his roots were in equity trading.
UBS has not been shy about its strategy of amassing big-money advisers through aggressive recruiting. In its annual report on March 15 the company said that the long-term growth prospects of its Americas wealth management business are attractive and central to the company's overall position.
Outside recruiters and industry lawyers say when UBS covets an adviser, it will go to great lengths to win him over, upping the ante on signing bonuses until the adviser is swayed.
"Money talks," said Danny Sarch, a New York-based financial services recruiter with Leitner Sarch Consultants.
Based on moves tracked by Reuters - those of individuals or teams managing $100 million or more in client assets and generating annual revenue of $1 million or more - in just the past three months, UBS recruited 12 teams that managed more than $200 million each from Morgan Stanley and Merrill. That is more teams of that size than any other competitor has added in 2012.
Merrill Lynch did not comment about its adviser losses to UBS. Morgan Stanley said it is not concerned. "We continue to attract many highly successful advisers from UBS," said a Morgan Stanley spokeswoman. The company last week hired four UBS advisers who together managed $800 million in client assets.
Big-company legacy brokers who leave for a large competitor often bring up to 90 percent of their client assets with them, said California-based financial services recruiter Ron Edde. That could mean a $5.4 billion asset influx from the 48 advisers UBS has grabbed from competitors so far this year.
Client assets are key to a brokerage's profitability, which means adding top-tier advisers can boost a company's bottom line. UBS increased its total client assets 1.8 percent to $754 billion at the end of December, from the year before.
Morgan Stanley and Merrill Lynch, the biggest and second-biggest brokerages, have about $1.6 trillion and $1.5 trillion in client assets, respectively, both down about 1 percent from 2011. Wells Fargo, the No. 3 brokerage, has $1.1 trillion, down 8 percent from 2010.
Fourth-ranked UBS said the turnaround in net new money flows for the brokerage business in 2011 largely resulted from "higher inflows from recruitment of experienced financial advisers" and "lower outflows from financial adviser attrition." Adviser attrition in 2011 fell to 3.3 percent from more than 18 percent in 2009.
While UBS says it does not offer the biggest deals on Wall Street, this high-end recruiting strategy is expensive. According to recruiters with knowledge of UBS offers, the company has offered up to 215 percent of a broker's annual trailing revenue production upfront. Rivals offer between 160 percent and 195 percent. That means an adviser with $2 million in revenue could receive $4.3 million on day one at UBS, compared with $3.2 million at a rival.
The ambitious recruiting packages at UBS include performance target bonuses, bringing packages to a total of up to 350 percent of a broker's annual trailing production, according to an industry lawyer. That is 75 percentage points higher than packages offered by UBS a year ago.
"In order to keep profit margins high, they're re-investing money where they're most successful," said New York-based financial services recruiter Alan Reed.
In return for these deals, broker contracts are longer, up to nine years, compared with as little as four years in 2007. If advisers leave earlier, they have to pay some of the money back.
The big payouts have sent UBS's cost-to-income ratio for its U.S. brokerage to 90 percent at the end of 2011, compared with a 65 percent ratio for its global wealth management unit.
Such ratios pit operating costs, including recruiting expenses, against operating income and provide insight into efficiency. A lower ratio shows more profitability.
"They're sailing razor thin on the profitability side," said Aite Group industry analyst Alois Pirker. "It's an expensive growth strategy, but ... if you don't hire the top producers, somebody else will."
But spending big to lure brokers also means spending less to grow in other areas, industry observers said. "You want to have more money left to develop other parts of the business and create better technology," Pirker said.
Merrill Lynch, for example, said it has invested in its adviser force by "keeping their technology state of the art and ensuring they have the best training and development," said Bank of America spokeswoman Selena Morris.
(Reporting By Ashley Lau; Additional reporting by Joe Giannone; Editing by Jennifer Merritt and Steve Orlofsky)