UBS Americas President Tom Naratil is unveiling far-reaching changes to his advisers this week: higher pay for some brokers, a simplified compensation plan, more resources, less recruiting and a flatter organization structure.
Naratil is making the changes in a bid to boost adviser loyalty and productivity as well as position the wirehouse as a premier destination for elite advisers, he tells On Wall Street in an exclusive interview.
"I'm really pumped about this. I think it's a great opportunity for us," Naratil says. "I think we are going to turn a few heads."
Going forward, the firm will do 40% less recruiting and shift resources from its recruiting efforts to the needs of current UBS advisers, Naratil says.
"We're clearly moving money from column A to column B," he says. "We are moving money that we would have paid to people to come here to people who are already here."
For some advisers, pay is increasing under next year's comp plan, which is also getting simpler; the brochure explaining broker compensation is shrinking from 34 pages to eight. Advisers are also getting the new plan six months in advance.
"We've actually increased the grid rates. At the high end you will see a 50% payout rate in cash," he says.
The new plan includes an enhanced retirement program to incentivize advisers to end their careers at UBS and transition their books of business to other advisers at the wirehouse, according to documents seen by On Wall Street.
To summarize the new compensation structure, Naratil says that "no one under our plan is getting less cash and the vast majority are getting more."
These moves may make it harder for other firms to entice away UBS' advisers who are among the most productive in the industry. The Swiss wirehouse recently reported that revenue per adviser was slightly north of $1 million. By comparison, the average Merrill Lynch adviser generates $980,000 in annual revenue and the average Morgan Stanley adviser produces $923,000, according to earnings reports.
Bill Willis, a recruiter who learned of the firm's plans on Wednesday, says it is unusual for a wirehouse to roll out a comp plan so early in the year. "But I think they are concerned about attrition and they are trying to throw something positive out there."
He adds: "When you put comp plan against comp plan, everyone says theirs is the highest. I haven't seen it, so I can't say if it would stop someone from taking a recruiting deal to go across the street Comparisons are hard. But there will be some people who will say, 'They are moving the right direction and I'm going to get a pay raise.' But those people weren't probably the ones thinking about taking a recruiting deal."
Andy Tasnady, a compensation consultant, says that higher payouts for brokers may end up paying for themselves. UBS "may be able to pay for these changes through lower attrition – because that costs the firm when you lose advisers," Tasnady says, who was briefed on the changes.
Danny Sarch, another recruiter who has worked for UBS, says the moves to simplify compensation could spur other wirehouse to follow suit. "Maybe it's the beginning for a long overdue trend," Sarch says.
Naratil is also rolling out what he describes as a flatter management structure for UBS as there are currently "too many layers."
UBS is moving from two divisions to four, from 62 complexes to 43, and some complexes that are deemed too small will be demoted to branch offices, raising the total number of branches from 189 to 208. The firm is also eliminating its eight regions in a bid to move decision making powers closer to the advisers.
Brian Hull, currently head of the Client Advisory Group at UBS, will oversee the four divisions, according to the firm. Jason Chandler will oversee the Northeast region, Bill Carroll the Central region, Brad Smithy the Southeast, and Lane Strumlauf the West. John Mathews remains head of Private Wealth Management at UBS.
A UBS spokesman says the directors of UBS' now defunct regions have been offered new positions, either promotions or reassignments.
In addition, the firm is also shifting more power and authority to its branch managers.
"We want them to spend more time coaching and helping their advisers. And we want them to spend less time on recruiting," Naratil says.
This is also designed to reduce adviser attrition and raise productivity.
"The number one reason advisers leave is because of their branch manager. If they think that their branch manager is helping them grow their business, then it's really hard to get that adviser to move," the executive says. "That's why I think it's the totality of all the things that we are doing that will lower attrition."
SMALL FEEL, GLOBAL REACH
Naratil says these changes also will benefit clients. Advisers will have more resources, and branch managers more power to make decisions. "By doing this, by pushing decision-making to branch, then I think it will make our clients feel that."
The executive says that the reduction in recruiting will further benefit clients, noting that switching firms isn't a pleasant experience as moving accounts entails a lot of paperwork.
The firm is able to pull back on its recruiting efforts in part due to robust successes in recent quarters. About 100 Credit Suisse brokers – faced with the closure of the firm's U.S. wealth management business – passed on an offer to go to Wells Fargo, opting instead to switch to UBS, according to people familiar with the matter. The firm's overall headcount now stands at 7,145, well above its target range of 6,500 to 7,000, according to the firm's most recent earnings report.
The other wirehouses each have about twice the number of advisers. And some of the regionals, like Raymond James and Stifel, have been rapidly expanding their adviser forces through recruiting and acquisitions. Raymond James' adviser headcount, including both employee and independent advisers, totals more than 6,700. UBS is now positioned to have a small firm feel for advisers and clients, but with the resources of a global bank, Naratil says.
"We certainly couldn't have done it six years ago," Naratil says. "But now we are in a great position to say let's take a look at our people and figure out how we can support them and make them more productive."
In a way Naratil is putting his mark on the wirehouse, which had been run by Bob McCann from 2009 until last November. Naratil, who previously served as CFO in Zurich, credits McCann with strengthening the wirehouse, and says he's building on that foundation. While he ran the firm, McCann lowered adviser headcount from about 8,600 to about 7,000 advisers; productivity and AUM grew, and the firm went from reporting losses to profits.
Before Naratil took over on Jan. 1, he spent his Christmas break in Stowe, Vt., reading 2,600 comments advisers filed with the firm during an employee survey in 2015. Since becoming president, Naratil says he has been visiting branches to hear directly from advisers as well as clients.
Among the common complaints he heard from advisers was that some things should be less complicated, such as the compensation plan, and that more decisions should be made locally, rather than at a distant headquarters.
Naratil's changes to the firm are an outgrowth of those meetings. "Those visits made me convinced that we needed to empower branch managers; that we really needed to change the model around recruiting and retention."
Naratil also points to the ways that the industry has changed during his career, and not all of it for the better. He has been with UBS and its predecessor firm, PaineWebber, since he joined the industry in 1983, according to the firm's website.
In January, he asked his team to find out what was the largest firm by brokerage force when he started his career. They answered that it was Merrill Lynch, with about 6,800 brokers.
"So anyone who is my age or older had to start in a firm that was the size of UBS or smaller," he says. "When I speak with people today, I find that there is a nostalgia for a firm that has that kind of feel. They say things like it seemed like they were closer to client needs, closer to the needs of advisers. If they are younger than that, then of course they don't have the nostalgia, but they like the sound of that. They like that it sounds different than the corporate firms they work for today."
In recent years, other firms have been capitalizing on advisers' nostalgia in their recruiting efforts. Several firms, such as Raymond James, may not offer the biggest recruiting bonuses to advisers, but they often sell themselves on their culture, which they say offsets themselves from the more bank-dominated wirehouses.
However, Naratil says he isn't only looking backwards. The firm recently inked a deal with technology firm Sigfig to develop digital advice tools for its adviser force. That move comes as wealth and asset management companies have been fending off fast growing Silicon Valley startups by developing their own robo adviser platforms.
But as UBS pushes forward with these new changes, there may be no looking back for the firm, at least as far as the simplified comp plan goes.
"It's much harder for me to pull back from this than to pull back from that," Naratil says, pointing to the 34-page brochure explaining the 2016 adviser pay plan. "It puts the burden on our management team not to change it in the future."