UBS: Back At The Bottom

UBS at a Glance:

Total client assets (Capital Management Group): $858 billion

Number of advisors: 8,175

Average annualized revenue per advisor: $751,000

Pretax profit margin: 11%

Mascot: Three keys (for trust, security and discretion)

Kudos: ‘You and Us,’ is still the most watchable brokerage ad campaign

Biggest challenge: 20% profit margins by 2010

After making enough strides last year to get out of the ratings basement, UBS was kicked back down a notch this year.

It was a close race for last place, but the firm's 7.4 overall average this year (down from 7.5) was just below scores for Morgan Stanley, Smith Barney and Wachovia. The good news is that reps at the firm gave it better marks overall in three of out of four categories: “product” (8.3, up from 8.2), “work environment” (7.5, up from 7.2) and “support” (7.1, up from 7.0). Improvements were also made in key subcategories like “payout” (6.4, up from 6.1) and “benefits” (7.7, up from 7.3). The bad news: In most cases those improvements weren't enough to earn the firm anything better than second-to-last place in any of those categories.

Like other firms, UBS made bad bets in the U.S. sub-prime space that have resulted in management changes: As of July, CEO Peter Wuffli is out, Marcel Roehner, previously CEO of Wealth Management and Business Banking, is in. The $3.5 billion in write-downs — with more to come — has cost stockholders nearly all of the 27-percent gain from 2006. As a result, Roehner has said the firm will rely more on wealth management in the future, and pledges to shore up risk, and reduce assets at the investment bank.

That's theoretically good news for Wealth Management U.S., but it has been shaken up too. Marten Hoekstra remains the head (now of Americas), but the divisional management structure has changed to a regional structure made up of branch complexes: A branch with $60 million-plus in annual revenue will stand alone, while those with less will be part of a complex reporting to a regional manager. “The intent is to improve responsiveness from management, which takes too long,” says one top producer.

Reps' opinions of the firm's technology soured this year, with the score falling to 6.8 from 7.0 last year. According to one rep, one problem is that reps are being required to use UBS' computer systems, which are far less efficient than their own. “Now instead of taking 10 minutes to give a client a run down on their portfolio, it takes me 30 minutes.” He guesses the firm hopes that by having all the client data on firm hardware it will one day be able to control and monitor it — without the rep.

In fact, the perception that the gnomes of Switzerland are trying to make the U.S. brokers more like theirs (read: less of a suck on profits) is a strong one at UBS. “They [the Swiss] hate the nature of the U.S. business, that the advisors get as much of the pie as we do, and have such a strong hold on clients,” says a rep. (The goal of 20-percent profit margins for Wealth Management U.S. is still a long way off; the firm reported 11-percent margins in the third quarter.) The same advisor says that when another advisor on his team left not too long ago, the advisor was promptly handed a form to fill out that he describes as a “nasty, nasty 1-year non-compete” regarding the clients of the departed advisor. He says even clients are being hassled by legal and compliance, and asked to pay out-of-pocket to have standard legal documents tailored to fit UBS' criteria. “Every one of my clients with accounts elsewhere says UBS is the most difficult firm to work with,” he says. Incidentally, UBS did score the lowest of all the firms in compliance overall (6.9), as well as in the sub categories of “risk management” (7.1) and the “administrative burden” of compliance (5.5). Let's hope things are looking up a little next year.