The wirehouse's charges seem on target on paper but are they penny rational and pound foolish?

August 8, 2012 — 2:40 AM UTC by Lisa Shidler


Brooke’s Note: It seems ridiculous that financial advisors would need an iPhone, an iPad and a BlackBerry and that they would expect their employer to pay monthly for two or three of them. It seems equally absurd that a wirehouse, fighting as they do among themselves and with IBDs for talent, would want to nick its advisors $15 for something that could be construed as a business expense. This is a very 2012 situation and underscores the complexity of managing in today’s environment of higher technology and lower profit margins, and why Bob McCann leads UBS and you don’t. See: 13 things to know about Bob McCann recruiting his old Merrill Lynch team to UBS.

UBS’ attempts to better manage its costs have generated industry buzz that the firm could be nickel-and-diming its advisors while giving the appearance of running its business more like an independent broker-dealer than a wirehouse.

Sources have reached out to RIABiz complaining about fees advisors pay to access work e-mails remotely, new costs advisors are paying for their personal wrap accounts as well as a minimum trade of $100 that UBS put into place a year ago. See: Luring a $330 million team away from UBS, HighTower opens first San Diego office.

For its part, UBS was forthcoming about these charges with RIABiz on Wednesday and it appears these costs have an urban myth-like quality to them — but not without a few grains of truth.

How much does it cost to send that e-mail?

“I wouldn’t say that we’re cost-cutting,” says Karina Byrne, head of media relations for UBS Wealth Management. “The environment every financial services firm is in is looking at managing services more efficiently, and that’s what we’re doing.”

Byrne says that UBS advisors receive a cell phone free of charge on which they can complete work business as well as check their e-mail. But if advisors want to check their e-mail using more than one mobile device, then they need to pay $15 a month for each mobile device. For instance, advisors who want to access work e-mail on their BlackBerry, iPad and iPhone need to pay $30 a month total for the additional two devices.

“There’s only a charge if you want subsequent devices,” Byrne says. “You really just need one device to check e-mail, but if it’s your preference to use multiple then there’s a $15 charge for each device.” She says this policy has been in place for some time, and doesn’t recall when it wasn’t.

Byrne adds that the company is launching its FA mobile app on Jan. 1, and that this iPad app will be free for advisors. See: TD Ameritrade makes trading on iPads for RIAs available before mobile devices.

Captivity has its perks

Those fees sound reasonable, says .Alois Pirker, research director at Aite Group Inc.

Still, a firm like UBS needs to be careful about how many of these types of fees it imposes on advisors, because it could make the wirehouse start to appear like an independent broker-dealer.

“Advisors are used to an environment where they’re given the infrastructure they need for free, and that’s the captive model which is different from an independent model,” Pirker says. “In an independent model, you get higher production to cover the additional costs. UBS has to make sure they don’t do too much charging, or advisors will start asking for a higher cut in production.”

Pirker acknowledges that a $15 monthly fee is a drop in the bucket for most advisors, but says the bigger issue is ensuring that advisors aren’t paying for too many services that had been free in the past.

The principle of the thing

It’s not surprising that advisors who are used to receiving such services on the house would snipe about even the smallest costs, says Scott Smith, an analyst with Boston-based Cerulli Associates Inc., and he questions why UBS is sweating such small stuff.

“It almost seems like collecting the $15 fee would be more labor for UBS then it’s worth,” he says. “Anytime there’s a change of any type — no matter how small — it’s going to annoy someone. I don’t think we need to worry about them losing a $1 million producer for a $15 monthly fee.”

Wrap fees

Another sore point for some is that all advisors at UBS are now paying fees for their own personal wrap accounts.

Byrne denies that this is a cost-cutting measure but says the company completed analysis internally and discovered that some of its employees were being charged fees for wrap accounts and others weren’t.

So, starting this Jan. 1, all advisors have begun to pay various fees for their own internal wrap accounts.

New trading minimum

In addition, last year, the company evaluated its own pricing initiatives for customers and decided to make the minimum trade $100 in July 2011, a policy that could affect advisors’ relationships with clients.

“We put it at $100 to put it in line with what we understood the industry minimum was,” Byrne says. [

Advisor Christopher Mason, who left UBS earlier this spring, and manages more than $100 million in assets at CONCERT Wealth Management Inc , says he wouldn’t be surprised by added fees at UBS for advisors. Mason joined CONCERT and opened the company’s first office in Bloomington, Minn. He branded it as Fontis Investments LLC. See: Why one UBS advisor broke away even knowing that his former partner would keep the 401(k) assets.

He says the new rule caused problems, especially for clients, and meant that advisors had to eat more costs. “If you have a client that is paying you on a managed-money side (say $10,000 per year) and has a small brokerage account and the minimum is $100 per trade. If he wants to buy 20 shares of Apple, the charge is $100. If the advisor only charges $10, then the advisor has to pick up the additional $90. It’s quite silly since the broker is doing it online.”

Cheapskate culture?

Despite UBS’ reassurances it’s not on a cost-cutting campaign, Mindy Diamond, president of Diamond Consultants in Chester, N.J., says that many of its advisors haven’t gotten the memo.

“Advisors are feeling a culture of cost cutting,” she says. “It doesn’t surprise me. We’re hearing from UBS advisors in general that they’re concerned about this environment of cost cutting. UBS has been relatively unscathed in terms of negative press. Advisors like it there and it’s the boutique of the warehouses; but if they keep up this cost-cutting, you may see more advisors leave.”

It’s all good

But Danny Sarch, of Leitner Sarch Consultants Ltd., feels that advisors there are quite happy.

“UBS is rocking,” he says. “They’re really on a roll. People feel really good about the firm.”

Mentioned in this article:

Aite Group
Consulting Firm
Top Executive: Frank Rizza

Diamond Consultants
Top Executive: Howard Diamond

Leitner Sarch Consultants
Top Executive: Danny Sarch

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