UBS Continues to Lose Clients and Brokers over Recent Scandals

Representing Investors Nationwide

Union Bank of Switzerland’s (UBS) Wealth Management division is still reeling from the multiple scandals that have plagued the firm for the past two years. Fresh on the heals of the accusations from the IRS that UBS was helping wealthy clients avoid income taxes came the structured note products that allegedly lost over a billion dollars for U.S. retail investors.

Many of the structured notes were marketed as “Principal Protected” or “Partially Principal Protected” but were actually backed by Lehman Brothers Holdings. As such, many clients have alleged they were lead to believe by UBS representatives they were buying relatively safe investments when in reality they were buying senior unsecured Lehman debt. The fallout following Lehman’s bankruptcy filing on September 15, 2008 lead to both client and broker defections as well as a serious hit to the firm’s brand image.

The following article from Smartmoney.com details UBS’s struggles:

UBS AG’s Wealth Management Americas unit continues to be plagued by asset outflows, as clients took out $11.6 billion in the fourth quarter–its third straight quarter of asset withdrawals.

The majority of outflows–$10.5 billion–came from within the U.S., as the brand has been damaged by a dispute with U.S. tax authorities over bank secrecy. UBS was also stung by financial adviser departures and limited recruiting of experienced brokers.

The wealth manager also reported a 3% drop in its adviser headcount, though more than a third of that decline was from advisers working in branches that were sold to Stifel Financial Corp. (SF).

Data on the wealth manager were revealed as parent company UBS reported its first quarterly profit in more than a year.

Total operating income at the UBS unit dropped 3% to $1.34 billion from $1.39 billion a year earlier, and nearly level with $1.33 billion at the end of the third quarter. Pre-tax profit plunged by more than a third to $171.5 million from $263 million a year earlier. UBS Wealth Management Americas posted a $106 million profit at the end of the third quarter.

The U.S. wealth management unit lost 202 advisers in the fourth quarter, 74 of whom went to Stifel. Overall, the advisory force’s headcount fell to 7,084 from 7,286 at the end of the third quarter. A year ago, the brokerage had 8,607 advisers. Since that time, UBS has sold lower-producing branches, laid off rookie financial advisers, and suffered some attrition to its competitors.

By contrast, UBS’ main rivals have much larger brokerage forces. Morgan Stanley Smith Barney has 18,135 advisers, Bank of America Corp.’s (BAC) Merrill Lynch boasts 15,006 brokers, and Wells Fargo & Co.’s (WFC) adviser headcount is 14,961.

During a conference call with analysts Tuesday, UBS Chief Financial Officer John Cryan said, “Despite the improvement in profitability [at the unit], financial adviser recruiting and net new money generation remain challenging.”

For months, the UBS unit has been lagging behind its competitors in recruiting brokers as the firm put a hold on bringing in new talent. UBS’s U.S. brokerage, however, recently rolled out a new recruiting deal in mid December that offers top-tier advisers as much as 280% of their annual production. That figure is up from a previous offer of 220%.

The UBS unit got new leadership during the quarter. Robert McCann was appointed head of Wealth Management Americas at the end of October. Since taking that position, McCann has offered some brokers a retention-like deal to stay with the firm, made several executive appointments, and reorganized the U.S. retail brokerage into two divisions from three regions.

“Bob McCann has put a new leadership team in place and we’re optimistic for the longer-term prospects of the business,” Cryan said during the call.

Alois Pirker, a research director at Aite Group, said in an emailed statement, “Outflows [at UBS] have increased in contrast to many of its competitors.”

He said UBS’s 2009 results “have shown that the firm still has not been able to regained the trust of its wealthy clients and that its competitors continue to take significant market share from the firm.”

A UBS spokeswoman declined to comment on the statement. However, she referred to comments made by UBS Chief Executive Oswald Gruebel and Chairman Kaspar Villiger in a letter to shareholders Tuesday.

“In the coming quarters, we expect to see the effects of the progress we have made in improving operating efficiency, reducing risk, and rebuilding and re-focusing our businesses,” the executives said.

“We are confident that the measures we are taking to address the causes of client asset outflows will be effective, but in the immediate future still expects to report outflows, with some pressure on margins,” Villiger and Gruebel said.
-By Brett Philbin, Dow Jones Newswires; 212-416-2173; brett.philbin@dowjones.com

(END) Dow Jones Newswires

The attorneys at Colling Gilbert Wright & Carter are currently investigating and filing individual arbitration claims on behalf of former UBS cliens who were sold UBS structured notes. If you have lost money due to an investment in a UBS structured product, please contact our office for a free case evaluation. Thank you.