Exclusive: UBS's new pay plan for advisers rewards cross-selling


UBS Wealth Management Americas released its 2013 compensation plan to its financial advisers on Tuesday, announcing changes that will give incentives to advisers to sell a wider range of products and bring in more revenue.

There are also changes to the compensation structure that will likely help the company retain more advisers in what is an increasingly competitive landscape for top talent. The new structure could also encourage UBS advisers to become more tight-fisted with discounts it gives on clients' advisory accounts.

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Jason Chandler, head of the firm's 7,000 advisers, told Reuters that the new plan reflects clients' desire to obtain a wide range of services from advisers, including financial plans and products like mortgages and credit lines.

UBS, a division of Swiss bank UBS AG , is "trying to be a leader in terms of supporting holistic advice and having an incentive plan that rewards those behaviors," he said.

Among the highlights in the new plan: Beginning next year, advisers can access half the money in their deferred compensation accounts in the form of a loan. Currently, most of advisers' deferred compensation does not unlock for at least six years.

Advisers will have to pay back any outstanding money on the loan if they switch firms, so those who take advantage of this option - say to buy a home - are less likely to leave the firm.

Overall, most of the compensation plan remains the same, Chandler said. The payout grid, which is industry parlance for the chart used by brokerage firms to determine advisers' take-home pay, has not changed. The firm has left the minimum account size needed for advisers to be paid commissions at $75,000. Some other firms have raised account minimums for payment in the last several years.

"If you did the math, roughly 90 percent of how advisers are paid remains the same," he said.

Here is a summary of highlights from the plan, according to Chandler:

-UBS is making it more lucrative for advisers to create financial plans for their clients.

Currently, advisers set the rate they charge clients for these plans based on the plans' complexity. The average charge for financial plans is currently $4,500. Advisers then get paid based on the grid. For instance, an adviser who brings in $1 million in annual revenue takes home 46 percent, according to the grid. So on that $4,500 plan, that adviser would currently take home $2,070.

Beginning next year, advisers will get to keep half of what they charge for a financial plan, regardless of where they fall on the grid. In addition, they will receive an additional 15 percent of that charge put in their work expense account, which can be used for activities like wining and dining clients or investing in new technology.

In other words, an adviser who charges $4,500 for a financial plan will get half, or $2,250 in pay, and another $675 for their expense account.

This change applies only for financial plans that had a charge of $1,000 or more. Financial plans tend to lock clients in with a firm and help bring in more fee-based clients.

-UBS is giving advisers more of an incentive to get their clients mortgages or credit lines through UBS. Beginning next year, those products will count toward the bonus advisers get for bringing in new client assets to UBS.

"This is to support giving advice on both sides of the balance sheet," he said.

-In 2013, UBS is making its productivity awards - the bonus based on the amount of revenue an adviser makes for the firm - harder to qualify for, but more lucrative for those who make the cut.

Currently, advisers who bring in at least $400,000 in annual revenue for the firm receive this bonus, which maxes out at 2 percent.

Next year, the minimum to qualify for that bonus will rise to $500,000. However, advisers who meet that higher threshold, and increase their revenue by 15 percent or more, will get an extra bonus. Conversely, advisers will get a cut to their bonus if their revenue declines by at least 15 percent.

-Beginning in the third quarter, UBS will become more strict on the kind of discounts it lets advisers give to clients. In turn, some clients may see an increase in the amount they are charged on their advisory accounts.

UBS, like its competitors, provides its advisers with suggestions for what they should be charging clients on advisory accounts, also known as managed business, Chandler said.

UBS advisers can ignore those recommendations. However, beginning July 1, if the advisers go "materially below" the suggested prices, their payout will "go down in commensurate fashion."

Chandler said it was not his place to say if clients were receiving too steep a discount, but he said sometimes the discounts are too steep to cover the costs to "furnish the service."

(Reporting by Jennifer Hoyt Cummings; editing by Jennifer Merritt and Matthew Lewis)