When brokers aren’t followed

October 12, 2010
tax issues are hurting its US brokerage:

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I can’t help but think that UBS’s widely-publicized tax issues are hurting its U.S. brokerage:

UBS AG executives are trying to squeeze more production out of several hundred brokers in the U.S. who received bonuses to join the company but haven’t brought in enough clients or other revenue to become profitable for the Swiss bank. UBS has about 6,700 brokers in the U.S.

Senior managers in the division such as its chief executive, Robert McCann, have been pushing some new brokers for about six months to “win back” their old clients.

Broker-poaching is commonplace in the brokerage industry and is universally predictated on the idea that clients are much more loyal to their broker than they are to their broker’s firm. So if a broker moves from Morgan Stanley, say, to UBS, then that broker’s clients are expected to move with her.

Except, this doesn’t seem to be happening at UBS, which lured away brokers with the promise of large bonuses and then saw those brokers’ former clients stay put, refusing to follow their broker to the now-notorious Swiss bank.

This could also be related to the move from active to passive investing. Stockbrokers are by their nature active investors, picking stocks and looking after your investments. Maybe the departure of your broker from one shop to another is as good a time as any to ask whether you need a broker at all or whether you should just put all your money in ETFs. Especially if your broker turned out to give bad advice during the crisis, buying just before the market crashed and selling near the bottom.

The human touch is valuable, of course, but it’s not worth nearly as much as most brokers earn or as most of their clients end up paying. Hire an independent financial adviser, if you must, to help you out with asset-allocation decisions and to hold your hand in times of market turmoil. But just like picking stocks or picking fund managers or even picking a stockbroker, picking a good financial adviser is hard. Go for one with a minimalist approach: in general, less is more. If they tell you they’re smarter than everybody else, run away.


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