When brokers aren’t followed

By Felix Salmon
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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Hopefully clients are starting to wise up and the use of the mysterious waffle will fade away.

Posted by tombrakke | Report as abusive

A few snippets from working in the industry:

Clients, in general, have no idea that UBS has tax issues. How they form their perspectives on reputation of brands is a haphazard amalgamation of marketing, popular editorials, and exceptionally personal experiences.

Clients will abandon a relationship of 15 years when a broker jumps ship because they like going into the (same) branch to deposit checks. Client decisions on brokers are idiosyncratic and have little to do with performance or firm.

Clients have no idea how to tell if their broker gave them bad advice. They know if their broker didn’t call them or make them feel like they were getting good advice, but most statements and available data provided by the brokers’ firms to clients is just enough to make clients feel like they know what is happening, but no where near enough to make a decent comparison.

Clients want to have a broker that is smarter than everybody else. In fact, half of what they are paying for is to be told that their broker is smarter than everyone else (this applies both to stock pickers, mutual fund pickers, and passive managers ["listen, I'm so smart that we're not even going to play this beat the market game"]).

The (broker) human touch is valuable (full disclosure: was a broker, talkin’ my book). Hard to say whether it is more valuable to blow up your e*trade account yourself (in double leveraged etfs!) or have a broker blow up your account for you. Surely some brokerage house has the data to do it, but like they’re going to give it to me…

Posted by bkmacd | Report as abusive