UBS Signals Commitment to Asset-Based Compensation

UBS Wealth Management is the latest of the big national brokerage firms to reveal how it will handle adviser compensation during the Department of Labor (DOL) fiduciary rule implementation.

As first reported by Reuters, UBS advisers servicing retirement accounts moving forward can restructure the retirement portion of their business to be paid “based solely on the amount of assets and not the volume of transactions or the products they recommend for retirement accounts.” The initial reporting cited Tom Naratil, who helps run adviser operations at UBS, and PLANADVISER has subsequently confirmed the broad strokes of UBS’ new approach.

Similar to the announcements made by some other prominent national brokerages, UBS confirms it will cease offering to retirement clients a short list of products that have compensation, liquidity and transparency characteristics that do not mesh well with the purposes baked into the fiduciary rule reforms. The firm points specifically to “exchange-traded notes” issues by UBS itself as an example of a newly restricted product.

One interesting point in UBS’s announcement is that the wider brokerage itself will not cease collecting retirement account commissions and therefore will likely have to depend on the best-interest contract exemption (BICE) to some degree. UBS says that client choice remains important and is the defining driver of its decisionmaking, and that individuals can still opt for accounts that require them to pay commissions on each transaction, rather than a flat fee based on assets.

In effect, UBS as an entity will still receive the commissions from retirement accounts, thus altering the firm’s gross compensation and potentially triggering a prohibited transaction under the fiduciary rule expansion—thus requiring deployment of the BICE. However, the adviser would still be able to service this relationships in a non-conflicted manner because the commissions would no longer factor into setting their level of pay, and so the adviser will not have an incentive to repeatedly trade in retirement accounts for the sake of higher bonuses, even though UBS would theoretically make more money. 

The firm acknowledges it is trying to take a non-disruptive approach here, for both clients and advisers, given that the long-term future of the new conflict of interest standards are still uncertain. As many have argued during the lengthy process it took to get the fiduciary rule in place, there are clients who would surely pay less (potentially a lot less) under the old commission-based models than they would under a new asset-based fee. Simple logic confirms clients who do not frequently trade their holdings are served better by paying up-front commissions rather than by being required to repeatedly pay the adviser/broker an asset-based fee for advisory services they do not really want/need.