UBS's Major Wealth Management Changes Could Destabilize Others - Evercore ISI (UBS) (MS) (BAC) (WFC)

Evercore ISI analyst Glenn Schorr highlights that on Wednesday UBS (NYSE: UBS) announced a series of changes to its U.S. wealth management business designed to "eliminate the bad costs" related management bureaucracy and recruitment with the goal of improving financial advisor ("FA") retention & organic growth. Specifically, UBS is de-layering its field structure (i.e. eliminating the regional layer and realigning into larger markets), reducing its advisor recruiting by 40%, and enhancing and simplifying its compensation plans for FAs and field management by rewarding productivity, growth & longevity at the firm.

Schorr believes FA compensation costs are likely to increase but be partly offset by the cuts in management and recruitment as UBS looks to 1) increase payouts for the largest books of business, 2) incent FAs to form teams (good for the clients & for the firm), and 3) enhance the incentive programs centered around FAs retiring/selling their business at UBS.

The analyst said Morgan Stanley, Bank of America (NYSE: BAC) and Wells Fargo (NYSE: WFC) get 45%, 20% & 18% of Firm-Wide Revenues From Wealth Management.

"While we don’t expect it, UBS's new plan could potentially cause a ripple effect across the industry where the other major broker-dealers feel pressure from their FAs to follow suit, pressuring margins and valuations," he said. "The brokers that would be most impacted are Morgan Stanley, Bank of America, and Wells Fargo who derive approximately 45%, 22%, and 18% of their firm-wide revenues from wealth management."

The analyst said BofA has a little more risk, but not because of UBS's move. "Nonetheless, if there is a pickup in movement in the industry, we think BofA/Merrill Lynch is most at risk in the near-term as their FAs recently ran off of the 7 year forgivable loans BofA doled out back in 2008 following the acquisition, while MS's FAs have ~18 months left on their ~9-year deals post the Smith Barney acquisition."

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