McCann plays his first cards as head of UBS

This story originally ran before Christmas. We are re-running it for those of you who might have missed it while you were out shopping for last-minute gifts.

In a sign of the priorities Bob McCann is setting as the new leader of wealth management at UBS Financial Services, the embattled New York-based wirehouse has sweetened its recruiting package for top brokers.

UBS also let headhunters know that it will recruit only from the top two quintiles of brokers, officially making it the most selective wirehouse on the Street. And it is pushing low-producers out the door even faster than in the past by putting brokers who generate less than $250,000 a year in a lower-payout penalty box.

The new retention package was the biggest news.

UBS will begin to pay 280% of trailing 12-months production to top brokers who choose to bring their books of business from competing brokerages and meet basic goals, according to recruiters. This amount compares to the 220% it has been paying since earlier in the year.

Big bump

Despite the big bump, the UBS package still trails the 330% of production typically paid out to top producers by Merrill Lynch and Morgan Stanley Smith Barney.

Word of the new package got to recruiters on a Friday – about a week after details of a retention package were made known to its brokers.

Some saw the new package as still-modest, and believe it is a sign that McCann is struggling with retention at the same time he tries to recruit top brokers from other wirehouses.

“The most important issue was to keep advisors in their seats,” the recruiter says. “McCann needed to send a message to his troops that he wants to reward the advisors who stayed with UBS through the hard years” before dishing out lucrative deals to newcomers. [For more information about McCann’s UBS strategy, read: 13 things to know about Bob McCann recruiting his old Merrill Lynch team to UBS

Some of the details of McCann’s recruiting package, however, are favorable by any standard. The UBS deal is paid out with 130% [of production] cash up front followed by 50% [of production] payments over the course of the first year in 90-day increments.

“They’re not making you wait”’ until the end of the year to get the next big installment, a recruiter says.

After 24 months, the broker gets the next 50% [of production] payment if 85% of the revenue from the original production total is realized. At 36 months, the broker receives an additional 50% [of production] payment if 100% of production is realized from the original book of business.

Potentially better

What makes the deal potentially better than Merrill and Morgan Stanley is that it does not cap the production that the designated percentages are applied to. If, for instance, a broker grew their production by 40% after 36 months, they would get paid the 50% based on that inflated amount.

In another twist at UBS, the company’s recruiting guidelines made known [*see note immediately below in parentheses] on Friday showed that the company is primarily interested in recruiting the cream of the crop.

(*Though the company does not send guidelines to recruiters directly, executives in the industry say that they get them through what are, in effect, intentional leaks. The wirehouses want recruiters to have the information because it generates needed recruiting activity, the executives say.)

“There were rumblings and rumblings and rumblings about it,” before the information finally appeared, one recruiter says.

The new guidelines state that UBS will now only seek brokers in the first and second quintiles. In other words, the firm is seeking brokers who generally produce $650,000 or more. [That amount can be substantially lower depending on a broker’s length of service and growth trajectory.]

Though Merrill Lynch and Morgan Stanley Smith Barney also predominantly recruit in the first and second quintiles, they will make a fair number of exceptions for good third quintile producers. Wells Fargo Advisors actively recruits in the third quintile, recruiters say.

The irony of UBS’s highly selective approach is that — as recently as 2008 — it was recruiting huge numbers of advisors, including brokers in the third quintile. It also had among the most generous payouts, according to industry observers.

Window closed

“The window closed,” a recruiter says.

Yet while big producers might find sweeter packages at UBS, the picture is vastly different for scores of brokers who already work for UBS as 2009 draws to a close, according to current and former brokers employed by the firm.

These brokers are subject to a new rule imposed by the wirehouse this year that requires a broker with eight years or more of service to produce $250,000 in revenue or have their payout dropped from 28% or 30% down to 20%.

In 2008, a UBS broker needed only to hit $200,000 of revenues to avoid the penalty. The $250,000 limit only applied to brokers with more than 10 years of service.

The suspense today is that a UBS broker who fell below $250,000 in 2008 can produce $250,000 by the end of 2009 and have their payout bumped back retroactively – albeit only to 30% at best. Top-producing brokers [$1 million-plus] can earn payouts of 46% or more at UBS, according to brokers there.

Needless to say, such a penalizing policy is not meant as a note of encouragement to these low-producing veterans.

“I think it sends a pretty strong message,” says John Furey, principal of Advisor Growth Strategies in Phoenix, Ariz. “We call it the penalty box and your life becomes really bad” if you fall below the established thresholds.

UBS declined to comment about these policies.

As bad as it is, many people expected that it would turn out worse for low-producing UBS brokers, according to one Wall Street recruiter.

Expecting another round

“So many UBS advisors that would have been affected were already terminated,” the recruiter says. “We were expecting another round of those terminations and a raising [up] of minimum production to $400,000 to $500,000.”

Merrill Lynch and Morgan Stanley Smith Barney have also employed sharp penalties in payouts for low producers, some with production as high as $300,000, according to press reports.