Ed O'Connor
This has been a tough year for global banks including UBS but, behind the sturm und drang, UBS is quietly reinventing its financial advisory practice in the U.S. PLANADVISER talked to Ed O’Connor, a former Merrill Lynch and JPMorgan executive who joined UBS Financial Services in September 2006 and is now Head of Retirement Consulting Services, about the changes.
The national wirehouses historically have struggled with the larger fiduciary implications of the defined contribution business, and generally have precluded their financial advisers from acting as fiduciaries. Has UBS now grasped that nettle?
UBS sees itself as the world’s premier wealth manager, and to achieve that status in the U.S., it is vital to have a major footprint in the retirement space. That requires two essential capabilities: first, to be in a position to take advantage of the massive rollover flows into IRAs and, second, to be a major player in the mid-size and small 401(k) market. The companies that are sponsoring these 401(k) plans, and their executives, are essential targets for our FAs—and, to serve them properly, you need to know your stuff and be prepared to act as a fiduciary. That’s what business owners want, and now, through what we call the DC Advisor Program, that’s what we can give them. To bring the consulting capability to the $50 million and below (k) market, you need scalability, which we have created with the recordkeepers we have partnered with. You need to be competitive and transparent from a fee standpoint, and you need to act as a co-fiduciary. It brings some complexities from our standpoint as a broker/dealer, but it’s the right thing to do, and what the market is beginning to demand.
Generally, efforts like this receive real pushback from the head office. How did you get it done?
In the past, the risks associated with acting as fiduciaries likely would have been perceived as outweighing the rewards but, as I noted before, you can’t be a wealth management player of note without significant exposure to defined contribution plans. I would add that we constructed a very well-defined program. This means clients will know exactly what they’re getting from their UBS financial adviser, what they’re paying and to whom, and what services their participants will be provided. In the final analysis, it is our process that really gives us comfort, and makes the fiduciary risk we take more manageable.
What advisers will qualify for the DC Advisor program?
We intend in the near future to have about 500 FAs trained and primed to do this. They need to have a specified level of DC assets already in their practice, and retirement plans need to be a core part of their business. They also need to have specified credentials, too. In other words, they must be committed to the retirement space.
Brokers have mixed reputations in the retirement space.
When that’s the case, it is because of a perception that they added little value, or that they were biased. We’re clearly now in a position to address that first issue. Also, through the DC Advisor program, we have addressed the perception of bias; regardless of investment choice, the adviser’s compensation remains the same. There is also flexibility in how the adviser can get paid—either an asset-based fee or a hard dollar fee, a single bundled fee, or a fee for each deliverable. It’s transparent and independent of investment choice.
What is the home office deliverable to the adviser?
We’ve totally revamped our home office support. It embodies exactly the qualities that we’ve been discussing—i.e., transparency and flexibility—and it starts with the agreements and contracts that our advisers can use with their clients, goes on to offer an optimal provider search tool and an investment review and analysis tool. We also have come up with a new slate of employee-focused content. It’s a whole new ball game.
What is it about acting as a co-fiduciary that is so compelling to plan sponsors?
I think plan sponsors understand now that the 401(k) plan is the most important asset most of their employees will take to their retirement, making sponsors’ decisions even more critical. Plan sponsors know they are the ultimate fiduciary, but they want their adviser to understand and operate under exactly those same dynamics. If their adviser shuns that fiduciary responsibility, sponsors are going to look elsewhere for their expert help.
Can clients, if they choose, still opt for their traditional relationship with an FA?
Clients can choose what works best for them. The DC Advisor program is focused on 401(k) setup and servicing for plans with less than $50 million. For larger plans, our Investment Consulting Services (ICS) professionals may make more sense, or a client may choose a traditional broker/dealer relationship where our financial adviser is compensated directly from the investment products within the plan.
How do you think this effort will shape the UBS financial adviser effort going forward?
I think at UBS, and elsewhere, you’ll see a smaller and smaller share of the defined contribution business going to FAs who haven’t embraced retirement plans as their core business. UBS is looking for these specialized retirement advisers, and we’re committed to giving them the best tools in the business to continue to differentiate themselves. We’re making a bet on the importance of defined contribution programs in the financial architecture of American workers; that seems a good bet to make.
As you see it, what is the primary challenge facing specialized retirement advisers?
It’s about making an impact on the retirement readiness of millions of American workers. That requires a wide-ranging skill set, from matching the plan with the right provider to providing customized retirement income solutions to employees. I believe you will need the brand and marketing clout to demonstrate that skill set. If you can deliver best-in-class unbiased solutions, act as a co-fiduciary, and embrace transparency, you’ll win, and win big.
Photography by Filip Kwiatkowski