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UBS's SMA Fee Elimination Could Hurt Competitors

By Mrinalini Krishna November 8, 2019

UBS’s move to eliminate management fees charged on some Separately Managed Accounts (SMAs) could have a big impact on some competitors, experts warn.

In an internal memo dated October 22, UBS declared it was eliminating SMA fees on products manufactured in-house and some from third-party providers. The move had left many in the industry confused and wondering what the potential impact could be on advisors — and competitors.

“In the short term, this move will have big implications for the regionals like Raymond James, Ameriprise and LPL — all the more as they don’t have asset management operations able to swallow the cost,” says William Trout, head of wealth management at research firm Celent.

With the new model, UBS hopes to simplify the pricing process and lower costs for end clients. For more premium services such as tax management and sustainable investing, the firm may charge an incremental fee. The wirehouse will also open the model up to third-party asset managers, where it would negotiate institutional pricing for their services and the advisory fee paid by end clients to UBS would cover that cost instead of the separate SMA fees.

“Our financial advisors will now be in an even better position to successfully compete for business, grow their practices and deliver for clients,” the UBS memo said.

Does UBS get first mover advantage?

While the race to zero commission on trades gathered steam for discount brokerages, UBS is the first to move on SMA fees. Some experts say the implementation of Regulation Best Interest may have prompted the move.

“Firms are also trying to get out in front of Reg BI. That’s the case at UBS, and it’s little wonder that [expensive] SMA accounts are being cut down to size,” says Trout.

UBS itself has admitted Reg BI did indeed play somewhat on its mind.

“This is a win for our clients and advisors: we’re simplifying SMA client pricing, expanding choice and transparency, and aligning our offering with the SEC’s Regulation Best Interest (Reg BI),” said the memo.

The new pricing model is available to clients in both single contract SMA and unified managed accounts (UMAs).

“Longer term, business will continue to shift from SMA to UMA. In that sense, UBS is making a Charles Schwab-like move to get ahead of the trend while inflicting some pain on competitors,” Trout added, referring to Schwab's recent elimination of commissions on trades.

Industry reactions so far

Some competitors have accused UBS of singing the praises of its move before providing any clarity on how it will actually happen. When contacted by FA-IQ, UBS did not comment on competitor reactions.

“UBS’s announcement wasn’t clear. A few years ago they unbundled between what the advisor charged and the firm. I don’t know if it’s a re-bundling,” said Raymond James CEO Paul Reilly during a recent earnings call. He added, “the impact is how is that change going to be passed to the advisor and client, and that wasn’t announced at all. If it’s a refund, I think, it’s going to have no impact. If it’s charged, the advisor has a different effect… but I have no idea what that is right now.”


LPL Financial CEO Dan Arnold, too, echoed similar views. “I don’t know that we have exact clarity on what’s been done. We have a hypothesis that they eliminated their SMA manager fee where they were the manager versus a third party,” said Arnold, adding that UBS may not have “necessarily adjusted the advisor fee. Perhaps that gives the advisor some more flexibility in how they price that to the end client. That’s what it looks like to us.”

Under the new pricing for UBS, the cost to the clients apparently will be reduced by the amount of SMA fees they previously paid.

“We’re unclear of what [that] exactly means. So if we do have discretionary accounts, [like] Columbia Funds, we don’t charge a management fee for it today. But SMAs are a small part of our activity as well. So we feel very good,” said Ameriprise CEO Jim Cracchiolo.

Another Reg BI move

The SMA fee move isn’t UBS’s only change in a bid to become compliant with Reg BI. The wirehouse has also decided to introduce a single-share class structure for mutual fund products in its brokerage accounts, FA-IQ’s sister publication Ignites reported.

This change too will be rolled out January 2020 and will mean mutual fund products no longer have any front or back-end loads, nor will they have any 12b-1 distribution fees attached.

Multiple share classes for mutual funds and 12b-1 fees have been an area of multiple recent enforcement actions by the regulators. In the aftermath of the Reg BI announcement, industry experts had outlined share classes and 12b-1 fees as a challenges in terms of compliance with the new rules.

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Tags:  Finding and winning new clients , Client retention , Fees and compensation , Portfolio management , Marketing , Charles Schwab , LPL Financial , Raymond James , UBS , Ameriprise , Celent

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Intrepid Nov. 8, 2019 at 09:33 AM EST

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UBS = Under Bureaucratic Scrutiny