So Do You Wear the Brown Uniform? Explaining UBS

Among the more interesting experiences of transitioning from New York to Chicago has been explaining my employer.  When I was in New York, never once was there any doubt what I was talking about when I said I worked at UBS.  Indeed, in New York it was clearly thought of as a prestigious employer and a vaunted, powerful company.

Since moving to Chicago, this has definitely changed.  When I mention that I work at UBS, the question I usually get back is something like: “do you work at the processing out by O’Hare?”   Early on I was shocked by this, but now I’ve gotten used to it.  And, on some level, it makes sense.  For most people in America, UPS is very much a part of daily life.  Additionally, UPS advertising and marketing is aimed at the public as a whole, and is encountered in widely readmagazines and as commercials during popular television shows.

UBS is more narrowly targeted, and– despite a centuries-long existence– doesn’t have the longevity in the US that it does in Europe.  In the meantime, I use these conversations for some gentle on-the-fly UBS background as a world financial powerhouse.  And if that doesn’t work, I just confirm that I can wear brown frequently.

— Tim Shields, UBS

Paying Down the Mortgage? Go for it!

Well, a recent gathering of fortysomething Stanford MBAs yielded a rich discussion of art, literature, and philosophy.  Oh, of course I am kidding.  We talked about IPOs, career moves, stock options, and hotels.  It sounds boring and pretentious, but I promise it was neither.  On the whole I would like to think Stanford folks are more grounded than would be expected.

A good chunk of conversation was spent on an age-old financial topic:  should a mortgage be paid down early?  The consensus was… oh, there was no consensus.  Opinions ran the gamut from “of course” to “nfw”.  One went so far as to say the smartest housing bet is to get the biggest mortgage you can find and make it interest only.  At the opposite end of the spectrum was me, with the very conservative approach: find the most appropriate space that is no more than 250% of your annual income, and try to pay it all off in five to ten years.

Perhaps all my time at UBS has embedded a conservative approach to financial considerations.  UBS is known for taking a more cautious approach than its competitors, preferring prudence to the promise of extraordinary returns.  Personally, I just think a person rests so much easier knowing the four walls around them are well within budget, and on their way to being wholly their own.  A person’s home is their castle, and they should own that castle, not rent it.

I get the opposite side.  The devil-may-care approach can yield a nicer crib for sure.  In a rising market, you can always refinance.  In a crashing market, well, you can walk away and make it the bank’s problem.  The former situation is hardly a guarantee, as we have seen quite painfully.  And the latter picture– aside from being of dubious ethics– wrecks your credit and leaves you either scrambling to find a new place or always nervous about a sheriff knocking on the door with an Order to Vacate.  That is an awful scenario.

I stand by my viewpoint: paying down the mortgage is one of the most gratifying financial moves a person will ever make.

–Tim Shields, UBS

Retirement Planning for a Single Person

I attended an informal brown bag lunch session sponsored by UBS in our Chicago office.  In most respects, the talk was about traditional retirement planning:  IRAs; 401ks; wills & estates, etc.  An interesting question came up from an attendee which I thought was both simple in its query yet eye opening in its response:  “what is different for me as a single person (with no kids)?”

The UBS advisor noted that a single person does have a different set of retirement needs than a (gulp) ‘traditional’ situation of a married couple with children.  On the plus side, a single person has no real need for life insurance, since there is no dependent relying on the single person’s income.  Similarly, a childless single person should have less worries about burning through his or her financial assets during his orher lifetime, since there is no person or people whom the estate will need to (or seek to) support.  So far so good.

On the downside, the UBS advisor noted that a single person will have to ensure funds are available for their long term care, especially since there will be no ‘moving in with the kids’ at a later stage in life.  A single person should also identify a trusted advisor (accountant, attorney) to serve as a power of attorney in the event of incapacitation.

In many respects, a single person’s plan mirrors that of a coupled person: healthily fund retirement accounts; keep expenses modest; have contingencies in place in the event you are unable to make your own decisions.  What is different, however, is that someone who is (and intends to remain) single does need to be more thorough in their plans, since there is really no fail-safe (ie someone else) in the absence of a plan.

— Tim Shields, UBS

Are Dividends an Important Aspect of the Investment Equation?

A diversified financial portfolio refers not only to an appropriate mix of products (stocks, bonds, real estate, art, insurance, etc.), but also diversification within each product category.  In the UBS wealth management and private banking businesses, a significant amount of time and due care is placed on ensuring that UBS clients achieve appropriate levels of diversification for their goals, needs, and risk tolerances.

For personal investors, a question which comes up frequently is: Should I care about dividends?  After all if a dividend is a cash payout from an invested entity to an investor, does the dividend achieve anything?  The investor receives cash, but her shares are now invested in a company with less cash, and thus the shares are themselves worth less.  That, of course, is a gross oversimplification, but the concept is quite real: if a company is paying out cash, then the company is sending a signal that it thinks investors can achieve yield on paid-out cash than they could if the company hung onto the cash and plowed it back into the business.

But, as the article points out, a consistent cash payout in the form of a dividend can also be considered a signal of the organization’s financial strength, and its ability to make such cash payments.  A high flying penny stock will almost never pay a dividend, and while there are good reasons for this (namely, whatever cash they have is being used to build the business), it is also often the reality that there is no cash available to pay out anyway.

— Tim Shields, UBS

Is High End Bankruptcy a Moral Failing?

An interesting discussion came up amongst my MBA classmates about a colleague who declared personal bankruptcy.  It’s certainly not a topic that would be much mentioned in Stanford GSB literature, but it’s a reminder that there is absolutely no failsafe against hard times, including a Stanford degree.  The underlying driver of the bankruptcy was substantial personal leverage utilized to support a start-up which never gained enough momentum to become a self-sustaining company.

While there was general sympathy for the business failing, there was considerable disagreement over the ethics of the bankruptcy.  In particular, this person lived large, and had Facebook and Instagram profiles which could inspire jealousy even amongst the well-heeled Stanford crowd.  All sorts of photos of trips to exotic locations, five-star resorts, Michelin-rated restaurants, high-end cars,etc.  I even ran into him at a golf event that UBS was sponsoring.

My own view was fairly generous to the person.  There was no reason to believe he ever intended to pull a fast one on his list of creditors, and he firmly believed that he was living a lifestyle which was appropriate to his position and sustainable.  It’s true that maybe he flaunted his travels and toys a bit more than he should have, but that doesn’t mean his intentions were ever devious.  I think he just go ahead of himself.

In general, while bankruptcy can certainly be taken advantage of in an underhanded way, I think most people find themselves in that situation genuinely intended to be financially upstanding and responsible.

— Tim Shields, UBS

UBS Report: Millenials More Financially Savvy than Reputed

I had a conversation with a Stanford GSB classmate regarding differences in work ethics between, ahem, ‘our’ generation, and the Millenials who have been entering the workforce in the last few years.  His views:  “We worked harder at Stanford than they do today, and we expected a lot less.  We knew we would have to earn our respect when we got to the workforce.  Now they just feel entitled to it.  And they want foozball breaks in the middle of the day to boot.”

But is that a fair view?  I’m slightly (much) more sympathetic to the younger crowd.  My observation at UBS is that the younger set today have a ton of energy, a lot of ideas, and want to be challenged.  In this respect, they are probably not at all unlike the twentysomethings of the 1990s, 1980s, or 1910s, for that matter.  On the flip side, with the boom in the tech sector commanding so much social and employment currency, inevitably we will see the norms in that sector bleeding into other industries as well.

A recent UBS report on Millenial financial attitudes was encouraging.  Substantial percentanges of the Millenial demographic reported that they believe they should work hard and that they will have to; they believe in the requirement of saving for the future; they are actually quite conservative in their investment approach.

My own attitudes toward the Millenial generation is quite optimistic.  I think they are willing to put in the sweat equity to build great lives for themselves and their communities around them.  Their tech savvy will connect far flung corners of the world and help organizations efficiently target communications.  They are smarter and more responsible than they are given credit for being.  Organizatons and leaders from my– sigh– ‘older’ generation, should foster the spirit and capabilities of our younger colleagues.

— Tim Shields, UBS

But Soon I Will Qualify for that Toaster

I have colleagues from UBS who chase points like greyhounds chasing the mechanical rabbit.  Almost every purchasing decision is tied to the question “how many points will I get for this?”  It’s an obsession with so many otherwise calm, cool, and rational people.  Personally I think it’s both a mistake as well a misuse of time (not to mention, a misuse of money).  My main gripe is that rewards system don’t just create loyalty to a single credit card, airline, etc., it’s that they create purchasing decisions where none was imminent.  The points should be a byproduct of credit card spend, not the driver of it.

The other problem with the points system is that inflation is completely hidden.  If a Caribbean cruise that once required 50 thousand points now requires 125 thousand points, that is a real devaluation of your points asset.  And unlike currency inflation, which is the result of a complex series of events and government action, points inflation gets essentially no press, and is just the decision of a small number of people looking to reduce their own liability.  Credit card companies and airlines have considerable incentive to constantly devalue their points, and they’ve done it consistently for years.  And they never go in the other direction, reducing points required for an award.

So color me skeptical on the merits of points-chasing.  I know there exists a whole class of people dedicated to the art, and some of the best probably do figure out how to game the system in their favor.  But for most people, it’s chasing the wind.

— Tim Shields, UBS