Royce bergman ubs

MEMORANDUM

To: Board of Directors, UBS AG From: Date: Subject: UBS’s Ethical Obligation To Pay Interns In July, a Federal judge granted class-action status to a group of former unpaid interns who are suing the Hearst Corporation for not being compensated for their time (Bray). This legal battle underscores the greater ethical dilemma regarding the prevalence of unpaid internships in today’s workplace. As a leading financial services firm and an employer of thousands of unpaid interns, we must ensure that our employment practices meet the highest standards of ethical behavior.

Opposing Argument: Unpaid Internships Are Ethical Many of our colleagues believe that it is perfectly ethical for UBS to employ unpaid interns. They argue that UBS:

• Adequately compensates interns through non-monetary means • Realizes a net loss from the internship program

President’s Argument: Unpaid Internships Are Unethical However, there are others who argue that unpaid internships are unethical and that interns are being exploited by our firm. Their arguments are based on the beliefs that the unpaid internship program:

• Substitutes unpaid interns for full-time employees • Causes interns to incur significant costs • Obstructs the efforts to develop talent internally

I believe that our current practice of employing thousands of unpaid interns is unethical and strongly recommend we begin compensating our interns for their time and services to UBS. By doing so, I believe that we can better serve our clients and develop future talent for our firm.

President’s Recommendation: A Paid Internship Program In light of our current situation and my analysis, I strongly recommend that we restructure our internship program to:

• Compensate interns by providing hourly wages • Commit to hiring more outstanding interns for full-time positions

I will examine each of these main points in greater detail below.

Opposing Argument: Unpaid Internships Are Ethical

Unpaid internships are now commonplace in the financial services industry. The number of such internships has mushroomed of late with companies focusing on reducing costs through utilizing interns as opposed to paid employees (Bacon). At the UBS Wealth Management office in Century City, over 40 unpaid interns are currently working 20 hours a week in exchange for course credit. Financial Advisor Royce Bergman makes the argument that unpaid internships are completely ethical in that UBS: Adequately compensates interns through non-monetary means, and realizes a net loss from the internship program

Adequately compensates interns through non-monetary means. Though interns do not receive monetary compensation, Bergman believes that UBS provides interns with much more important benefits in the form of industry-specific experience and resume credibility.

Industry-specific experience. Interns at UBS become familiar with investment products and industry jargon. Through cold calling and back-office assignments, interns become more comfortable interacting with clients and support staff, respectively. In addition, they learn how to use proprietary technologies and various systems such as Bloomberg. Gaining these skills allows interns to become more competitive when applying for full time positions.

Resume credibility. Interns can add their experience at UBS to their resumes, allowing them to take advantage of our firm’s prestige as a leading financial services provider. This enables the interns to secure better paying jobs in the future. According to the National Association of Colleges and Employers, 42% of students with unpaid internships were employed after college as opposed to 30% of those students who did not have internships (Bacon). Bergman argues that almost all of his former interns were employed after college and attributes that, in part, to the credibility that UBS adds to their resumes (Bergman).

Realizes a net loss from the internship program. Many UBS financial advisors argue that the internship program contributes a net loss to their practices and is ethical in that it benefits the interns and not the advisors. They believe that the minimal contributions from the internship program are offset by the significant costs that the program generates.

Minimal contributions. Many financial advisors argue that interns offer very little in terms of adding value to wealth management teams. Many interns are tasked with cold-calling and database maintenance. However, interns generally have no prior sales or financial experience and thus are generally ineffective at executing their tasks until their program is almost over.

Significant costs: UBS must pay for the opportunity costs of training and onboarding the interns. Additionally, the firm also pays the monetary costs associated with having all interns undergo background checks and drug tests to comply with SEC and FINRA regulations.

President’s Argument: Unpaid Internships Are Unethical

The 2008 Financial Crisis has significantly impacted our industry and led to cost-cutting measures across Wall Street. One way that many firms have cut down labor costs is through significantly increasing the scope of unpaid internship programs—a trend that I have seen throughout UBS Wealth Management over the past few years (Bacon). However, I believe that this trend is unethical for multiple reasons. The current internship program: Substitutes unpaid interns for full-time employees; causes interns to incur significant costs; and, obstructs the efforts to develop talent internally

Substitutes unpaid interns for full-time employees. Using unpaid interns as opposed to hiring full-time employees is unethical because UBS takes advantage of unpaid interns to cut costs and sacrifices the quality of service offered to clients.

Takes advantage of unpaid interns to cut costs. The US Department of Labor published Fact Sheet #71 as a guideline for determining whether or not interns must be paid for their work (“Factsheet #71”). Accordingly, unpaid internships are legal only if “the intern does not displace regular employees.” I believe that interns do perform critical tasks for our financial advisors and that we would need to hire more regular employees if we did not have interns. Therefore, I believe that we are violating Department of Labor guidelines and thus breaking the law. In addition to being illegal, I am also convinced that our internship program is unethical because we are exploiting college students through the unpaid internship programs as part of our strategy to better control our costs.

Sacrifices the quality of service offered to clients. Unpaid interns receive only limited training and are not paid for their services; whereas, paid employees go through extensive training and must pass intensive regulatory exams such as the Series 7 and Series 63 exams ("FINRA Registration and Examination Requirements"). Accordingly, I believe that our paid associates can provide a substantially higher quality of service to our clients than can an unpaid intern.

Causes interns to incur significant costs. Interns do gain valuable experience and are able to use UBS’s brand as part of their resume. However, our internship program is unethical in that students are required to essentially pay to work at our firm. To elaborate, UBS interns are burdened with added tuition and other costs.

Added tuition costs. In accordance with federal law, the UBS internship program requires that all interns earn academic credit in exchange for participating in the program. Interns therefore are required to take an additional class to fulfill this requirement, which can lead to a significant increase in their tuition fees. For example, unpaid interns from the University of Southern

California are required to enroll in an additional two-unit course that could increase a semester’s tuition bill by almost $3,000 (“Fall 2012 Tuition and Fees”).

Other costs. Interns also incur a variety of other costs throughout their tenure in the program. For example, interns in the Century City office must pay for gas, parking, and meals. Interns cannot offset these costs—amounting to several hundred dollars over the course of a semester-long internship—because they are not being paid for their work.

Obstructs the efforts to develop talent internally. UBS has an ethical responsibility to maximize value for our shareholders through providing exceptional financial advice to our clients. In order to provide industry-leading advice, we must continue to invest in our financial advisors and support staff. However, our current unpaid internship program obstructs these goals and limits the availability of entry-level positions and disillusions interns.

Limits the availability of entry-level positions. As previously mentioned, UBS currently is substituting unpaid interns for entry-level employees. In addition to being illegal, I believe that this process is unethical in that it jeopardizes the future value of UBS to our shareholders. We have an obligation to educate the next generation of financial advisors to ensure the continued future growth of the firm. The unpaid internship program is obstructing us from fulfilling this obligation and we must make a change.

Disillusions interns. Interns quickly become frustrated after working 20 hours a week without pay. Furthermore, interns realize that they have little chance to secure a full-time offer and are unmotivated to produce quality work. As a result, the level of service provided to our clients and the value of our firm is negatively impacted.

President’s Recommendation: A Paid Internship Program

As you know, UBS Wealth Management Americas announced record profits yesterday for the most recent quarter (Hutchings). Though I am proud of our success, I believe that our internship program has been an unethical failure for far too long. Accordingly, I recommend that we restructure our internship program to:

• Compensate interns by providing hourly wages • Commit to hiring more outstanding interns for full-time positions

I am confident that implementing these changes will resolve the ethical dilemma that we currently face and will enable UBS to develop and retain a new cadre of industry-leading professionals.

Conclusion

The current unpaid internship program at UBS presents a significant ethical dilemma that we must address. On one hand, there are those who believe the current program is ethical. They argue that UBS adequately compensates its interns and realizes a net loss from the internship program. However, I disagree and am convinced that the current internship program is unethical in that it substitutes unpaid interns for full-time employees and causes interns to incur significant financial costs. Moreover, it hinders our efforts to develop talent within the firm. Moving forward, I propose that we compensate our interns by providing hourly wages and commit to hiring outstanding interns for full-time positions. These actions will ensure that UBS embraces the highest ethical standards and renews its focus to providing our clients with outstanding investment management advice.

Works Cited

Bacon, Natalie. "Unpaid Internships: The History, Policy, and Future Implications of “Fact Sheet #71." Ohio State University Law Review 6.1 (2012): 68-95. Web.

Bergman, Royce. "The UBS Internship Program." Telephone interview. 25 Oct. 2012.

"Factsheet #71." Wage and Hour Division. United States Department of Labor, n.d. Web. 31 Oct. 2012. <http://www.dol.gov/whd/regs/compliance/whdfs71.htm#.UJDaDRzluHd>.

"Fall 2012 Tuition and Fees." Schedule of Classes. University of Southern California, n.d. Web. 31 Oct. 2012. <http://www.usc.edu/academics/classes/term_20123/ tuition_and_fees.html>.

"FINRA Registration and Examination Requirements." FINRA.org. Financial Industry Regulatory Authority, n.d. Web. 31 Oct. 2012. <http://www.finra.org/Industry/ Compliance/Registration/QualificationsExams/Qualifications/P011051>.

Hutchings, William. "Profits Up at UBS Wealth, Asset-Management Arms." Financial News. The Wall Street Journal, 30 Oct. 2012. Web. 31 Oct. 2012. <http://online.wsj.com/article/BT- CO-20121030-705618.html?mod=WSJ_Banking_middleHeadlines>.

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