UBS Wealth Management Americas' focus on ultrawealthy clients continued to pay off as strong fourth-quarter results capped off a banner year for the firm.
Profit climbed as the wirehouse brought in a record $254 million in pretax earnings in the fourth quarter, representing a 64% jump from a year earlier. Revenue of $1.85 billion in the quarter was up 10% from $1.7 billion a year earlier.
Growth in the wealth management unit, a subsidiary of UBS Financial Service Inc., benefited from higher inflows of client assets, stronger market performance and continued recruitment of large experienced adviser teams, the firm said.
Client assets topped $1 trillion for the first time, climbing to $1.02 trillion, from $885 billion at the end of 2012. In addition, average productivity per adviser once again topped $1 million in the fourth quarter after dipping to $994,000 in the third quarter.
The firm said that its advisers had benefited from increased managed account fees and higher commission revenue from a higher number of transactions.
That represents resounding evidence of the turnaround of the wealth management unit, which posted yearly results in the red as recently as 2010.
“We are extremely happy,” said Tom Naratil, group chief financial officer and group chief operating officer. “To go back a couple years ago and think that this business would have a trillion in invested assets and a billion in pretax [annual profit] and advisers with a productivity of $1 million apiece is really quite an achievement.”
Pretax margins leaped to almost 14% by the end of last year, from about 9% at the end of 2012 as the firm's annual expenses rose 9% to $6.1 billion, from $5.7 billion in 2012.
Profit margins were still below those of competitor wirehouses, the lowest of which, Morgan Stanley, reported pretax margins of about 20%, but the results showed that UBS was having success at carving out a niche by targeting wealthier clients and bringing in fewer advisers, Mr. Naratil said.
“The larger firms in the U.S. that are going to play the scale game are always going to have a slight advantage of cost-to-income ratio versus our target,” he said. “We believe we'll earn a very attractive return on the business based on not trying to play the scale game and playing a very focused strategy.”
UBS, which is the smallest wirehouse by head count, reported that it had 7,137 financial advisers at the end of last year, unchanged from the previous quarter. The firm has kept recruitment relatively on par with attrition as it looks to focus on bringing in larger and more experienced adviser teams.
As it looks to maintain momentum and increase margins to 15% by next year, the wealth unit will be focused on providing more services to its high-net-worth clientele, specifically through banking and lending, according to group chief executive Sergio Ermotti.
“Wealth Management America's results are further proof that our strategy is working,” he said. “As we continue on our journey to be the best wealth management firm in the Americas, we will achieve success by delivering advice beyond investing, strengthening our focus on banking and lending, and cross-business collaboration.”