Has UBS missed the US wealth management M&A boom?

Has UBS missed the US wealth management M&A boom?
Recent history shows that wealth management deals by giant banks like UBS can produce mixed results.
MAR 18, 2024

UBS Group's appetite for acquisitions goes beyond its mega-deal last year to purchase the distressed Credit Suisse Group, with the chair of UBS saying over the weekend that its next set of targets is likely to be wealth management firms in the United States, starting a few years from now.

The question hanging over such a target, one banker said, is whether UBS will be arriving too late to the wealth management M&A boom of the past decade, which has seen a host of firms, from assets managers to registered investment advisors and broker-dealers, acquired by buyers in a drive for growth and a greater share of clients' wallets.

"That's the assessment," said Larry Roth, managing partner at RLR Strategic Partners. "UBS could be late to the M&A party, which already has significant, well-run firms that are having success in this area," Roth said, mentioning firms like Morgan Stanley, LPL Financial Holdings Inc. and Raymond James Financial Inc. as successful recent buyers of financial services firms.

UBS chair Colm Kelleher said in an interview Sunday with Swiss newspaper NZZ – Neue Zurcher Zeitung – that UBS wants to expand its U.S. wealth management business through potential M&A in three or four years.

"Only in wealth management and not yet," Kelleher added, according to Reuters.

A UBS spokesperson in the United States declined to comment Monday morning.

"The wealth management industry, which includes RIAs, obviously, will see more consolidation over the next five years than we’ve seen in the past five years," said another senior industry executive who spoke privately to InvestmentNews. "Scale will matter, and how to achieve that scale is a key question. Successful firms will be good at both organic and inorganic growth. Good targets will have many bidders and premium valuations."

Recent history shows mixed results for giant banks like UBS that complete such acquisitions. UBS currently employs close to 6,000 financial advisors in the United States.

On the one hand, Morgan Stanley, which competes directly with UBS in the United States, has been praised for its deft handling of large, significant acquisitions that have remade the firm in recent years.

In 2019 Morgan Stanley purchased Solium Capital Inc., a stock plan business that focused on technology startups, for $900 million, and a year later it bought discount broker ETrade for $13 billion. Next in 2021 was the deal for Eaton Vance, a leading active manager of mutual funds, including the Calvert and Parametric brands. 

On the other hand, giant banks have also recently fallen short on wealth management acquisitions. In 2019, Goldman Sachs Group Inc. bought a leading RIA aggregator, United Capital Financial Partners, for $750 million but the bank could never successfully integrate the firm into its plan to work with and chase after the ultra-wealthy. Last summer, Goldman Sachs sold the remains of United Capital to a giant RIA, Creative Planning.

UBS has had problems with mergers and acquisitions in the recent past. In January 2022, the firm, with much fanfare, said it was buying Wealthfront Inc. for $1.4 billion, with the intention of using the robo-advisor to target younger and less wealthy clients, much as Morgan Stanley has done with ETrade.

But that deal was dead less than eight months later when UBS and Wealthfront said over Labor Day weekend that they had terminated the deal.

UBS' financial advisors in the United States are among the most profitable in the industry, on average generating well above $1 million in annual fees and revenues. The demand for such advisors has never been higher, as more financial advisors leave Wall Street every year to work at an RIA or independent broker-dealer, where they pocket a much larger percentage of their annual revenue than at a wirehouse like UBS.

"Picking off $1 million-plus producing financial advisors and teams is more expensive than ever and very difficult to do," Roth added.

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