Between a horrible investment-banking environment and an embarrassing $2.3 billion loss incurred by a London-based trader, UBS AG had a tough third quarter. But wealth management operations, particularly in the U.S., were a notable bright spot in an otherwise dismal earnings report.
In a memo to financial advisers and wealth management employees, Robert McCann, CEO of UBS Wealth Management Americas said that despite “reputational head winds,” the business was “in the midst of a meaningful turnaround.”
Mr. McCann is still a long way off from the $1 billion profit target he set when he took over leadership of the division in 2009, but third-quarter numbers for the U.S. advisory business were solid.
Unlike competitors Morgan Stanley Smith Barney LLC and Bank of America Merrill Lynch, which reported earnings last week, UBS posted higher sequential revenue in its U.S. wealth management operations. Revenue of $1.54 billion was up 2% from the second quarter and 16% from the comparable quarter last year. Pretax profit of $165 million was up modestly from the second quarter although down a bit in Swiss franc terms.
The operation added a net 51 advisers in the quarter, giving it a total of 6,913 at the end of September — 117 more than the firm had at the end of last year. Recruiters suggested that the huge trading loss suffered by the firm in early September would lead to some adviser defections, but it has yet to show up in the numbers. UBS said its adviser attrition rate of 3.1% was the lowest it has been since 2005.
Despite an 8% drop in invested assets to $715 billion in the quarter, the firm still boasts $103 million in assets per adviser —the highest among the wirehouses and about 14% more than Merrill Lynch and MSSB. UBS advisers also surpassed Merrill's “thundering herd” as the most productive group of advisers on Wall Street. Annualized revenue per adviser increased 1% to $895,000, compared with a 4% drop at Merrill to $854,000.
UBS also continued to attract new money to the company, adding $4.8 billion in new assets under management (not including dividends and interest.) Year-to-date, net new money to the firm is $11.6 billion, versus an outflow of $9 billion in the first nine months of 2010.
The good results from wealth management operations bode well for a parent that plans to focus more on the business. Although it has yet to provide many specifics, UBS has said it will shrink its investment-banking operations and devote more of its resources to global wealth management.
Mr. McCann is certainly upbeat about the future. “What you have is one of the more impressive turnarounds I've witnessed in all my 30 years in financial services,” he wrote in his memo to employees. “Leading adviser productivity, solid net new money flows, a winning strategy and strong corporate balance sheet—these are the qualities of a healthy and growing wealth management business, poised for even greater success.”
