UBS wealth management fees squeezed by global turmoil in second quarter

UBS wealth management fees squeezed by global turmoil in second quarter
Operating income declined 1% on reduced client activity and lower mutual fund fees
JUL 28, 2016
Revenue at UBS Group AG's wealth management unit for the Americas dropped as the unit's fees were squeezed by global market volatility. Operating income fell 1% from the second quarter last year to $1.92 billion, according to the bank's earnings statement Friday. During a call with analysts, UBS' chief financial officer Kirt Gardner attributed the results to a decline in client activity and lower mutual fund fees as investors switched their asset allocation in response to market volatility. “Clearly, our fees are under pressure,” Mr. Gardner said during the earnings call Friday. “And we're seeing, of course, not only clients through their risk aversion reducing their overall transaction volumes, but we're also seeing some of their actions that are impacting our recurring fees.” Geopolitical turmoil — stemming in part from Brexit, as well as a challenging interest rate environment — led the bank's global wealth management clients to increase their already high levels of cash holdings, according to remarks made by Sergio Ermotti, the Swiss bank's CEO, during the earnings call Friday. “Treacherous market and geopolitical conditions have weighed heavily on our clients' attitudes towards their investments," Mr. Gardner said. Still, the bank's wealth management unit for the Americas saw $2.4 billion of inflows in net new money from clients seeking help with their investment accounts, according to its earnings statement. During the second quarter, UBS announced a restructuring of the unit to focus on recruiting and retaining top producers who work with high-net worth and ultra-high net worth clients. The changes include a new compensation model aimed at keeping “our best advisers,” according to Mr. Ermotti. “This will allow us to de-emphasize the aggressive recruiting practices prevalent in the industry, which are not in the best interest of our clients, advisers and shareholders,” he said during the call. UBS Wealth Management Americas counted 7,116 financial advisers at the end of June, company spokesman Gregg Rosenberg said. On average, each produced $1.08 million of revenue, overseeing a record $151 million of assets, he said. “Our financial advisers maintained their status as the most productive among peers,” Mr. Ermotti said during the call. The unit reported adjusted pretax profit of $281 million in the second quarter, up 22% from the same period last year, helped by a record amount of net interest income, invested assets and managed account penetration, according to Mr. Gardner. Net interest income in the second quarter rose 19% year-over-year to $357 million, mainly due to higher yields, strong growth in lending and deposit balances, offsetting lower transaction-based revenue and recurring fees, according to Mr. Rosenberg.

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