Following an emerging pattern among wirehouses,
UBS Wealth Management plans to trim the number of mutual funds listed on the platform advisers use to select investments for clients.
The move, described by
UBS sources familiar with the strategy as a "rationalization," will remove 840 funds from the current list of 4,200.
The 20% reduction, representing about 5% of assets under management on the platform, will unfold in three phases from April through July.
A
UBS spokesman declined to comment.
Whitfeld Athey, chief executive of software and services firm Delta Data, said reducing the total number of funds makes sense and will continue as wirehouses focus on conducting propriety research on the funds, which goes beyond the
traditional fund supermarket model of just passing along what the fund companies provide.
"They want to provide high-quality products that perform well, and they want to provide research to their clients on the mutual funds on the platform," he said. "It's very expensive to provide that research, so they have to decide whether to try and beef up research across all funds or just cut some of the funds."
Mr. Athey cited a January agreement between UBS and Morningstar that will make fund research reports available to the wirehouse's 7,000 advisers.
"You start doing research on funds and it begs the question of why we aren't just sticking with the highest-quality funds," he said. "What's the value to the wirehouse of having that fourth European bond fund?"
Mr. Athey mentioned the profitability of keeping some funds on brokerage platforms depending what fees the funds are paying to be included.
"If they won't pay to play, they are definitely getting cut; but my thought is, [the UBS move] is not related to pay to play," he said.
Meanwhile, Phil Shaffer, an adviser who left Morgan Stanley last year to launch
Halite Partners, said funds being cut from platforms is "all about profits," and it hurts both advisers and clients.
"All the funds currently on the platform passed due diligence somewhere along the line," he said. "The question is, how profitable is the relationship between UBS and the fund company now?"
Both
Morgan Stanley and Merrill Lynch have similar platform cuts currently underway.
"What UBS is doing is part of a larger trend, because everybody is trying to squeeze our more profits," Mr. Shaffer said. "It's about money and it's a massive conflict of interest."
