UBS rethinks US wealth division in latest profitability push

UBS is revamping its US wealth management division to attract a broader range of affluent clients, moving beyond its traditional focus on ultrawealthy individuals.

The restructuring, outlined in an internal email Tuesday, is aimed at closing the gap with competitors Morgan Stanley and Bank of America’s Merrill Lynch, whose wealth units are able to generate much healthier profits.

While UBS’s US wealth unit has typically achieved profit margins in the low double digits – well below the mid-20 percent range of its competitors – the bank hopes to improve that by leveraging scale and increasing interest income from banking services.

The planned changes, first reported by the Wall Street Journal, include dividing the US wealth unit into six divisions and expanding the firm’s banking services.

“We’re not where we want to be,” said Rob Karofsky, president of UBS Americas and co-president of global wealth management, told the Journal in an interview Tuesday. “We can’t shrink the business to profitability. We have to invest in growth.”

The revamped structure will create four regional US advisor centers focusing on clients in three wealth tiers: ultrawealthy individuals with assets of $50 million or more, high-net-worth clients with over $5 million, and core affluent clients with $500,000 to $5 million. A fifth division will serve international clients, while a sixth, the Wealth Advice Center, will cater to smaller accounts through call centers, online tools, and virtual interactions.

UBS is also pursuing a national banking charter to offer loans, checking accounts, and savings plans, expanding on its current deposit-holding capabilities. Those services could help fatten margins for the financial services giant, as advisor pay doesn't rise alongside the interest income from those activities in the same way as it does for increased assets.

Deposit-taking activities have also been a key source of profitability for US banks, according to a September report by Cerulli. In the decade starting 2013, the report said demostic deposits at US banks have swelled by $3.2 trillion, a nearly 110 percent increase. Over the same period, their wealth assets grew by $739 billion, or 81 percent.

Michael Camacho, who joined UBS from JPMorgan Chase as head of US wealth management in September, said it hopes to get approval for its banking charter in the next few years.

This initiative reflects a broader effort by UBS to realign its US operations under Karofsky’s leadership. Karofsky, who was appointed in May, is also co-head of global wealth management alongside Iqbal Khan. The pair are seen as potential successors to UBS CEO Sergio Ermotti, who plans to retire by 2027.

The bank's restructuring plan builds on a new advisor compensation scheme it unveiled in November, which would see reduced payouts for those pulling in less than $750,000 in annual revenue starting next year.

Citing comments from UBS Group Chairman Colm Kelleher, Bloomberg said in an October report that the bank also plans to eventually snap up another wealth firm in the US "when the time is right," though exactly when that will happen remains to be seen.