UBS AG, the world's largest wealth manager, said a reversal of outflows is occurring as clients shift money to be managed directly by the bank or pay for advice after it revamped services to boost profitability.
The advisory business had cumulative net inflows of more than $23 billion in 2012 and the first nine months of this year after customers pulled about 15 billion francs ($16.9 billion) in the previous two years, chief investment officer Alexander Friedman and William Kennedy, who heads the unit that manages the business, said in an interview. UBS doesn't officially publish data on assets under management.
UBS is expanding the business as part as of a new focus on wealth management to boost earnings, hurt by low global interest rates and clients' reluctance to trade in volatile markets. With about 190 billion francs at the end of September, advisory accounts accounted for 22% of assets the bank manages for wealthy clients outside of the Americas.
“Our goal is to at least double total assets in [advisory accounts],” Mr. Friedman, 43, said. “For the vast majority of our clients, their financial performance is significantly better when they're in [an advisory account] versus self-directed.”
The business is also more profitable for the bank. UBS's gross margin on advisory accounts, which shows how much revenue it makes on assets under management, exceeded 100 basis points on average as of the end of September, Mr. Kennedy said. That compares with a target for gross margins of between 95 basis points and 105 basis points for the whole wealth management unit outside of the Americas, which is headed by Juerg Zeltner.
That gross margin fell to 85 basis points in the third quarter from 90 basis points in the second amid lower client activity.
Mr. Friedman, former chief financial officer of the Bill & Melinda Gates Foundation, joined in 2011 to oversee UBS's creation of a new investment process to compete with firms such as Pacific Investment Management Co., manager of the world's No. 1 bond fund, and
BlackRock Inc., the biggest asset manager.
At the same time, UBS promoted Mr. Kennedy, 43, to lead the investment products and services unit, responsible for matching products to CIO views, analyzing client portfolios and supporting customer advisers on topics such as wealth planning.
UBS declined to disclose the latest performance data for advisory accounts. Clients are able to choose to invest in discretionary accounts, where the bank will make all investment decisions based on a pre-selected client's risk profile, or into advisory accounts, which follow the same investment recommendations from the CIO but give customers the final say.
UBS ADVICE
Assets under management in discretionary accounts are up about 15 percent in the 20 months through September since CIO views were first fully implemented into the management, while those in advisory accounts jumped about 60%.
The introduction of a new offering, called UBS Advice, this year is helping drive growth in the advisory business, Mr. Kennedy said. Clients signing up are charged a fixed flat fee for advisory services and automated daily checks of their portfolios against their risk profiles and the bank's market views.
“The whole way banks are getting paid, particularly on the advisory side, is changing,” Mr. Kennedy said, referring to demand for greater transparency with regards to what clients pay for. “The future is going to mean that this area has to grow and has to grow fast.”
(Bloomberg News)
