UBS Americas Client Asset Flows Fall $8.3 Billion But Profit Climbs
Customers of UBS Wealth Management Americas withdrew a net $8.3 billion in the second quarter, reflecting the bank’s pullback from recruiting experienced advisors with big books as well as clients’ seasonal need for cash to meet tax bills.The Americas region, which includes around 6,700 advisors in the U.S., Latin America and Canada, still reported a 7% jump in pretax profit to a record $363 million on the back of market-driven advisory fees and higher transaction revenue, the Swiss banking giant said on Tuesday.
UBS Americas has seen progressively greater declines in net new money in client accounts since withdrawing from active recruiting two-and-a-half years ago, UBS Group AG chief financial officer Kirt Gardner acknowledged in a conference call to discuss earnings. Net new money fell $7.1 billion in last year’s second quarter and $6.1 billion in the comparable 2017 period.
“We realize that quality new net money is an important driver of sustainable growth in the business,” Gardner said, noting that client wealth asset flows grew in UBS’s geographic regions outside the Americas. “We are focused on improving this metric.”
To be sure, $5.1 billion of the withdrawals in the just-ended quarter related to client tax needs, mirroring Morgan Stanley’s announcement last week of a greater-than-expected $10-billion outflow of customer money from deposit accounts for the same reasons.
Client assets in the Americas still climbed to a record $1.32 trillion in the Americas as of the end of the second quarter from $1.27 trillion in the year-earlier period, largely on the back of market gains, the Swiss bank said.
UBS also asserted that customer asset growth has largely tracked AUM growth at U.S. competitors Wells Fargo & Co., Bank of America and Morgan Stanley since the end of 2016, when UBS completed its strategy shift from recruiting to emphasizing retention of advisors. Assets over the last two-and-a-half years are up 16.8% compared to a composite 17.5% at its three peers, it said in a slide presentation accompanying the earnings report.
Profit at the Americas wealth unit reflected improvements in recurring fee revenue, as advisory accounts rose 100 basis points to represent 39.2% of client assets.
“We delivered top-line growth with fewer advisors, consistent with our strategy,” Gardner said.
UBS last year folded its U.S. private banking sector for upper-high-net-worth investors into a global unit that it said thrived during the just-ended quarter. Net new money in the unit climbed at an annualized 5.5% rate in the first half of the year to $17.2 billion—including $2.9 billion in the second quarter.
Expense controls in the U.S., which have led to a cutback in support personnel and training programs, helped the wealth unit’s cost-to-income ratio fall to 84% from 85% in this year’s first quarter, UBS said. But the metric was flat with the year-ago quarter and well above the parent bank’s stated target of 75% in the Americas.
Gardner said market factors such as interest rates in the U.S. and the bank’s success in selling more bank products to its wealthy U.S. investors will determine when the target is hit. Gross loans to Americas wealth clients rose to $60.1 billion as of June 30 from $58.1 billion 12 months earlier.
Broker headcount dropped by 101, or 1.5%, to 6,689 throughout the Americas during the April-June quarter. UBS had 6,937 advisors one year ago.
UBS has hired fewer than two dozen experienced advisors in the U.S. in the first half of the year, executives told managers last month. Several sources said earlier this month that based on the performance metrics they review, U.S. advisor headcount is around 6,185.
Outstanding recruiting loans to financial advisors dropped 9% from 12 months ago to $2.1 billion from more than $3 billion at the end of 2016.
-Jed Horowitz contributed to this story.