UBS Americas’ New Client Money, Advisor Count Slip in ‘Challenging’ First Quarter
UBS Wealth Management Americas suffered net outflows of client cash and advisors in the first three months of the year, but executives of its parent Swiss bank on Thursday reaffirmed its strategy of reducing expenses by pulling back from competitive recruiting in the U.S.
Clients at the unit serving wealthy investors in the U.S., Latin America and Canada pulled a net $100 million from their accounts in the first quarter, UBS said on Thursday. The outflow extends “net new money” declines of $4.1 billion at the Americas unit for all of 2018.
The deficit in the Americas contrasts with net inflows during the first quarter of $22.3 billion across all of UBS’s wealth businesses, with $16 billion coming from wealthy Asians, the bank said.
Profit at Wealth Americas fell 17% from the year-earlier first quarter to $333 million, but remained UBS’s most profitable geographic wealth unit.
Net income was dented by lower fee revenue, reflecting December’s severe market decline, the bank said. Most firms price fee-based advisory accounts on assets held in client accounts at the beginning of each quarter, and competitors have also attributed a tough first quarter to the after-effects of the late 2018 market turmoil
Revenue in UBS Americas wealth business declined 6% to $2.17 billion. More than half of the decline came from lower asset-based “recurring fees,” which fell 7% to $1.368 billion, according to a statement from UBS Wealth Americas spokesman Peter Stack.
“A challenging quarter for WM Americas,” Stack said, citing significant headwinds as well as difficult comparisons with the unit’s “standout first quarter in 2018.”
Advisor count across the Americas as of March 30 was 6,790, down 166—or 2.4%—from 12 months earlier.
UBS does not break out headcount within the Americas, but documents reviewed by AdvisorHub record that 109 advisors in the U.S. left for competitors over the last six months, leaving a brokerage sales force in the U.S. of 6,275. That is less than half the size of competitors Morgan Stanley, Merrill Lynch and Wells Fargo Advisors.
Average annualized revenue per UBS Americas advisor, however, fell 6% on an annualized basis to $1.264 million from $1.351 million as of the end of last year’s first quarter.
Despite the market-affected fee decline, UBS and other banks continue to encourage brokers to open fee-based advisory accounts that provide more stable “recurring” revenue than do commission-based transactional accounts. Stack said that a record 38.7% of assets at the Americas wealth unit are in fee-based accounts.
Total assets under management in the Americas wealth business rose 8% during the first quarter to $1.298 trillion, largely based on this year’s market recovery, UBS said.
On an earnings call with Swiss executives on Thursday, analysts questioned whether the Americas wealth position can sustain its profitability in the face of declining asset flows and brokerage forces.
“Are you going to try to increase hiring there in order to grow net new money, or what is the overall problem,” Al Alevizakos, an analyst with HSBC Holdings PLC, asked.
UBS will make “selective” hires of experienced brokers serving ultra-high-net-worth clients, but remains committed to its cost-cutting discipline, Chief Executive Sergio Ermotti replied. The discipline includes the recruiting pullback as well as new incentives to experienced advisors and managers to help improve retention rates, he said.
UBS also has been keeping a sharp eye on its recruiting loan balance in the Americas. The number, which topped $3 billion at the beginning of 2016 following a hiring spree by former UBS Americas chief Bob McCann, fell 9% in the past 12 months to $2.49 billion.
“This is a strategic decision we took a couple years ago, and we communicated very clearly that we were driving the potential FA count below 7,000, and focusing more on retention and the same-store net new money dynamics,” Ermotti said. “The recruiting loans and arrangements to recruit people are basically diluting earnings.”
He also emphasized the Swiss bank’s push to sell more mortgages and other banking products to wealthy UBS Wealth clients in the Americas. Loan balances in the region at the end of the quarter hit $59.2 billion, up 3.7% from 12 months earlier.