UBS Wealth Americas Q3 Profit Nicks Up, Broker Count Falls
UBS Wealth Management Americas is sticking with its Spartan recruiting strategy despite growing competition from banks like J.P. Morgan, regional broker-dealers and boutiques that have been hiring its advisors, a senior parent bank executive said on Tuesday.
“We have been very focused in our hiring and very selective,” UBS Group Chief Financial Officer Kirt Gardner said on a conference call with analysts after the Swiss banking giant reported a 21% decline in third-quarter profit.
Pretax profit in the Wealth Americas division rose 3% from a year earlier to $332 million as the smaller U.S. brokerage force managed to temper five previous quarters of outflows from customer accounts. Gardner said that $4 billion in inflows from upper-high-net worth clients were offset by withdrawals from “smaller” clients, resulting in $0.0 dollars of net new money.
UBS Wealth Americas continues to selectively recruit brokers with upper-echelon clients, which it has identified as those with about $10 million of investable assets, and has a “decent pipeline” of recruits in the category, the CFO said.
Increased productivity from those advisors and improvement in brokers’ sales of loans to rich clients will more than offset exits of those with smaller clients, he told J.P. Morgan analyst Kian Abouhossein, who questioned the effects of aggressive recruiting packages from some regional firms and new players.
“J.P. Morgan is stepping up their game and regionals are competing quite a bit,” Gardner said, but “we still feel comfortable with our strategy going forward.” (J.P. Morgan last month recruited four UBS brokers in Washington, D.C.)
Customer assets at UBS Wealth Americas in the third quarter failed to keep up with market gains, rising 3% from a year ago and 2% from the second quarter to $1.33 billion. Morgan Stanley and Merrill Lynch reported similar asset-gain percentages in their third-quarter results. The average UBS advisor generated $1.4 million of fees and commissions on client assets of $201 million last quarter, the company said.
UBS Wealth Americas contributed $342 million, or 36.5% of the $936 million of adjusted pretax income in the bank’s global wealth division in the third quarter. Its Asia-Pacific region, which has 1,068 advisors, overshadowed other geographies with a 10.6% net increase in new client money to $10.9 billion.
UBS has eliminated about 850 jobs in its advisor and “middle-office” wealth workforce in the Americas, Gardner said. The resultant “substantial” savings were partially reinvested in new hires in China, in the U.S. global family office business and in the upper-high-net-worth private wealth management unit, he said.
Much of Naratil’s focus has been on reducing the overhang of recruitment loans that are forgiven over time to U.S. brokers hired by his predecessors. The balance of those loans at September 30 was $2.15 billion, down from $2.35 billion one year earlier and from $3.0 billion when he took the reins of UBS Americas in January 2016.
In the first five months of 2019, UBS added 22 advisors in the U.S. from other firms, U.S. wealth management head Jason Chandler told managers in June. The number is far short of the 109 who left between November 2018 and April 2019, according to brokers who saw internal reports.
UBS last month hired Iqbal Khan from competitor Credit Suisse as cohead of global wealth management, its biggest division. UBS Group Chief Executive Sergio Ermotti said on the conference call that he expects Khan to “execute on current plans” and, in collaboration with Naratil, to report back to him in early December on “a new approach” and, possibly, an exploration of “different opportunities.”
On Tuesday, UBS said it is eliminating management fees on separately managed accounts from its own asset management division in the U.S. to meet upcoming regulatory requirements.
The Swiss bank also said it will take a $100 million charge to restructure its investment banking division, including about $90 million that will cover expenses related to job cuts in the unit. Profit in the investment bank division fell 62% from the third quarter of 2018, and are down almost 50% in the first nine months of this year.