Resurgent UBS puts wealth management first

Despite speculation about the future of UBS after the shock resignation of overall boss Oswald Grübel back in 2011, the redrawn business model has put a new emphasis on wealth management.

This is handled by 46-year-old Jürg Zeltner, formerly running Germany, then Europe and now the whole non-US operation.

He has steered his unit through the toughest of times, suffering SF200bn (€162bn) of net ouflows during the credit crisis, before things turned decisively positive in 2011. Further brand contagion from investment banking followed a rogue trading scandal in London, leaving Mr Zeltner to work on restoring morale among staff, intermediaries and clients.

Mr Zeltner is used to crisis management. First his team had to explain why some clients were exposed to Madoff-related funds. Then he apologised on behalf of the industry for poor pre-crisis advice to private clients. Finally he had to justify to the Swiss banking community the bank’s $780m (€578m) settlement with US authorities regarding charges of tax evasion on behalf of wealthy Americans, plus the Swiss authorities’ disclosure of information about more than 4,500 UBS private clients.

Mr Zeltner has surfed these huge obstacles, and shouldered the blame for many of the bank’s problems, not of his creation. While invested assets of SFr862bn are still well below the SFr 2,298bn high for 2007, most believe he is on the right path to restoring the UBS Wealth Management franchise to its former glories.

Q Will wealth management become the core activity at UBS now that investment banking has been slimmed down?

A UBS put wealth management even more at the centre of its strategy when it announced its strategic acceleration in October last year. We are the leading wealth manager by assets with a global franchise, which we aim to strengthen and expand. Our investment bank plays a hugely important role in this. It provides our most wealthy clients, in particular entrepreneurs, with capital market and advisory capabilities. It is aligned with and complementary to our wealth management business.

We positioned UBS as the first firm with mandates free of distribution fees in Switzerland. We were the first global wealth manager to price the advice we give with our “UBS Advice” offering. We want our clients and the assets we have under management to be tax compliant. And we have further improved training and development for our staff.

Q Other banks will be making settlements with US authorities over tax claims against US citizens, following on from agreements reached by UBS. Many bankers in Switzerland blame UBS for the mess which the industry has found itself in. Do you feel your brand name in Switzerland is finally on the road to recovery?

A The asset inflows we have received show clients want to work with us. We have put the US cross-border issue – a topic that affects the entire industry – behind us for good with the settlement that we made in 2010.

Q Looking back at the darkest days in Swiss private banking, how did you manage to stem these outflows and bounce back from this traumatic experience?

A We took time to reflect on what we are here for and who we are here for. We had to re-assess what we promise our clients and our value proposition, invest in our content, and in our investment and advisory process.

In addition, we conducted a thorough review of the way we operate, our business model, the risk and performance indicator framework, our policies and our behaviour.

Today, we have everything it takes to help our clients protect and grow their wealth. Client satisfaction is growing. But there were indeed some very dire moments. Besides the economic difficulties we had to contend with due to our own issues, clients’ confidence in the banking industry also took a heavy blow. However, the group’s management and my management team kept coming to work with the conviction that this could be overcome. We knew we could turn the bank around.

Q  You have previously criticised poor quality of advice given by private banks and an over-reliance on structured product sales. Is this something you have definitely addressed?

A  The market environment has changed, so whoever wants to give investment advice successfully needs to be able to swiftly offer an opinion and a solution. This means closely monitoring the markets and offering quality advice with clear added value to the client.

You have to be able to apply your analysts’ and researchers’ global insights quickly to clients’ portfolios through meaningful and tailored solutions. After all, clients’ expectations, too, have changed since the crisis. Clients are closer to the markets, and they want to better understand what they are buying when they buy investment products. They also expect more transparency with regard to costs. The great success we’ve had with UBS Advice so far confirms this offering meets these requirements and expectations.

Q  What have you done to address problems with asset allocation and portfolio management?

A  Over the past three years we have reworked and joined up the different elements of our entire value chain. We set up our Investment Products & Solutions unit, established the Chief Investment Office function that provides our investment house view, and thoroughly revamped our advisory process.

The house view is the result of an integrated and systematic process that brings together the research of our global network of 900 analysts, economists and strategists, and which is scrutinised  by leading external investment managers like Pimco, Schroders and BlackRock.

This view is translated into a strategic and tactical asset allocation for our clients’ portfolios. Each portfolio subsequently undergoes a regular and systematic review to ensure it is always in line with the investor profile we define together with the client. These measures, along with the certified education programs for our client-facing staff, lay the foundation for a fee-based advisory model yielding added value for our clients.

Q UBS has been praised by analysts for its commanding position in Asia, where wealth management can capitalise on investment banking contacts. How will you further develop your Aisan strategy?

A Significant amounts of new wealth continue to be created in Asia. To take full advantage of these opportunities, it will be essential for financial institutions to have the scale and resources to invest in infrastructure and personnel.

We have been investing in the domestic markets of Hong Kong, Singapore, Japan, China, Australia and Taiwan to capture growth and revenue opportunities available there. But we aim to balance profitability and growth by constantly monitoring our cost-to-income ratio in the region.

China represents one of the most important sources of new business opportunities. The establishment of UBS Securities has allowed us to offer domestic wealth management services through several trading outlets in the country. In January, UBS (China) Limited celebrated its opening as the first subsidiary wholly owned by a Swiss bank and incorporated in China.

However, Asia as a whole remains a growth engine for wealth management. We have a strong franchise with 18 offices in seven countries. We want to expand our international business in Singapore and Hong Kong while further investing into our domestic businesses.

Q Swiss banks panicked several years back when they realised just how few large family clients they had on their books. Do you feel you have now tackled this deficiency through your recent focus on the ultra high net worth segment, including initiatives around Impact Investing?

A Ultra high net worth individuals are a very important client segment at UBS, as reflected by the size of our UHNW book, which stands at SFr400bn in invested assets.

To keep pace with the growing complexity of clients’ needs, we have invested continually in our offering, combining wealth management with the global reach, product diversity and proprietary tools of the investment bank. But establishing a globally coordinated advisory approach with research, investment advice and solutions obviously took a while.

Impact Investing, though, is not an isolated effort limited to UHNW investors. It is our ambition to get this on the agenda of every client conversation. We have the means to make a difference, and clients across the entire investment spectrum are looking for investments that not only yield a financial return but also have a measurable social impact.

Q Now that Swiss banking secrecy seems to be a thing of the past and that several Swiss banks have given up their unlimited liability partnership status, what do you expect the successful wealth manager of the future to look like?

A I believe those who manage to quickly and consistently adapt to the new norm will be successful. These changes are here to stay. It is important that we not only adapt our business models and processes, but that we also actively help clients transition to the new reality.

The success of wealth managers is closely linked to their ability to provide services on a level comparable or, ideally, superior to those of banks in the client’s home country. Wealth management companies that can combine the necessary expertise and execution capabilities have a significant advantage over those financial institutions which are geared primarily towards domestic markets in the traditional boutique style of private banking.  

UBS Wealth Management won four awards in the Global Private Banking Awards for 2013, including ‘Best Global Private Bank’