October 26, 2010

UBS U.S. Advisors Stem Client Outflows as Firm Boosts Profits

Despite a drop of 503 advisors, UBS improves results in the Americas thanks to retention and recruiting

Swiss bank UBS on Tuesday saw its revenues from investment banking fall, but reported a Q3 profit of $1.7 billion, which beat analysts’ estimates, compared to a loss of $575 million in Q3 of 2009. A Thomson Reuters analyst poll predicted Q3 results of $1.25 billion.

In the United States, UBS wealth-management advisors put a stop to client outflows -- a significant development after five quarters of outflows, experts say, though the wealth business in the Americas had a loss of about $47.6 million.

"It is certainly good news that they were able to stem negative asset flows," said New York-based executive search consultant Mark Elzweig (left) in a phone interview. "One helpful factor is that Bob McCann and the management team are inspiring confidence in the UBS salesforce."

Wealth Management, Americas

In the Americas, net client asset inflows were about $305 million. However, in the United States, net new money inflows were "virtually zero compared with outflows of CHF 2.9 billion ($3 billion) [a year ago], due to improved flows from financial advisor recruiting and retention," the company said in its third-quarter report.

In addition, net new money inflows from financial advisors employed with UBS for more than one year dropped slightly from the prior quarter, but remained positive for the third consecutive quarter, UBS says.

Including interest and dividend income, wealth-management operations in the United States had net new money inflows of 4.6 billion ($4.7 billion) in the third quarter. 

Invested assets for wealth-management Americas totaled CHF 693 billion ($701 billion) as of September 30, down CHF 1 billion from last year. Total client assets, though, were CHF 743 billion ($752 billion), up slightly from the same year-ago period.

For the first nine months of 2010, U.S. advisor net outflows were CHF 9.3 billion ($9.4 billion) vs. inflows of CHF 1.5 billion ($1.52 billion) in the same period of 2009. 

Advisor Headcount

The number of financial advisors with UBS-Americas is 6,783, down 503 from 7,286 a year ago. Still, the group added 23 advisors in the most recent quarter.

"This is a bigger drop than some of the other wirehouses," said Elzweig. "But it seems like UBS is keeping the bigger producers."

UBS, he notes, is the only wirehouse broker-dealer that did not go through a major merger or acquisition in the past few years. As a result, its retention deal is not as hefty as what's on the table at some competing firms.

For those advisors with $500,000 in trailing-12-month fees and commissions or higher, UBS does offer an upfront bonus of 2-9%, he notes, from 2010-2017. 

Plus, branch managers have been doing "lots of dog and pony shows" that are being well received by existing UBS financial advisors, Elzweig notes.

Global Results

UBS’ investment banking unit lost 406 million francs ($418 million), which surprised analysts and help drive its stock down by nearly 5% in early trading on the Swiss market.

UBS had an annualized ROE of 17.6% in the first three quarters of 2010. UBS investment banking saw lower equity flows, primarily in cash and derivatives; fixed income, currencies and commodities revenues also declined, quarter on quarter, primarily because of reduced client activity in foreign exchange and rates businesses. Wealth management revenues were down by 7%, thanks to unusually low client activity, less fee income on a lower asset base, and currency valuations.

Group CEO Oswald J. Grübel (left) said in a statement: "The third quarter was unusual in that there were very low levels of client activity as well as a strengthening of the Swiss franc against most major currencies. This had an impact across all of our businesses. However, we are optimistic that an uptick in the fourth quarter will benefit all of our business divisions. We remain confident about our future and believe that we are on track to achieve our medium-term goals."

UBS slashed costs in the third quarter by 19%, primarily in the area of personnel, and brought in new money in its wealth management division from ultra-high-net-worth clients and clients in the Asia Pacific region.

Read more about Q2 earnings for UBS at AdvisorOne.com.

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