It is now more than two years since the US, Swiss and international wealth management businesses, as well as the Swiss corporate and retail banking unit, were brought together into one Business Group. At the time of integration, plans included a significant investment in the US wealth management business. This would serve to increase our presence in the world’s largest wealth management market and increase our scale, leading to better operating leverage and improved margins. Initiatives to achieve these ambitions focus on improving our products and services offering, while enhancing the client experience. Our results reflect the impact of this investment spending.
As we realize the benefits of these initiatives, we expect to be better positioned to grow invested assets and improve our gross margin, providing an opportunity to leverage our fixed cost base, leading to an improved cost / income ratio. Since the integration, quarterly operating income in the US-based wealth management business has grown 39% to its current record level.
This has been driven in particular by recurring income, which now comprises 61% of operating income, up from 56% in second quarter 2005. Invested assets now total CHF 898 billion, up 30% from CHF 693 billion two years ago. The business has experienced strong organic growth, augmented by the assets contributed by the acquisition of the Piper Jaffray and McDonald Investments private client branch networks. Over the last nine quarters, it has consistently ranked highest among traditional peers in net new money (including interest and dividend income) as a
percentage of invested assets. Moreover, the level of net new money per financial advisor has been above that of peers in seven of the last nine quarters. Most importantly, the business remains focused on growing its asset base. Given its achievements of the past two years and provided
market opportunities remain stable, the business maintains its ambition of reaching the USD 1 trillion invested asset mark in three to four years. As asset scale is a key driver of profitability, this should contribute to the cost / income ratio declining to an anticipated level of 80% in the same timeframe, an improvement from its current levels of around 90%.
To achieve these ambitions, we are currently making a number of investments in our strategic initiatives, helping to improve the services delivered to clients. Among these is the expansion of the ultra-high net worth asset base, which has grown at a compound annual growth rate of 30% over the last 14 quarters. Two dedicated offices for such clients have been opened – one in New York City
and one in Stamford, Connecticut – with plans to open several other offices over the next three years. The business has also enhanced its product offering, with a goal of providing a seamless combination of banking, brokerage, and trust services. For example, as part of its lending
initiative, it launched the UBS Mortgage service in June as a new residential mortgage platform designed primarily for UBS clients. A key differentiating factor in the mortgage offering is its open architecture, which enables UBS Mortgage to originate loans with multiple third-party lenders
in addition to UBS. In the first month of operation, clients and financial advisors embraced the open architecture concept, with about 50% of new mortgages being supplied by the new lending partners.
In the structured products segment, one of the fastest growing segments of the financial services industry among private clients, UBS is one of the first wealth management firms in the US to adopt an open architecture approach, with third-party providers’ products now offered alongside those
of the Investment Bank. By increasing clients’ choice and further enhancing the client experience, we believe that an open architecture approach will lead to increased demand for this offering.
For Wealth Management US, the integration has led to further strategic and functional alignment with UBS’s international and Swiss wealth management business, providing greater access to talent as well as additional products and services. These advantages have helped the business enhance its client experience and grow its asset base, and further positions it to strengthen its US market presence. The many steps undertaken over the last two years should help the business increase its market share and expand its position as one of the premier US wealth managers.
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