UBS’s strategy for US wealth management

Changing legislation and basic market forces have steadily eroded the longentrenched boundaries separating trust, banking, and brokerage in the US, creating an opportunity to deliver a seamless set of services to affluent and wealthy private clients. With 38% of the world’s wealth located in the US, the growth prospects are substantial.

Even though the revised laws have been in place for a number of years, the historical legacy of depression-era legislation and regulation continue to weigh on the financial services market. Many major Wall Street firms remain particularly strong in one business, but tend to be weaker and less effective in the others.

UBS’s US-based wealth management business believes it is in a position to capture this strategic opportunity in a way that no other firm has yet done – within the current regulatory framework and the prevailing competitive landscape. Following its successful integration into the firm’s global wealth management business, it has now embarked on a long-term strategy that focuses on the delivery of a client experience that sets it apart from its competitors.

The strategy comprises a number of organic growth initiatives and infrastructural enhancements aimed at fundamentally improving the way financial advisors approach and service individual clients. It will also allow for targeted strategic investments while making more use of the global wealth management support platform, bringing scale efficiencies. This organic growth drive will be complemented by the acquisition of suitable US private client businesses.

Internally, asset-gathering efforts will benefit from the established strategy of treating client feedback systematically and seriously. Extensive proprietary survey data (147,000 households with at least USD 100,000 on deposit in fourth quarter 2005), sampled annually, is used to create an index for every individual financial advisor. The index is the base by which each financial advisor gets specific feedback in terms of the four consultative steps of UBS’s client experience – understanding the client’s needs, proposing an investment solution, agreeing and implementing it with the client, and, finally, reviewing performance on a continuous basis. This will help to generate an accurate, overall picture of what clients think about the advice they receive. Branch managers also have tools that use specific parts of the index to help shape their decisions. The business has also modified the way it compensates advisors by basing awards on net new money gathered, and not assets already managed, helping to focus attention on increasing assets, not maintaining a standing portfolio.

Meanwhile, the business has relaxed its financial advisor hiring targets in the belief that more efficient asset-gathering techniques will provide a more important scale advantage in the US market than a further increase in the size of the client-facing workforce. We have also reviewed our need for office space. A first result of this review was the decision to sublet some currently unused office space in New Jersey instead of occupying it ourselves. While the sublease income will not fully cover the rent we pay, it will still be considerable. In third quarter, we will recognize the present value of the difference as a single charge that provides what we would have otherwise booked as costs on an ongoing basis (see Note 11 to the Financial Statements in this report).

At the same time, there will be a largescale effort to collaborate more closely with UBS’s other businesses. With the help of the global wealth and asset management businesses, and by pursuing an open architecture framework, the business will significantly enhance the number of structured products and hedge funds it offers in the US – while expanding in-house research capabilities for private clients.

The other strategic investments focus on enhancing internal infrastructure and technology – while keeping an eye out for potential acquisitions, such as the agreement to buy Piper Jaffray’s private client branch network, as announced in April. As always, potential acquisitions must meet UBS’s financial and cultural criteria. Another important feature in UBS’s new strategy is the expansion of its branch network by way of a series of dedicated offices for wealthy private clients. The pilot office in New York City opened in July. There, private wealth advisors, specialized financial advisors who have completed a specific accreditation program giving them the skill and knowledge to deal with wealthy clients, work together with private bankers, trust officers and multi-disciplinary product experts. The business believes the pilot office has a particularly promising future as the USbased wealth management business has a very high share of the market in New York, and it is taking advantage of the fact that no major firm yet provides an offer that delivers trust, banking and brokerage comprehensively and effectively from a single source. By 2020, those over 55 will own over 67% of the assets in the US, or 20% of the world’s investable assets. Historical patterns indicate that those clients who tend to use banking and brokerage services in their younger years increasingly turn to trusts as they get older – this being the preferred method of wealthy clients to transfer their assets to younger members of their family, an institution, or a company. It is therefore imperative for UBS that it continues to build its capabilities and deliver those services effectively, easily and comprehensively to wealthy clients in the US – helping to ensure UBS perfects its client experience and maintains its leading global market position in the long term.