UBS’s Wealthy Clients Put $14 Billion Into Flat-Fee Contracts
Sept. 5 (Bloomberg) — UBS AG, the world’s largest wealth manager, said rich clients put almost 13 billion francs ($14 billion) into flat-fee advisory contracts introduced last year, helping prop up revenue.
Clients in Switzerland, where the accounts began, put in about 5 billion francs since their inception, Christian Wiesendanger, who heads the wealth management business in the country, said in an interview in Zurich. That amounts to about 3 percent of the funds the Swiss unit oversees.
“I’m extremely happy,” Wiesendanger, 50, said of the take-up. “This is a fundamental shift in paradigm. It’s not just another investment fund. It’s a solution that aligns the client’s interests with the bank’s.”
The offering, available in Switzerland since May 2013, gives clients transparency on fees and provides UBS predictable revenue at a time of fund outflows from undeclared accounts and a reluctance by customers to trade. For a flat fee, clients get services including automated daily checks of their investments against their risk profiles and UBS’s market views.
“The world is becoming more transparent almost at the speed of light, and Switzerland can’t ignore that trend,” said Wiesendanger, who has a doctorate in theoretical physics. “In the years to come, regulatory challenges meant to enhance consumer protection will fundamentally change the nature of private-banking business.”
Pay Off
Flows of money into the advisory accounts, and into those managed by UBS on a discretionary basis, are paying off for the bank. The fees generated more than offset the impact of client redemptions from undeclared accounts in the second quarter, UBS said in July.
Wealth management in Switzerland posted a 2 percent increase in revenue in the first half from the previous year and an 8 percent jump in pretax profit as the “work of transforming assets into contractual solutions pays off,” Wiesendanger said. He joined UBS in 2010 after almost a decade in various roles at Credit Suisse Group AG’s private bank.
The Swiss unit oversaw 171 billion francs in invested assets at the end of June out of 928 billion francs managed by UBS outside the U.S. and Canada. UBS also had 902 billion francs in assets at the wealth management Americas division.
For advisory clients, UBS is starting to provide more of its services online. When the automated portfolio check finds a customer’s holdings deviate from his stated risk profile or UBS’s investment views, both he and his adviser get an alert. The client can review the matter online before making a decision with his adviser, said Andreas Kubli, who heads multichannel management and digitization projects in Switzerland. In the future, clients may be able to resolve the issues directly online.
Fixed Fees
Fees for clients who entrust investment decisions to UBS under the discretionary mandates total about 1 percent of assets. Customers with the advisory contracts pay a minimum of 2,000 francs to 3,125 francs a year, depending on their risk appetite, with fees ranging from 0.8 percent to 1.25 percent for clients with assets of less than 500,000 francs. Fees get smaller as a percentage for those with more assets.
Clients who don’t use the discretionary or advisory accounts typically pay fees per transaction. UBS says investing through a discretionary or advisory mandate makes sense for clients. Compared with portfolios of other customers, these outperformed by 1.5 percent to 2 percent on average across different strategies, Wiesendanger said.
To contact the reporter on this story: Elena Logutenkova in Zurich at elogutenkova@bloomberg.net To contact the editors responsible for this story: Elisa Martinuzzi at emartinuzzi@bloomberg.net Frank Connelly, Cindy Roberts
