“I want to improve the client-segment mix. We are, if anything, too weighted towards ultra-high-net-worth clients,” he tells Euromoney. These very wealthiest and most demanding customers contribute something like 40% of the group’s SFr1.6 trillion of client assets under management.
Operating almost like institutions rather than as individuals, they have considerable buying power. They tend to pay brokerage commissions rather than asset management fees and, as UBS has stumbled from the sub-prime crisis, to rogue trader scandals and now Libor manipulation, they have been flighty. The first customers to leave the bank when its troubles began were institutional; even the most long-standing clients drew the lesson to distribute their business more widely among wealth managers. High-net-worth clients proved to be more sticky.
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| Jürg Zeltner, chief executive of UBS Wealth Management |
The take-up by those high-net-worth clients of UBS’s discretionary management offering has filled Zeltner with confidence in the group’s capability as an asset manager. This has even been evident in Asia, where the received wisdom is that wealthy clients want either brokerage or leverage, but not asset management. “In fact our highest growth rates for wealth management are in Asia, where I think new ideas of wealth development and diversification are taking hold.”
Results have been good. “Even with little contribution from the yield curve or from markets in the last couple of years, our return on assets and our margins stick out in the industry,” Zeltner says.
Zeltner has seen the obvious benefit from those hard-to-satisfy ultra-high net-worth clients in the payment of brokerage commissions to express the strong and credible investment views across a range of markets now being generated by the wealth management division’s chief investment officer.
Now he wants to charge them for this resource in a new way.
There are two main ways in which private banks traditionally generate earnings: in fees for discretionary portfolio management; in brokerage commissions from very wealthy clients that want to manage their own accounts rather than handing them over to a bank. For some banks a third revenue stream flows through generating leads for investment banking divisions: M&A, IPOs, equity total return swaps and the like.
Between discretionary fees and brokerage commissions, Zeltner sees a chance to charge for another service: advice, an increasingly valuable resource that is for the moment bundled up with commissions.
UBS is piloting a programme to charge clients for advice, even when they decide not to go into the markets on the back of UBS’s house views, perhaps because of their own lower risk appetites, existing concentrations, or other private considerations.
Zeltner is cautious about giving too much away. “An advice product would reflect our core macro views. We would regularly review our clients’ portfolio profiles and check their overweights and underweights against our house views, taking into account their individual investor profile and preferences.” He says: “We offer robust advice. It is valuable and worth money. We have invested in creating and maintaining an infrastructure to provide it. Why would we not put a price tag on it?”
Zeltner has already shown an ability to succeed with new ideas that generated scepticism when first announced. While the wealth management business at its core is all about asset management, private banking also brings opportunities to lend. “I said back in 2009 that I wanted to double the loan book and a lot of people laughed at the idea. But we have grown it to SFr90 billion now. And we need capital to do more lending,” he says. “It is treated lightly from a regulatory capital point view, compared with unsecured bank loans, because it is invariably extended against collateral.”
