Strategy

UBS to Emulate European Wealth Management Success in the US

Matthew Smith, July 30, 2007

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UBS’ preeminence as a provider of private client services world-wide certainly extends to its reputation in the US.

But it is this very strength that could just as easily work to undermine it as it could to fortify the firm’s efforts to enlarge its share of the largest private client market in the world.

It is difficult to disagree with John Straus, UBS head of US Private Wealth Management, when he points to the success UBS has had in the European private client market as rationale for being well positioned to become a leader in the booming US high net worth advisory market.

“We’re not an investment bank that happens to have a wealth management company, we’re first and foremost a wealth management firm. Most of our competitors don’t have the insight into how long it takes to make these relationships,” Mr Straus told WealthBriefing.

All the big players in this space in the US – including Merrill Lynch, Citi, Bank of America, JP Morgan, Morgan Stanley and Wachovia – are first and foremost either investment banks or consumer banking brands who have grown into the private wealth/high net worth client space.

“They may not appreciate it because they haven’t grown up in the wealth management business therefore they’re unable to appreciate the subtlety of what it takes to build a wealth management business,” said Mr Straus.

UBS’ Private Wealth growth plans in the US appear to be on track.

The Ultra High Net Worth business is growing at a growth rate of 30 per cent - an internal figure Mr Straus left unconfirmed.

He did confirm to WealthBriefing that the business is currently the fastest growing segment of UBS’ US operations.

Earlier this month, the firm announced another Private Wealth office opening in the hedge fund capital of the US Stanford, Connecticut.

This is the second office opening this year in line with Mr Straus’ plan to open five new Private Wealth offices in 2007 and five in 2008 in order to more than double the number of private client advisors by 2010.

He has earmarked locations in Atlanta, Chicago, San Francisco, Los Angeles, Seattle, Palo Alto (California), Huston, Boston and Philadelphia to add to the firms’ other four in LA, Palm Beach and two in New York.

Despite the continued growth of the US wealth business – headed by Mr Straus’ boss Marten Hoekstra – what is weighing on analysts’ minds here is the impact the comparatively less competitive investment banking business is having on its core wealth operations.

This has lead Chicago-based activist hedge fund manager Harris Associates, among others, to reportedly build a stake in the firm presumably to force a split of its wealth management and investment banking divisions in the US. This has recently been denied by Harris, though.

While Mr Straus declined to comment on the speculation that there is pressure internally to split and sell off the investment banking operations, he does see the investment banking subsidiary as a key component in his efforts to build the private wealth business in the US.

“It’s an extremely important relationship, we introduce many clients to the investment bank and we are getting an increasing number of private client prospects from that side of the business,” he told WealthBriefing.

Mr Straus defines his ultra-high net worth client base as individuals with a net worth of $25 million and at least $10 million invested with UBS.

One key component of UBS’ UHNW client strategy Mr Straus says he has taken from the successful European operation is the firm’s ability to focus narrowly on specific client segments.

In particular he points to UBS’ ability to focus on the corporate executive market.

“Something they do better overseas is create narrower groups… there are certain nuances that apply to certain industries and the narrower you focus your efforts the better you are able to hone tools to service client segments and become experts in solving client needs,” he says.

When it comes to recruiting specialist advisors, Mr Straus admits good talent in the US at the moment is in short supply and high demand.

“It’s a very competitive environment for talent,” says Mr Straus, a former co-head of JPMorgan Private Bank. “It is as competitive as it has ever been.”

One strategy Mr Straus believes gives UBS an advantage over its competitors for attracting talent here is its ability to be “opportunistic” by providing an environment that suits different types of advisors.

Mr Straus splits private client advisors into two categories: private bankers, who prefer a less structured remuneration structure not tied to portfolio transactions; and private wealth advisors, who operate on a more traditional brokerage model.

"We want to make sure we are casting a wide net so we are bringing advisors on under the private bank model and private wealth advisor model."

Currently UBS Private Wealth Management employs 160 advisors.

Mr Straus aims to have 350-400 private bankers and private wealth advisors by 2010. He says the business has a much larger proportion of private wealth advisors.

Mr Straus rightly notes it is unfair to consider UBS as a new or emerging player in the private wealth market in the US, as currently the firm is ranked third behind Merrill Lynch and Citi Group in terms of US private client assets according to figures from Cerulli Associates.

UBS Private Wealth is larger by assets than the $90 billion US Trust private client business recently bought by Bank of America.

“When you look at the fact the US is the largest wealth management market in the world, it’s a good place to have an accelerating growth rate,” says Mr Straus.

Publicly, Mr Straus will not disclose any further growth targets outside the previously stated office openings during the next two years and advisor hires, other than to say he wants a UBS Private Wealth presence in some 17 cities in the US within the next four years.

It seems unlikely this can be achieved through organic means, especially considering a recent Swiss report quoting Marcel Ospel, the group's chairman, saying the Swiss wealth giant’s aspirations in the US are “indeed higher” than its current position elsewhere.

“That requires additional investment. We are launching a new growth initiative for this market," says Mr Ospel, according to reports.

Mr. Straus says UBS has and continues to formulate new growth initiatives to get the most out of the US market.

“… But you would need to ask Mr Ospel about exactly what he’s referring to there,” Mr Straus comments.

He would not comment on potential acquisitions, however he notes valuations at the moment are the highest they have ever been.

“The fact they are more expensive to buy could be a barrier to acquisitions in this space, but it depends on the individual circumstance and what synergies can be found."

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