UBS’ integrated model a permanent fixture

Kathryn Shih, longstanding head of the Asia-Pacific wealth management operation at UBS, is keen to instill a fighting spirit among her staff. She attends our interview in sporting attire, having just returned from partnering Northern Ireland’s youthful sensation Rory McIlroy in a pro-am tournament at Hong Kong Golf Club in Fanling.

She compares the 18-hole experience to the task facing her in 2004, two years after she took the helm at UBS, with private client assets more or less on par with regional competitors. “We had a small but not clear lead,” she recalls. “I decided to double our AUM within three years.”

At the time, the region was just coming out of a major change in the interest rate environment and still recovering from the Sars-induced crisis. Banks badly needed an impetus for their staff to ignore distractions and concentrate on growing their business.

“People said our plans were crazy, but you need leadership to get people motivated and to show them something is possible and appropriate,” enthuses Ms Shih, whose franchise runs SFr154bn ($160bn) and was responsible for Sfr8.9bn net new money in 2011, almost half the global total at UBS.

During that “ramp-up”, Ms Shih presided over a boost in client adviser numbers from 250 to 750. Today there are 900. As a result she says, “it took our competitors until 2006 to even get started, after we had done most of the running.”

Nothing makes her smile broader than hearing her bankers leading and inspiring a similar expansion drive. “Now one of our country heads is telling me they want to double our business. It always pleases me to say we are going to grow faster than the market, not just relax and be comfortable.”

But along with this enthusiastic seizing of the private client agenda comes the potential fallout, which must also be dealt with by the CEO. Ms Shih is under no illusion that all is plain sailing, once her staff have signed up to these aggressive expansion programmes.

Her 25-year record with UBS means “you always know who to call and how to get things done the easy way, plus you have credibility in the market. The downside is that you have to live with what you have done in the past. You can’t keep any skeletons in the closet.”

For most private bankers in Hong Kong, Singapore and Taiwan, this has meant facing up to problems with mis-sold structured products, generally associated with Lehman-backed equity notes. While retail clients have been compensated, there is still some debate about whether wealthier investors actually knew what they were buying or were led into inappropriate solutions by their advisers.

Ms Shih stresses that all relationship managers are now required to sit and pass examinations for a wealth management diploma, including detailed provisions on the use of derivatives in portfolio management.

WORKING TOGETHER

These sometime controversial structured products are created within the investment banking arm and sourced through an integrated model of three divisions working together, which Ms Shih says is “here to stay”, despite regular outside criticism.

“We have been integrated for a long time and in some ways we are a role model,” she says. This model is particularly important to the Asian wealth market because more of the continent’s wealthy are entrepreneurs than in Europe and the US. Much of their wealth is tied up in their businesses, which are their key day to day interest.

“This helps us to build a relationship further,” she says, stating a strong case about why many entrepreneurial clients will require investment banking facilities. “Some companies want to bring in new investors or conduct an IPO. We can arrange a roadshow for them or provide liquidity for listed company holdings.”

The second advantage of integration is one of keeping profits from product sales in house, admits Ms Shih. “When you provide financial services, you need a manufacturer. It makes economic sense to keep it in-house, to pay your own investment bank or asset manager to do it, rather than contracting it out to the street.”

But despite this increased alignment of the bank’s capital markets, private banking and asset management arms, she says there is no impetus to sell more products to boost margins and that the solutions offered to clients are always “best in class”.

“It’s not about product quotas, but about what is right here,” and this means actually telling investors when to liquidate those products eagerly sold to them only months earlier. “Two years ago, we called for an ‘active sell’ on peripheral European bonds,” recalls Ms Shih. Such advice is in keeping with plans from head office in Zurich to transform the bank from a wealth manager to an investment manager.

While key decisions of how to shape this investment process are taken from global headquarters, the translation of decisions is regional, she adds, with Asian portfolios generally much more representative of Chinese, Indonesian and Malaysian companies than their US or European equivalents.

“We must have a DNA as UBS, a shape and form which people recognise across the world. You see more Asian faces in our Asian offices and more Europeans in Europe, but we should always be recognised as UBS.”

This means subscribing to global CEO Jürg Zeltner’s ideas about the “changing paradigm” in private banking following the end of the last bull market. “Whatever worked before is not working now,” admits Ms Shih. “It is not enough just to have research and hope that our clients will pick up the right things.”

Instead, much greater efforts need to be made to ensure that all investment and economic concepts are easily translated into client advice, that the view is consistent and clear and that products can easily be bought and sold to accommodate it.

The changing outlook of private banking, with increased exchanges of information and double tax treaties between Switzerland, Hong Kong, Singapore and their surrounding markets of wealthy individuals, has also led to a change in business and delivery models.

“The landscape has changed massively and UBS is in the forefront of leading this change,” says Ms Shih. “A lot of banks are not prepared and do not have the resources to get them into the right position.”

UBS has been working hard to boost the share of Asian customers buying into its discretionary portfolio management model of delivery, which generates higher fees for the bank. Most, however, still prefer the trade-based advisory relationship.

“We are seeing an increased share of discretionary delivery, but this is still a small portion of Asian clients,” says Ms Shih. “After every market crash, more people are coming and saying ‘can you manage my money?’ But most Asians still want to take their own decisions.”

Asian clients, she says, are typically conscious of the changing value of the dollar in relation to regional currencies, and are familiar with latest stockmarket movements and interest rate patterns. “They need this information for their business. It means they are more market-conscious than clients in some other regions.”

But there is a new development here, very different to the globally diversified portfolios available in Europe. Some clients have expressed an interest in and are therefore presented with a diversified solution with a more regional flavour. Good examples at UBS are the Asian high yield equity mandate or the downside protection portfolio, targeted at those customers for whom wealth preservation is the key focus.

In fact such entire portfolios can simply be satellites within a broader universe of assets. This is a huge departure to the one-size-fits-all portfolio of yesteryear and can combine trading ideas with a more static yet targeted allocation. “There are many more permutations of portfolios today,” says Ms Shih.

CV

Kathryn Shih

• February 2010 – Appointed Group Managing Director of UBS Wealth Management Asia Pacific
• 2002 – Appointed CEO of UBS Wealth Management Asia Pacific
• 1987 – Joined UBS AG
• 1984-1986 – Assistant Vice President, Consumer Services Group, at Citibank N.A.