Time to unleash the geeks on unsuspecting public
Jürg Zeltner, UBS
UBS’ fall in profits is symptomatic of the changing nature of client relationships. Private banks must respond by getting their specialists onto the front lines
In early February, the wealth management world was surprised by the news that UBS saw an earnings hit thanks in part to SFr3.4bn ($3.5bn) of net outflows and operating profits falling 47 per cent from the same quarter last year.
Since the financial crisis, UBS has put its chips on the wealth management business as the firm distanced itself from risky investment banking revenues. Like many other institutions, restructuring was the name of the game. The strategy – to be number one or number two in every market they operate in – has seen them invest in lucrative opportunities the world over and pull back from underperforming markets as well.
So what happened in Q4? There is plenty of potential blame to go around. Whether it has been market turmoil in emerging markets which has forced clients out of investments and into cash, the cratering oil and commodity prices which have undermined confidence in producer markets, the continuing malaise in the eurozone or a now, arguably, premature Fed rate rise.
However the most likely reason is a long-term trend. As the CEO of UBS Wealth Management, Jürg Zeltner, said in explaining the fall off in profits, “the client is changing”.
What does he mean? Over the last few years, we have gathered the responses of approximately 65,000 HNWIs from around the world. And the client is indeed changing – in extremely disruptive ways which could have an enormous impact on the staid and conservative world of private banking.
In the past, private bankers were unquestionably the focal point for the client with relation to investment decisions and advice. The confidence in this give-take model has waned, in part because of the behaviour of some banks and some advisers during the crisis, but also in part, thanks to the proliferation of open-source and widely available advice online.
The digital age and this crisis of traditional wealth management have created clients who are more independent and more confident in their own investment decisions. Mr Zeltner continued in his explanation that clients “are more knowledgeable and they require information that is relevant to their investments”.
making investment decisions
2014: 20 per cent of respondents to Scorpio’s Futurewealth survey claimed: “I use professional advisers for information and advice on more complex investments but make most of the investment decisions on my own without specific advice.”
2015: This rose to 30 per cent.
2014: “I could handle my own investments but I don’t have time – I use professional advisers to manage this” – 13 per cent
2015: Just 4 per cent agreed
He’s not wrong. In our most recent Futurewealth Reports we tracked opinion across roughly 3,000 HNWIs, asking them to best describe how they made investment decisions. In the space of just one year from 2014 to 2015, we found that 10 per cent more HNWIs made most of their investment decisions on their own without specific advice (see box). Simultaneously, the number of HNWIs who admitted to not having enough time and using professional advisers to handle their investments, dropped by a near corresponding 9 per cent.
The implications are significant. Aside from the drop in advisory-based revenues this finding implies, there is the question of whether HNWIs are using their private banks or wealth managers to execute their investment decisions at all. With the proliferation of low-cost execution-only platforms in developed wealth markets, the fees charged by big banks make little sense to cost-conscious HNWI clients.
Yet it is not all doom and gloom for the traditional adviser-client model. Across most products and services, a majority of clients would still prefer to access them via their adviser, with greater emphasis cumulatively being placed on gaining access to a specialist. This could mean turning those desk-based quants and market analysts loose on an unsuspecting public.
Some of the big beasts of the banking world are stirring to the broader challenge of digital investment operations. Barclays have made an offer to buy consumer investment platform TD Direct. The development of Schwab Intelligent Portfolios, Vanguard VPAS and LearnVest being purchased by Northwestern Mutual, show US advisers clocking on to the trend as well.
UBS is not standing still either. It launched an innovation centre in Singapore and a portfolio tracking app for Asia clients, just last summer.
Yet it would be a shame for wealth managers who have served the wealthy for generations to give in and replicate the services of other more nimble operators word-for-word.
Our advice is simple: get your specialists out, front and centre for clients to engage with. Clients are keen to learn and the advisory model allows banks a unique window of opportunity to demonstrate value which is both interesting and of use.
Nikhil Dama is an analyst at wealth management think-tank Scorpio Partnership
