Wealth firms have been queuing up to describe how quickly they have moved to remote working and digital client servicing during the coronavirus crisis. At UBS, much of the traditional structure and mentality has also been preserved. In some locations, even in mid-May, up to 40 per cent of staff were still going into the office, adhering to the ‘old school’ business model.
While the Swiss-US firm has never been a laggard in innovation, the culture change from physical to digital private banking has not happened as quickly as many had expected.
Much of the recent coverage of UBS Global Wealth Management has focused on Pakistani-born Swiss-national Iqbal Khan, a charismatic, but pushy former private banking boss at Credit Suisse, where he famously fell out with CEO Tidjane Thiam.
Mr Khan now leads the Emea, Swiss and Asia-Pacific GWM businesses at UBS from Zurich and is one half of the unlikely partnership that oversees the world’s largest private banking franchise. He has been responsible for drawing up much of the bank’s blueprint.
But it is his fellow co-president Tom Naratil, a more conservative, American, long-term staffer running North American assets from New York, who is currently communicating this vision to clients and partners.
While one leading UBS watcher says the “horse needs only one jockey”, the pair’s combined experience makes them a formidable force in private banking, managing $2.6tn in total client assets.
Old school
Despite claims of UBS being at the vanguard of modernisation, digitalisation and state-of-the-art investment techniques, the duo find themselves at the helm of a very traditional organisation, based on acquiring assets from the world’s wealthiest families, serviced by an army of close to 10,000 well-connected relationship managers and investing them in high return assets.
A leadership concerned that its traditional Swiss model was conceding ground to big tech challengers and other disruptors has seen Covid-19 come to their rescue. What the pandemic has done, is drive cultural change in client and employee behaviour, representing a potential “inflection point”, while re-affirming the need for intensive, highly personalised advice from relationship managers.
For a bank more fond of marketing slogans and ‘big ideas’ than most rivals, the backing of a ‘digital everything’ concept will be accelerated the further we move through the pandemic. UBS is particularly proud that leaders who once criss-crossed the globe to discuss investment and business ideas are now able to present them digitally, demonstrating efficiency and stability of newly-constructed platforms.
The ruling coterie clearly feels better prepared and more comfortable today with their technology, investment capabilities and the institution’s stability than during the global financial crisis of 2008. They also see an unprecedented need for advice on investment and market perspectives and more broadly around the entire cycle of needs for clients through wealth management and planning.
The bank believes its Wealth Way concept – structured around the latest mantra of the “three Ls” of liquidity, longevity and legacy – forms its most effective marketing message to date. With other banks on clients’ rosters failing to communicate regularly, UBS bosses believe they have spotted a banking blind spot.
“What we have found in our quarterly global investor sentiment survey is fascinating,” says Mr Naratil. “For half of wealthy investors and business owners with a non-UBS adviser, this adviser hasn’t spoken to them about Covid-19’s impact on their portfolio. So it’s a very ripe opportunity for us to expand wallet share. And we can pick up new clients who are not being as well served as they should be.”
Huge opportunity
As the bank has done in other times of disruption, it hopes to achieve a stronger position among its client base, moving from working as a “secondary” to a “primary” adviser for many clients. Mr Khan in particular is known to see the crisis as a “huge opportunity” for deeper interactions with advisers, offering tremendous potential for growing the UBS GWM franchise.
Officially, UBS operates a “hybrid” model, combining digital and physical advice, but there is a recognition that during bull markets, digital reallocation is increasingly the norm, while in today’s uncertainty, major portfolio shifts and reviews are typically hand-stitched by advisers.
In fact, 2020 is seen by management as a year of “ongoing portfolio reviews”, with clients engaged in a “rolling dialogue” instead of the twice-yearly meetings with relationship managers.
A decade back, the bank contrasted digitally self-directed activity with that initiated by advisers. In today’s world, digital delivery of views of the chief investment officer’s (CIO) team and analysis from medical experts is much higher up the agenda. This content is then interpreted by individual advisers for their specific clients.
The CIO team prides itself on how it has called portfolio preferences and opportunities during the crisis and is now recommending bigger allocations to private equity and other alternative positions, heralding a “time period where advisers can add a lot of value to clients”.
Currently, the bank sees private equity as an investment hotspot, offering attractive valuations. Looking at a longer-term horizon, UBS argues that 2020 and 2021 could prove to be some of the better vintages in private equity, given what’s going on in valuations and the real economy.
With increasing numbers of companies seeking private investment, clients are being presented with both big brand distressed opportunities and longer-term investment themes offering an enticing entry point.
It is this advice proposition, according to the thinking in both Zurich and New York, that the bank needs to combine with a strong balance sheet and capital position to effectively project the UBS brand. The bank is now focusing on this traditional private banking offer, rather than any futuristic, digital menu.
During the crisis, wealthy investors have been relying on extensive, timely, physical portfolio shifts, necessitating more interaction with bankers. Consequently, the ‘Cornerstone’ look-through device, built by UBS for automatic digital screening and rebalancing of portfolios, has never taken off as much as the bank had hoped.
The indication from Mr Naratil’s US team is that client asset inflows are backed by this traditional sense of stability, safety and expertise in wealth management. This view is a reflection of the transformation in business models at UBS and Mr Khan’s previous employer, Credit Suisse.
Both have moved from being an investment bank using private banking to distribute other products and services to placing the wealth management arm at the centre of the firm, while still offering the wealthiest clients investment banking and M&A services.
“Many of our clients are business owners and need an investment bank that can support their needs. For example, we can help take their company public or introduce them to a private equity firm that is going to monetise their company for them,” says Mr Naratil.
Private banking experts remain split on whether the UBS model will be sustainable in the long term. The next generation of private clients, says Shelby du Pasquier, head of financial services at Geneva law firm Lenz & Staehelin, “are interested not only in finding a home for holding and managing their financial wealth, but also a partner in developing it through business investments and disposals. Investment banking is therefore definitively a plus for this segment of the clientele.”
Ray Soudah, founder of strategic consultancy MillenniumAssociates in Zurich, however says the days of selling investment banking services through a private bank are numbered, due to internal interest conflicts. He believes the current UBS structure, combining the operations of Mr Naratil and Mr Khan, both targeting the highest wealth segments, will only work “while markets are good and costs can be cut”.
The magnitude of these challenges is not wasted on Mr Naratil. “The world is changing dramatically,” he admits. “The idea of an investment bank as manufacturer and private bank as distributor is a little bit antiquated in today’s world and we’re changing that.”
His idea of the new incarnation of wealth management combines big data analysis with behavioural economics, bringing together portfolio theory with the human experience. The concern for Mr Naratil is that client emotions can prevent realisation of the type of investment returns predicted by this theory.
But it is his colleague Mr Khan who insists on the last word about what tomorrow’s wealth manager will look like: “When you’re getting clients to think about liquidity, longevity and legacy, you need to be part economist, part market strategist and part family counsellor – that’s everything you are doing for your client. You need to use your brain and your heart. That’s why it’s such a great business to be in.”
