UBS is continuing to cut costs throughout its business while spending more in areas – such as in its wealth management unit’s technology — where it expects to reap benefits, according to the bank’s executives.
The bank aims to save $1 billion so it can use that money for much-needed investments in its business.
“We remain committed to improving efficiency and productivity in 2020 by keeping net cost —excluding variable compensation and litigation costs — flat,” UBS CEO Sergio Ermotti said Tuesday during a conference call with analysts after the bank reported its fourth quarter earnings.
The pre-tax profit of the UBS Americas wealth management business dipped 3.2% year-over-year to $1.3 billion for the full year 2019. UBS America’s advisor headcount shrank in the same time period by 6,549 from 6,850.
The cost-cutting began in 2019, according to UBS chief financial officer Kirt Gardner, who said the bank streamlined investment banking and wealth management unit middle management; halted some outsourcing of technology development; and trimmed marketing, public relations, professional fees, travel and entertainment expenses.
The CFO said belt-tightening led to $230 million, or 13%, in savings last year.
More cost reductions will come, potentially including $1 billion in savings in part from planned cutbacks in support service and back-office jobs, the CFO said.
Those savings will help pay for the company’s planned tech spending, including the cost of developing new FA platforms and back-office software with Broadridge Financial Solutions. UBS and Broadridge entered into a 10-year cost sharing pact in 2018.
Ermotti cited the decommissioning of more than 400 legacy applications as an example of where cutbacks have been made.
The CEO also expects UBS to achieve cost savings with robotic technology and with the expected benefits from $100 million of investments in strategic initiatives for the wealth management units, including developing high-net-worth capabilities.
SMA fee-elimination strategy
Meanwhile, UBS aims to increase revenues with a previously announced fee-elimination plan for separately managed accounts.
Ermotti said the SMA space is “one of the fastest-growing areas in wealth management in the U.S.” and the decision to eliminate SMA fees was made to “capture this opportunity.”
“This decision will help us to increase mandate penetration for [the wealth management unit], generate higher share of wallet and lead to significant inflows for asset management,” Ermotti said.
UBS announced the fee elimination in October.
“We have already seen a very positive reaction from our clients and advisors, and we expect this initiative to be accretive to shareholders in few quarters,” Ermotti said.
The CEO also highlighted plans to encourage more borrowing by clients. The target is to grow loan volume by about $20 billion a year, Ermotti said.
“Many of our clients have wealth in illiquid assets and require help to unlock its potential through lending and liquidity management products to better cater to their needs and offer more sophisticated solutions,” he said.
To help meet those needs, UBS is “expanding acceptable collateral types by using the investment bank’s capabilities to manage risks,” he added.
Comp threshold hikes alongside cutbacks
UBS’ cutbacks in back office and support jobs comes in the wake of the wirehouse’s increase of the threshold FAs must meet in 2020 to receive the same payout as they did in 2019.
The coincidence of those developments, paired with the wirehouse’s hemorrhaging of FAs this year, raised the possibility that more advisors will leave this year. That’s a bet made by recruiters at independent broker-dealers.
John Pierce, Stifel’s head of recruitment, told FA-IQ previously that comp announcements “may be what tips the scales and causes [advisors] to say, ’Maybe it’s time now to have a conversation with another firm.' And I think we certainly have benefited from that in terms of advisors’ willingness to have conversations with us.”