UBS profits fall in Q1 due to higher expenses

UBS profits slow as expenses wipe out higher advisor productivity

April 26, 2022 7:45 PM

One of the largest wealth managers paid the price for the escalating productivity of its financial advisors amid the backdrop of equity volatility, with its profits slipping by 6% in the first quarter.

In contrast, revenue per advisor at UBS Wealth Management Americas climbed by 8% year over year in the first quarter as the firm’s more than 6,000 registered representatives added billions of dollars in separately managed accounts and advisory assets, according to the Swiss bank’s April 26 earnings report.

Despite the continuing slides in the firm’s advisor headcount, UBS CEO Ralph Hamers told Bloomberg News that there has been “a real pickup of demand” in the U.S. and Europe. In late January the firm unveiled a deal to purchase robo advisor Wealthfront for $1.4 billion. Hamers’ team is giving further growth opportunities in America “a close look” after a slowdown in client activity in Asia during the first three months of the year, the CEO told Bloomberg.

“It’s a very important geography for us. It is strategic,” Hamers said. “So where we can, we will certainly keep our eyes open.”

To see the key takeaways from UBS’ first-quarter earnings for financial advisors and other wealth management professionals, scroll down our slideshow. For coverage of the prior quarter’s earnings, click here.

Note: The figures refer where possible to the specific UBS Wealth Management Americas unit in the U.S., Canada and Latin America, except when the metrics are only available for the entire Global Wealth Management segment spanning 9,300 advisors worldwide.

Advisor headcount

The number of advisors fell by 2%, or a net 136 reps, year over year to 6,199 in the first quarter. The ranks of UBS advisors have fallen off over the past several years, after the firm reduced its recruiting loans and began focusing on boosting practice productivity and retaining the largest teams. Since the first quarter of 2016, the wirehouse’s headcount has shrunk by a net 946 advisors.

Client assets

Separately managed accounts offered by UBS with incentives for advisors drew $7.5 billion from U.S. clients during the period, Hamers noted in his prepared remarks on the earnings call, according to a transcript by the website Seeking Alpha. Total invested assets rose 8% from the year-ago period to $1.77 trillion in the first quarter after Wealth Management Americas added $12 billion in net new fee-generating advisory assets. While the firm notes that the in-flow resulted in an annualized growth rate of 5% across the unit, the incoming advisory assets dropped by $5.2 billion year over year, or 43%, in the quarter. In January, UBS launched its “Multicultural Investors Strategic Client Segment” focusing on investors with at least $1 million in assets who are Black, Hispanic or Asian American.

Loans

Even after a lower level of net new loans during the first quarter compared to the year-ago period, the gross volume surged up by 23% to a record $95.7 billion due to rising numbers of mortgages and the firm’s securities-backed product, according to UBS. Wealth Management Americas issued $3.7 billion in net new loans, compared to $5.5 billion at the same time a year earlier.

Expenses

Across the entire Global Wealth Management unit, financial advisor compensation expanded by 4% year over year to $1.22 billion. Operating expenses for the division increased by 5% to $3.6 billion due to the higher pay for brokers, rising provisions for legal and regulatory matters and costs relating to restructuring, according to the firm. Within Wealth Management Americas, the cost-to-income ratio climbed by nearly 3 percentage points to 84.1%.

Bottom line

The elevated expenses and equity volatility offset the wirehouse’s rising revenue per advisor in Wealth Management Americas, with pretax profit ticking down by $28 million year over year to $439 million. The higher recurring advisory fees and net interest income pushed up the unit’s revenue by 6% to $2.71 billion. The entire Global Wealth Management segment earned pretax profit of $1.31 billion on operating revenue of $4.91 billion.