UBS seeking quality over quantity as advisor hires slow

UBS seeks quality over quantity as advisor hires slow

February 2, 2023 10:20 AM

UBS has been stocking up on advisors to the super rich and hauling in more assets, but it's not in a hurry to hire advisors en masse.

The Swiss wirehouse reported nearly flat advisor headcount in its mixed fourth-quarter earnings Tuesday after a notable uptick in Americas recruiting in the third quarter.

Strong net interest income growth of 29% year over year in its combined Swiss bank business and wealth management business helped drive the bank to post a quarterly profit growth of 22% over the prior year, even as fee-based income fell and its investment banking unit underperformed in the still-difficult macroeconomic environment for deals and client portfolios.

The company reported diluted earnings per share of $0.50, beating consensus analyst expectations of $0.37 by 35%.

In response to an analyst expressing concern that UBS had slowed in U.S. wealth advisor headcount growth over the past quarter, CEO Ralph Hamers said on an earnings call Tuesday he was being picky about who came on board and expected to only recruit for highly productive advisors, in line with the firm's goals to grow its market share in the ultrahigh net worth segment.

"I mean, you have to pay for the business they bring," Hamers said. "It's very important for us to get the FAs that come in at a level of productivity."

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He added that while he intended to continue hiring, his priority was to help existing advisors become more productive and add experienced advisors who fit into his envisioned "shift towards higher net worth individual clients, higher productive FAs in geographies where we expect wealth to grow."

In particular, Hamers plans to hire in regions of the U.S. where more start-ups have been minting new wealthy individuals. "The fastest growth in the US wealth pool comes from entrepreneurial wealth," he said. The Census Bureau logged a record-high number of new business applications, 5.4 million, filed in 2021, as Americans took advantage of the COVID-19 pandemic to dream up new businesses.

Hamers pointed to $23 billion of net new fee-generating assets — a growth of 8% year over year — flowing into its Global Wealth Management unit last quarter, as proof of ongoing productivity in the wealth business despite the flat headcount.

In addition, Hamers said, the bank had been providing products to meet strong client interest in alternative investments, high-yield cash vehicles and the bank's separately managed account offering — which essentially allows the investor to own a customized portfolio of securities but have someone else actively manage it.

"The business mix was decent," Deutsche Bank analysts Benjamin Goy and Sharath Kumar wrote in an earnings report Tuesday where they maintained a "buy" rating on UBS.

They noted that the Personal & Corporate Banking segment — which mainly provides banking services in Switzerland but also serves clients abroad with business needs — had performed well and Global Wealth Management unit results were "a touch light," while the investment banking unit had been the "main miss."

To see the main takeaways from UBS's fourth-quarter earnings, scroll down the slideshow. For coverage of the firm's third-quarter earnings, click here. For a look at the results from the second quarter, click here.

Financials

Quarterly net profit attributable to shareholders rose 22% to $1.65 billion from $1.35 billion year over year, according to the earnings appendix, though it was down 5% from the prior quarter's $1.74 billion.

For the full year, the bank had profits of $7.63 billion, up 2% from the prior year's $7.46 billion.

Total quarterly revenue fell 8% to $8 billion from $8.7 billion year over year. Revenue for the full year of $34.6 billion was also down 2% from $35.4 billion in 2021.

Financial advisors

Advisor headcount remained essentially flat in the fourth quarter at 9,215 globally, reflecting a net loss of 15 advisors from the previous quarter.

The total headcount was slightly down on an annual basis, falling 1% year over year from 9,329 advisors at the end of 2021.

In the Americas, which reported 6,245 advisors, headcount was also virtually unchanged over both the previous quarter's 6,257 and last year's 6,218 advisors.

Expenses

Quarterly operating expenses fell by 13% to $6.1 billion from $7 billion the year before, as general and administrative expenses fell 36%.

UBS "implemented a number of measures across the board, including restructuring, structural compensation adjustments, optimizing our footprint, reducing consultant and vendor spend, and executing our tax strategy with discipline," said Sarah Youngwood, the chief financial officer.

She added that the bank was ahead of schedule to achieve an earlier planned initiative of saving $1 billion by 2023, which had been expanded to $1.1 billion.

Client assets

UBS ended the year with total invested assets of $4 trillion, down 13% year over year from $4.6 trillion at the close of 2021. However, they were up 8% from the third quarter's $3.7 trillion.

In the Global Wealth Management unit, total invested client assets fell 15% year over year to $2.8 trillion, down from $3.3 trillion the prior year, as portfolios fell with the markets. Assets were up 6% from the prior quarter.

Guidance

"We are in a strong position to fund business growth and a progressive dividend while returning excess capital to shareholders via some share repurchases," Hamers said, adding that he expected to buy back "at least $5 billion for 2023."

In the Americas, Hamers said his priority was to "drive organic growth and build on our scale with our core" clients, aiming to become their "primary bank" through improving tech developments that would integrate functions across the bank.