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UBS Counting On ‘Freemium’ Product to Grow Advisor Biz

By Peter Rawlings April 28, 2021

UBS hopes an influx of assets into zero-fee separately managed accounts will help attract new advisor recruits to the bank.

The bank’s asset management division reported $26 billion in net new money in the first quarter of 2021. Roughly $8 billion, or nearly one-third, of that amount went to zero-fee SMAs, CEO Ralph Hamers said yesterday during a call with analysts to discuss the earnings results.

UBS introduced the zero-fee SMAs in January 2020 and expanded them in July last year. UBS provides clients with access to select SMAs with no additional manager fee; that fee is instead paid by the bank.

The zero-fee offering “continues to be an extremely attractive value proposition for our clients, as well as for our advisors,” said a person familiar with UBS’ earnings, adding the SMA initiative is meant to provide a “freemium” vehicle to entice clients who may be selective about what they pay for.

“Clients don’t want to pay for an active manager if it’s really shadow beta, but they are willing to pay for premium services like personalized tax management or sustainability,” said the person.

“It certainly gives our financial advisors a competitive advantage when competing against other advisors,” in addition to attracting advisors drawn to the firm by the opportunity to offer the accounts to their clients, the person added.

The latest comments are in line with views shared by UBS Group president of asset management Suni Harford in a conference in March. She said the product was an important part of the UBS recruiting strategy, especially in the wake of the Securities and Exchange Commission’s Regulation Best Interest, because of the way the no-fee accounts eliminated potential conflicts.

UBS saw a slight uptick in advisor headcount in the Americas to 6,335 as of the end of March, up from 6,305 at the end of 2020.

Meanwhile, in its first-quarter earnings release, UBS noted that it introduced a net new fee-generating assets metric for its global wealth management unit during the period.

The new measure covers net flows “related to mandates, investment funds with recurring fees, hedge funds and private markets investments, combined with dividend and interest payments into mandates, less fees paid to UBS by clients,” according to the bank.

In the UBS Americas segment, fee-generating assets rose 5% year over year to $793 billion, driven by net new fee-generating assets of $17.2 billion and $19.3 billion from positive market performance. The global wealth management unit overall saw $36.2 billion in net new fee-generating asset inflows.

The new measure excludes flows related to assets from trading and new issuance, UBS chief financial officer Kirt Gardner said during the earnings call.

The net new fee-generating assets would have been positive for the last five years if UBS had used the new metric during those periods, Hamers said during the call.

Citing examples, by excluding money that ends up in cash or stock from an initial public offering that hasn’t been diversified or invested, the new metric will hopefully better predict future revenues, according to the person familiar with UBS’ earnings.

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Tags:  Finding and winning new clients , Fees and compensation , Staffing and recruiting , Special services , UBS , Securities and Exchange Commission

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