Following what was a period of intense change for UBS, Nick Tucker, head of wealth management for the UK, discusses how the bank is now reaping the benefits of its decision to refocus its operations.

Since the economic downturn, UBS has become synonymous with wealth management and recently won back the title the world's largest private bank, beating Bank of America into second place.

After being severely hit by the financial crisis six years ago, which led to a shake-up of its operations that saw the firm increasing its focus on wealth management unit while simultaneously reducing its investment banking activities, the Zurich-based bank has now swung sharply back into profit.      

UBS rounded off a strong year of profit and asset under management growth across its regions in 2013 with a group profit before tax of SFr4.1 billion ($4.64 billion), up 44 per cent from 2012. Meanwhile, its wealth management businesses saw an increase in its combined full-year adjusted profit before tax of 25 per cent to SFr3.3 billion.

In 2012, UBS announced it was restructuring its investment banking operations to focus on wealth management. The overhaul was part of its plan to reduce its exposure to riskier investment banking operations that plunged UBS into multibillion-pound losses during the credit crunch and led to a government bailout in 2008.

Following a period of intense change, during what has been a difficult time for the bank, Nick Tucker, head of wealth management for the UK, told this publication in an interview that the bank is now reaping the benefits of its decision to refocus its operations.

"2013 was a year of substantial growth across the board for UBS Wealth Management in the UK and all of our businesses registered very good results. We took the view that we needed an investment process that worked for families rather than just institutionalised wealth. Last year was the culmination of five to six years of hard work to refocus our value proposition on investment management for families," said Tucker.

Tucker said that following the change to its business model, the investment bank and wealth management units were working together more closely than ever.

"Our investment bank and wealth management sides complement each other and a desire to collaborate is important going forward. The level of dialogue between the wealth management business and the investment bank is very strong and I think the best example of that would be the global family office segment," said Tucker.

Regional growth

Regional expansion has remained a priority for UBS since it decided to expand its wealth management unit and the bank currently has offices in Edinburgh, Newcastle, Manchester, Birmingham, Leeds and London. Tucker said that UBS was planning to increase its regional footprint with a new office in the South West, an area currently served from its London office.

"Our strategy for the regions is to replicate exactly what we do in London. The service and access to our bespoke CIO process which you get from our Manchester and Leeds offices, for example, is exactly what you would get from the London team," said Tucker.

"We have deliberately had very measured growth without any sort of major fanfare. We have built slowly from the ground up which has allowed us to show continuity. When we open an office, we start off small and gradually develop the business. The regions are a key part of our overall offer and certainly in the past three or four years have been the fastest-growing part of our business," Tucker added.

Challenges

After years of continuous growth, the UK wealth management sector must now tackle a number of unprecedented challenges, with private banks and wealth managers facing increased pressures on costs, tougher regulatory demands and the requirement for greater transparency.

The Retail Distribution Review was brought in to clean up the financial service sector and to give customers greater protection and confidence in the advice they receive. Tucker said the bank had fully embraced the principles of the RDR and placed the bank's success in the new regulatory environment down to its long-term view and improved communication with clients.

"We were fully prepared for the RDR before it came in. The RDR is about advice and that has always been at the heart of UBS Wealth Management’s offer to our clients. So it actually gave us a competitive advantage and allowed our clients to benchmark us favourably against the competition," said Tucker.

Clients have emerged from the global financial crisis with increased expectations and a greater preparedness to use their latent bargaining power, forcing private banks and wealth managers to change the way they operate. In what has become an increasingly competitive market, firms are shifting their focus and activity towards improved client service and delivering added value.

"Clients are more demanding than ever. They are more demanding and less tolerant of imperfection, which I think is even truer of onshore markets than offshore ones," said Tucker.

"And importantly, they are significantly more demanding of client advisors, who now need to have even greater technical knowledge and qualifications. We have spent a lot of time making sure we have the best qualified client advisors and that is why we invest heavily in an ongoing training programme for them," he added.

One barrier to growth financial firms currently face in is the shortage of talent. As a result, top quality people are becoming more valuable as well as increasingly expensive to train. In order to remain competitive, wealth management firms need to implement new strategies and offer support to attract and retain qualified professionals.

Tucker believes that whilst recruitment is a challenge, client advisors see UBS as the place to go if they want to develop as the firm is one of the few total wealth management solution providers.

"It is important that we find quality people who buy into our culture and make what is a sophisticated wealth management offering work for individual clients. For example, all of our RND client advisors pass a challenging accreditation exam every year, and by the end of March all of our client advisors will have chartered status" said Tucker.

Nom-doms

While the preferential tax treatment of nom-domiciled individuals in the UK remains controversial, it has played a huge role in making the UK an attractive proposition for foreign investors.

Recent figures from law firm Pinsent Masons suggest that the UK is one of the most sort after ex-pat destinations with the number of high net worth investors being issued with visas jumping by a quarter in the past year. According to the law firm, there has been a spike in the number of visas issued to wealthy foreign investors over the last year, up from 423 last year to 530.

Despite HSBC last year ending its investor visa service to new clients, citing the low retainment of clients by the bank beyond a period set by government rules, non-domiciled HNW individuals remain an extremely attractive proposition for wealth management firms and Tucker was keen to highlight the importance of this segment to UBS.

"The non-domiciled space is a core strength for UBS Wealth Management, but one that presents considerable challenges. That is why we are seeing even greater sophistication among client advisors. About two-and-a half-years ago we took the decision to develop a specific set of exams for client advisors who advise non-domiciled clients," said Tucker.

"We ask client advisors to ensure they have a percentage of non-doms on their books as it is such a rapidly-changing demographic. We have also been working very closely with external advisors to develop new solutions as the world changes, such as offering discretionary portfolio management for resident non-domiciled clients," he added.

The future

As the ranks of the UHNW continue to grow around the world, wealth management firms are looking to target this segment at a time when the sector is experiencing record growth and clients are becoming more demanding.

Private banks are increasingly focusing on the UHNW segment as investors are not only generally more active in exploring investment opportunities, but the scale of activity makes can result in for substantially higher profit margins. Tucker was keen to point out the importance of the UHNW sector to UBS's future growth and why he feels the bank is well-placed to target this market.

"We believe this to be a segment that plays to our strengths. With UHNW individuals, you can't put square pegs in round holes. It is a space we seek to dominate and I think our global scale and breadth is a key advantage for us," said Tucker.

"I think the biggest challenge is to communicate our value proposition in this space and to differentiate ourselves so that clients see how we are different from the competition. We also have to be very mindful of the regulatory environment to ensure our clients are absolutely compliant. We want to really focus on client satisfaction as this is, of course, a key driver of our business success. We know that if we have happy clients, we will have a thriving business,"  he added.