M and A
UBS Steps Up Digital Game With Wealthfront Acquisition
The battle to win business from Millennials and Gen Z clients, less beholden to traditional models of finance, is shaping up with a push towards digital wealth management. UBS's desire to go down this route also reflects the ambitions of its group CEO, Ralph Hamers.
UBS has signaled its
determination to step up its digital wealth management ambitions
by announcing that it is buying US robo-advisor Wealthfront in an
all-cash deal valuing the latter at $1.4 billion.
The Swiss bank – due to report full-year/Q4 2021 results on
February 1 – said this deal enables it to accelerate growth
in the US and widen its appeal to affluent investors. At present,
UBS’s wealth management business is largely focused on high net
worth and ultra-high net worth individuals.
Wealthfront has more than $27 billion of assets under management
and over 470,000 clients in the US, mainly concentrating on
Millennial and Gen Z investors – a crucial market as the Baby
Boom generation passes on.
“Adding Wealthfront’s capabilities and client base to our global
investment ecosystem will significantly boost our ability to grow
our business in the US,” Ralph Hamers, group chief executive
officer of UBS, said. “Wealthfront complements our core business
in the US providing wealth management to high net worth and
ultra-high net worth investors through trusted relationships with
financial advisors, and will enhance our long-term ambition to
deliver a scalable, digital-led wealth management solution to
affluent investors.”
The move demonstrates how Hamers, who joined UBS in 2020 after
leaving ING, is keen to drive digital banking and wealth
management at the Zurich-listed group.
A foray into digital wealth management under Hamers’ rein has
been expected. On January 7, for example, BNP Paribas said in a
note that “UBS plans to launch a new digital-plus-remote-advice
wealth management platform for mass affluent customers in the US
(linking its existing workplace franchise (and internationally)
if possible. This should add growth and strengthen the core WM
business, similar to Morgan Stanley’s moves in this area.”
UBS said Wealthfront will expand UBS’s existing offering through
the firm’s Wealth Advice Center, which focuses on serving core
affluent clients, and its Workplace Wealth Solutions business,
which works with employees of corporate clients on equity plan
participation, financial education and retirement programs.
The bank’s desire to push into the digital wealth space has been
a talking point for months. Back in October, Hamers noted in an
interview (Wall Street Journal, January 11, 2022), that
an earlier digital-human channel that UBS developed, called My
Way, tripled invested assets last year to $5.1 billion. This lets
customers in Switzerland and other parts of Europe and Asia build
and maintain portfolios in online sessions with advisors and UBS
research.
The Wealthfront move is ironic because in 2018 UBS sold its
SmartWealth business to US-based online investment advisor
SigFig. At the time it appeared that the bank had pulled out of
moving into such a channel.
Subsidiary
Wealthfront will become a wholly-owned subsidiary of UBS and will
operate as a business within UBS Global Wealth Management
Americas. The transaction is expected to close in the second half
of 2022, subject to closing conditions including regulatory
approvals, UBS said.
UBS Investment Bank serves as financial advisor to UBS and
Sullivan & Cromwell acts as legal counsel. Qatalyst Partners
serves as Wealthfront’s exclusive financial advisor and Fenwick &
West act as legal counsel.
Last year the global wealth management arm of UBS reported a
pre-tax profit of $1.5 billion in the third quarter of 2021, up a
touch from $1.507 billion a year earlier and continuing a broadly
positive trend for its results. Fee-generating assets were
slightly down sequentially to $1.412 trillion. Net new
fee-generating assets were $18.8 billion, supported by inflows in
nearly all regions, and represented an annualized growth rate of
5 per cent in the quarter. Total invested assets as at the end of
September were $3.2 trillion.
“UBS is in decent shape as it is, enjoying a robust operating
environment, clearing its cost of equity, managing risks
prudently and buying back shares in meaningful size. Those
attributes in themselves position it as one of the stronger banks
in the European sector, safe to own, compounding over time, and
making incremental improvements as it goes,” BNP Paribas said in
its aforementioned note.
BNP Paribas said, however, that the UBS wealth business,
accounting for 39 per cent of group capital, “remains highly
value-creating, although in recent years it has suffered from low
growth and declining returns.”
The share-trading drama last year over US video games
retailer GameStop, and other firms, threw into sharp relief the
use of new digital trading platforms, including those
catering to DIY clients and a younger generation not beholden to
traditional wealth models.