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UBS Reports Outflows from Wealth Management Americas, But Profit Is Up

Other bright spots shone in the bank’s third quarter earnings.

Profit was up 7 percent, advisor attrition was down and the UBS Wealth Management Americas unit had other positives it could point to in its third quarter earnings released Thursday.

Those bright spots more than covered up a net outflow of another $2.3 billion from the unit in third quarter (after losing $6.2 billion in the second quarter), which it said was mainly due to lower recruiting—part of its new business strategy.

In 2016, UBS was the first of the wirehouse brokerages to pull the plug on outsized recruitment bonuses to top advisors in the form of forgivable loans. It has since simplified and made changes to its pay grid to entice advisors to remain with UBS for their career and recently added a new training program set to begin next spring.

Net outflows of $2.3 billion represents a small fraction of the unit’s more than $1.1 trillion in invested assets. Wealth Management Americas, the bank’s largest unit in terms of invested assets and financial advisors with 6,861, performed well overall in the third quarter.

The unit’s profit before tax was up 7 percent from the second quarter, in part by record fee-based revenue rather than transaction-based. Recurring net fee income for Global Wealth Management rose 6 percent in the third quarter on strong invested asset growth. U.S. equities have been on a tear in 2017 and as investors’ portfolios have grown, so have the fees wealth managers are collecting, which are based on a percentage of the assets they manage.

At UBS, invested assets reached a new record of $1.2 trillion dollars in the third quarter, up 9 percent year over year. Managed account penetration also hit a record 36.3 percent.

Despite its size, Wealth Management Americas contributes only about a third of the profit from Global Wealth Management. The unit’s net margin remained significantly lower than other regions, especially Switzerland (36 percent) and Emerging Markets (41 percent).

But the Asia Pacific region is the bank’s darling right now. Wealth management operating income in the region was up 13 percent year over year in the third quarter and profit before tax is up 37 percent year to date. Annualized net new money was roughly $250 billion, up 8 percent.

The Asia Pacific region now has more than 1,000 advisors and oversees roughly $345 billion in invested assets. The Europe region, for comparison, has roughly $387 billion.

In an earnings note, UBS Group CEO Sergio P. Ermotti said a successful rollout of the bank’s Swiss One Wealth Management platform that now supports around 80 percent of its non-U.S. wealth management assets was one example of efficiencies rolling out and enabling growth.

Overall, UBS Group had a strong quarter. It reported profit before tax of roughly $1.2 billion, up almost 40 percent year over year, and net profit of about $946 million.

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