September 13, 2021
UBS Global Wealth Management Co-Head Tom Naratil
– Photographer: Gianluca Colla/Bloomberg via Getty Images
UBS Wealth Management USA is open to M&A to achieve the scale and steeper profit margins of its bigger rivals, but it is also confident that it can boost profitability with its existing sales force, Tom Naratil, co-president of UBS Global Wealth Management, said on Monday.
“We do look at things that are inorganic, certainly, and we should,” Naratil said in response to a question about scale in the U.S. at a virtual Barclays Financial Services Conference. “At the same time, we think the opportunities from an organic basis are quite attractive.”
At roughly 6,000 brokers, UBS’s U.S. division is less than half the size of its wirehouse rivals, but Naratil, who is president of UBS Americas and member of the Swiss parent’s group executive board, cited increased lending, growth of new fee-generating assets, and advisor productivity as “levers” that UBS has pulled to help its pre-tax profit margins rise from around 12% in 2016 to 19% this year if the first half performance is annualized.
UBS expects to continue to “drive those key levers,” he said, specifically identifying its high expectations for increased average productivity among its advisors.
Naratil said UBS may have historically missed out on around 500 basis points in pre-tax profit margin because of its smaller size, but the productivity gains it has made recently have narrowed that gap to about 300, Naratil said.
Many of its rivals, including Morgan Stanley, the largest wirehouse by its roughly 16,000 brokers, report margins in the mid-to-high 20% range as they have similarly pursued a similar strategy over the past decade that has focused on loans and fee-based account growth.
Lending, which is more profitable to the firm because it does not share revenue from customer loans with advisors, will continue to be a growth category for UBS, Naratil stressed, noting that his wirehouse is “in the middle of the pack” when it comes to loan penetration as a ratio of client assets.
“We still have more room to grow and more opportunity for us,” Naratil said. Most of the growth has been and will continue to be with standard securities-based loans, he said.