UBS CEO Ralph Hamers has made his first major acquisition since taking over the Swiss Bank in ... [+]
UBS is ramping up its U.S. wealth management business in a $1.4 billion bid for Wealthfront, a robo advisor with a focus on young investors.
Wealthfront boasts more than $27 billion in assets under management with more than 470,000 clients, many who are young and who could ultimately end up as clients under the Swiss bank's own wealth management unit. The price of the deal falls in line with the $1.5 billion sale value that Wealthfront was reportedly seeking late last year.
Morningstar equity analyst Johann Scholtz points out that this downstream play stands in contrast to many European competitors, including Credit Suisse and Julius Baer, who have doubled down on the high end of the market where they believe profitability is higher.
However, this strategy echoes that of the Swiss financial giant’s competitors in the U.S. Goldman Sachs has added its Marcus and Ayco business lines which provide retail wealth management and workplace financial planning, respectively. Marcus was built in house while Ayco was purchased in 2003. Merrill Lynch launched Merrill Edge in 2010 as a self-directed retail trading platform for clients. Morgan Stanley purchased online broker E-Trade in 2020.
The UBS wealth management unit in the U.S. is the result of the Swiss bank's acquisition of PaineWebber in 2000, a move that targeted high and ultra high net worth individuals, the former having at least $1 million in investable assets and the latter at least $30 million, according to widely used definitions. The bank's latest purchase illustrates the U.S. wealth management industry's focus on mass affluent, millennial investors. Wealthfront has a minimum of $500 to join.
This deal is the largest transaction to date for UBS CEO Ralph Hamers who joined from Dutch Bank ING Group and took over as CEO in November 2020. In his time at ING Group, Hamers oversaw a large expansion in online banking.
Hamers had previously made his intentions to move down market known last October when he announced plans to launch a digital wealth manager in the U.S., plans seemingly fulfilled by the Wealthfront addition.
“Adding Wealthfront’s capabilities and client base to our global investment ecosystem will significantly boost our ability to grow our business in the U.S.,” Hamers said in a press release announcing the acquisition. “Wealthfront complements our core business in the U.S. 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.”
UBS has grown wealth management profits in the U.S. by targeting the high end of the market with clients that are typically multi-millionaires. Wealth management profits in the Americas were up 34% year over year as of the third quarter of 2021 with assets under management up 21% at $1.7 trillion.
Despite those figures, Scholtz says the decision may have been between a major investment in the firm’s U.S. business or an exit from the market with margins lagging compared to other regions, similar to Wells Fargo’s recent closure of its international wealth management business.
“It's been a drag on profitability in the past, though the last couple quarters have started to look better,” Scholtz says of the firm’s U.S. wealth business. “It's a question of really increasing scale in the U.S. When Hamers started they likely took a hard look at whether they wanted an ongoing presence in the U.S. and they decided to stay and needed to invest.”
Along with a new set of prospects, the acquisition may also be a move into direct indexing, a rapidly growing offering that has seen investments from competitors, including Vanguard and Morgan Stanley. Wealthfront was an early adopter, launching a direct indexing platform in 2013.
Wealthfront CEO David Fortunato told clients in an email that customers won’t see any immediate changes with integration of UBS products and services coming down the road.
The acquisition is expected to close in the second half of this year. Wealthfront and UBS declined to make additional comments.
