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UBS gets its dose of digital disruption in CEO’s first big move

(Bloomberg) — UBS Group AG has become a favorite of investors in recent years as a reliable beacon of profitability. For Chief Executive Officer Ralph Hammer, such consistency becomes a challenge: how to fix something that isn’t clearly broken.

Coming from ING Groop NV, the Dutch lender credited with transforming them, the Dutchman’s mission statement is to pull UBS into the digital age. Last week, he took his long-awaited first step, buying robowealth advisor Wealthfront for $1.4 billion in cash.

The deal gives UBS more than 470,000 additional US customers, a particularly young crop that is still piling up funds. It’s a departure for the Zurich-based bank, which has long been accustomed to providing personalized services to the super-rich. Hammers says the bank should adopt a broader base, even if it means moving to lower-margin, automated products that are not a hallmark of UBS’ individual offerings.

Before the Wealthfront deal was announced, Hammer said in an interview this month, “Let’s not wait for someone to eat our lunch, let’s do it ourselves.” “Do you dare cannibalize your own business? You have no choice.”

But long-term employees who pride themselves in tailor-made services worry that automated mentoring could undermine a cherished brand. Investors say moving into unfamiliar territory will probably require a more expensive acquisition. And Hammer still has to prove he can put his stamp on the Swiss institution. His first full year went through mainly cosmetic improvements like breaking down hierarchies or improving technical teams, and his first strategic update last year received a lukewarm reception from analysts and employees alike.

new strategy

UBS is set to set new financial targets and provide more clarity on its strategy when the bank reports fourth-quarter earnings in February. 1. The Wealthfront deal is the clearest sign yet where 55-year-old Hammer is looking to take on UBS both geographically and strategically. He is emphasizing a mixed model, whereby advisors individually focus on the wealthiest and most attractive clients, while algorithms cater to less affluent and demanding clients.

For the super rich, the bank is targeting the small rich

Stakeholders have long pointed to the bank’s US operations as an area in need of attention. Businesses are very expensive with a cost-income ratio of 80% compared to less than 60% in all other sectors. Assets are very sub-par when stacked against peers, and UBS lacks the investment-banking punch to break into the Top 5 on Wall Street.

UBS remains committed to this sector, as selling like Credit Suisse Group AG in 2015 would effectively cut it out of the world’s largest funding pool. Instead, Hammer sees America as a laboratory for its digital push that will help cut costs. While some analysts questioned the relatively high price paid for Wealthfront, others expect the bank to pursue more bolt-on deals as it leans more toward robo advisors.

prove it

“The digital money offering is a model that will have to prove itself,” said Eric Heijmann, senior analyst at Pagena Investment Management, a UBS shareholder. “Can a human in a call center provide a reliable alternative to a full-service hi-touch model? That’s really obvious. And then that raises the question of whether it really needs to include humans.” Worth the price?”

Coming to an institution steeped in private banking tradition, Hammer – with his background in corporate and retail banking and a direct Dutch approach – was initially viewed with suspicion by other leaders and his peers in UBS’s wealth arm. Financial advisors worried that it would replace centuries of practice with a lucrative app that would isolate and eventually drive away cherished clients.

This isn’t the first time Hammer has tried to shake up a business that was doing well. But at ING, he had to reinvent a strategy with tighter targets and thousands of job cuts two years later, when internal resistance slowed execution.

And the speed at which ING built its digital platform has left the bank vulnerable to money laundering, resulting in record fines for deficiencies in its checks in 2018. Hammer himself remains the subject of an investigation by Dutch prosecutors into his role in ING’s previous failures in police money laundering.

Read more: ING . UBS’s new CEO hammered by chronic legal headaches

Hammer recognizes that the wealthiest customers still need highly personalized advice that no machine can ever replicate. In theory, the digital-first model is more diverse and flexible and comes with the added benefit of human fallback if the customer demands a more personal touch. This would push UBS into a lower tier of funds — those with $250,000 to $2 million in assets — that haven’t been targeted in a meaningful way before.

global push

Carrying out business through digital channels automatically cuts down on margins. But UBS needs to act now that it has the money to invest, Hammer said. Eventually, it could roll out the model in Europe and Asia, with some events already underway this year.

“It’s so easy to disrupt banking that we don’t deal with physical goods,” Hammer said. “Music is digital. Money is digital. Everything that is an immaterial good can be disrupted through technology.”

This is a message he has taken great pains to pass on. Hammers says the bank initially struck him as a hierarchical one and when he first took over in late 2020, the units had few links with each other other than living under the same roof, to the new CEO. Left with the feeling that he was running three different banks. , according to people familiar with his thinking.

An economist by training, Hamer keeps a keen eye for details and data, analyzing potential problems from every possible angle, according to the people he works with.

At UBS, his management style has also come across as unorthodox, people say. If someone complains about any problem he tells him to leave.

“People generally like to be told what to do,” Hammer said. “But believe me, most people know what to do.”

can not wait

Hamer gave the executive team more oversight than just his own divisions. Investment bank head Rob Karofsky is now also co-head of the artificial-intelligence data team alongside digital head Mike Dargan, while asset management leader, Sonny Harford, is also in charge of sustainability.

Read more: UBS to Ax rank above managing director in streamlined campaign

Hammer also eliminated titles such as managing director of the group, a crop of the bank’s most senior 100 or more employees. While he kept his high salary, he joined the ranks of ordinary managing directors. Bearing in mind that his message might not otherwise filter through management’s sediment, Hammer regularly appears in short, impromptu videos that he beams to all employees.

The CEO acknowledged that it would take time for his message to sink in. But at the same time, her patience isn’t endless because disruptions are happening now, and UBS can’t afford to sit them out.

“The transition from money to digital is really happening now,” Hammer said. “All the clients I’ve talked to over the past year and a half say UBS has the best products and the best advice, but oh man, you can really improve when it comes to digital.”

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