NEW YORK, Oct 28 (Reuters) - The 7,114 brokers at UBS Wealth Management Americas generated record quarterly revenue of $1.9 billion in the three months ending Sept. 30, largely through selling loans to clients and funneling their assets into packages of mutual funds and other managed accounts.
UBS AG, Switzerland’s biggest bank, said Tuesday that its U.S. brokerage arm contributed 46.7 percent of its global wealth management revenue and 25 percent of wealth management profit in the third quarter.
Productivity grew 9 percent to an average of $1.08 million per broker during the quarter, as fee income from managed accounts grew 10 percent to $1.2 billion. Net interest income rose 6 percent to $276 million on higher loan balances.
Net new money in client accounts, however, grew just 1.9 percent on a seasonal slowdown in trading. In a table of “key performance indicators,” UBS AG said the new money growth was below its 2-4 percent target growth rate.
The third-quarter results from UBS Wealth Americas and its principal competitors, nevertheless, show that brokerage executives are succeeding in broadening their business models. Brokers who used to sell stocks and bonds for commissions are now encouraged to sell loans at competitive interest rates and offer financial planning and asset management services with fees based on total assets clients keep at firms.
The fee-based model provides more stable income to brokerage firms than volatile commissions that tend to fall in tandem with markets as investors shy away from buying stocks.
This month, Bank of America Corp’s Merrill Lynch wealth unit said asset management fees rose 16.6 percent to a six-year high of $1.5 billion last quarter while loan balances rose $2.2 billion to $126 billion. Morgan Stanley’s 17,000 brokers attracted $6.5 billon of new assets in fee-based accounts last quarter, while real estate loans collateralized by clients’ portfolio soared 48 percent to $20.3 billion.
At UBS Wealth Americas, an outgrowth of what was formerly known as PaineWebber Group, revenue jumped 10 percent from the third quarter of 2013 while pretax profit of $254 million was up 17 percent from $218 million a year earlier.
But expenses grew 9 percent to $1.7 billion, or more than 51 percent of total operating expenses for UBS’s global wealth businesses. The numbers illustrate the much higher costs of hiring brokers and bankers in the United States than in Europe as well as litigation and regulatory charges that rose globally.
Broker compensation in the United States climbed 10 percent to $737 million and signing bonus balances in the form of forgivable loans were up 6 percent to $183 million. UBS ended the quarter with $3 trillion of recruitment loans, but with 23 fewer brokers than a year earlier. Its 7,114 brokers include 583 in its training program. (Reporting By Jed Horowitz; Editing by David Gregorio)