UBS to Offer “Free” SMAs from Third-Party Asset Managers


June 23, 2020

UBS Wealth Management USA is adding separately managed accounts from seven well-known fund companies to its menu of proprietary strategies that waive outside manager fees, citing the success of a strategy introduced earlier this year on UBS-advised strategies.

Starting July 7, the wirehouse will pick up fees charged by Active Index Advisors (a Natixis affiliate), Breckinridge Capital Advisors and Goldman Sachs Asset Management on nine separately managed accounts, which are generally pitched to wealthy clients as “customized” investments.

UBS will add nine more strategies from Franklin Templeton, Invesco, Brandes Investment Partners and Pimco in August, the wirehouse said on Tuesday. Clients, of course, pay asset-based advisory account fees to UBS, but under the new scheme will not sign separate fee contracts with the managers.

“We’re simplifying SMA client pricing, expanding choice and transparency, and aligning our offering with the SEC’s Regulation Best Interest,” Jason Chandler, head of UBS’s network of approximately 6,000 U.S. brokers, said in a prepared statement that echoed what UBS said in internal memos in January when it unveiled its proprietary fee-waived SMA strategy.

“At the same time, we’re investing in our advisors’ success, enhancing our advisory value proposition, and giving clients increased pricing flexibility.”

Regulation BI is the new client-care regulation from the Securities and Exchange Commission that takes effect next Tuesday, and many firms have been leveraging its implementation to modify and sometimes prune their product offerings.

UBS also has cited Reg BI as a reason for prohibiting brokers from selling mutual fund shares that pay them ongoing 12b-1fees.

Several of UBS’s competitors have restricted sales of more expensive fund share classes in anticipation of Reg BI, but the Swiss bank’s U.S. brokerage arm appears to be the first to have applied fee waivers to separately managed accounts.

“Any firm that sets a leading example with regard to pricing and fee transparency, especially as it relates to more complex investment products, is a firm that’s taking a step in the right direction,” said Greg O’Gara, senior research analyst at Aite Group, a consultant to asset managers specializing in retail distribution strategies.

Competitors are likely to follow UBS since “reputation is everything in financial services, and there is no large broker-dealer or wirehouse that wants to be the SEC’s Reg BI fail,” he said.

The waived outside manager SMA fees will apply to 18 third-party strategies offered within UBS’s ACCESS single-contract, Strategic Wealth Portfolio, and Advisor Allocation Program accounts.

The firm lists strategies from about 200 asset management fund families on its researched platforms, including about 65 from the firm’s asset management division.

While UBS will absorb the outside manager fees for the additional 18 SMA strategies, clients will continue to be charged a “premium fee” for sustainable investing or personalized tax management strategies from outside providers, the company said.

UBS Wealth Management USA’s Swiss parent earlier this year said the bank company’s asset management business has done well by doing good for its U.S. investors. U.S. advisors in the first quarter added $9 billion of net new money as a result of the proprietary-managed SMA project, according to UBS AG CFO Kirt Gardner.

“This has been a resounding success that by far exceeded our plans,” said Gardner of the “partnership between Global Wealth Management and Asset Management for our US wealth management clients” on the bank’s first-quarter earnings call in April.

Aite’s O’Gara said the outside fee waivers are strong ammunition for brokers pitching wealthy clients and prospects.

“Every investor that I know is price sensitive and wants to make the most of their investment dollars,” he said. “This is a great way for sales reps and advisors to have good transparent honest conversations with their clients.”

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