Saturday, November 24, 2007

Gather Assets in UK - Strategic Dilemma for Non UK Wealth Managers

March 2007

In the UK, perhaps more than in any other European country, there is a high demand for locally registered funds. But requirements for sterling-denominated funds constitute a major barrier for European players like DWS, which manufactures its funds in Germany for euro investors.

“In euroland, I can sell euro products everywhere, but I can sell a sterling-denominated fund only in the UK. So unless you have an outstanding product, with which we think we can grab a significant business in the UK, it does not make sense to manufacture a sterling-denominated fund,” according to Mr Knoop of DWS.

“The typical UK retail business is not in our scope, our idea is to focus on the multi-manager area.” Without disclosing names, Mr Knoop stated that the German firm has already a dozen clients in the UK.

Perhaps, the other reason for this strategic decision lies in the recognition that the UK market is a competitive market, “the most competitive or the most crowded market in Europe, relative to the size and to our network”.

So unless the firm is part of the financial group that has acquired a substantial distribution network, or looking to buy a local bank, “you really think twice” before offering another UK equity fund to retail clients, added Mr Knoop.

In contrast, UBS Wealth Management made a commitment to the UK market around seven years ago, with the aim to conquer “home market status”. The bank has cemented this pledge by acquiring two firms in 2004, in both cases to enter new areas of business. The first, a small IFA firm, was acquired to have access to the legal and pension business, the second – a stockbroking company – was taken over to be able to diversify the services provided to wealthy people. Currently, around 20 per cent of UBS Wealth Management’s assets come from this avenue.

The acquisition of the stockbroking firm also brought to the bank additional regional coverage. Three of the six regional offices that the company currently owns in the UK were inherited in this way. Unlike companies such as French firm Natixis, which has implemented a centralised type of model in the UK, only establishing its head office operations in London, UBS Wealth Management has also looked to grab a share of the regional wealth by placing client relationships in the regions.

“Around 40 per cent of UK financial wealth is in London and the south east, but there is significant wealth in the regions,” said Mr Pottage. “When we got to a certain point it made sense to open offices in the regions too.”

Other non-UK companies have decided against this type of direct distribution and have instead favoured the idea of grabbing a share of the UK market by striking relationships with multi-manager providers.

DWS, for example sold its UK onshore business to Aberdeen Asset Management in 2005. That was a strategic decision of Deutsche Bank, said Sven-Erik Knoop, head of European retail distribution at DWS.

John Pottage, chief executive officer at UBS Wealth Management UK.

UBS Wealth Management’s new initiative,

UBS Wealth Management’s new initiative, aiming to establish partnerships with many independent financial adviser (IFA) firms in the UK, originates from the belief that IFAs can represent a valid alternative distribution channel to the current 250 client advisers that the private bank currently employs.

IFAs can be divided in simple terms into those who have an advisory business and those who act more as simple distributors for one or more providers, In both cases UBS will try to make its solutions available to a wider range of clients.

“If an IFA wants to add an investment business to an existing life and pensions business, UBS can allow them access to our custody, execution and reporting. For persons interested only in distribution, UBS Wealth Management has an array of investment solutions that can be made available to their clients as a distributor. In general, IFAs or intermediaries will be selected on the basis that they fit “the firm’s client offering, culture and brand.”


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