Giant UBS-Credit Suisse deal creates a double-edged sword for wealth advisors

UBS is poised to potentially strengthen its position as one of the world's largest wealth managers after its $3.3 billion forced takeover of rival Credit Suisse, a blockbuster tie-up that could attract more star advisors to the mega-bank — or repel them if the merger is poorly executed. 

Big combinations are typically accompanied by culture clashes between the two companies — even two Swiss ones with traditions steeped in client secrecy — along with different management styles and bureaucratic tangles. Wealth advisors everywhere will be watching closely to see how the integration of the two financial powerhouses unfolds.

If the move is successful, UBS would oversee around $5 trillion in total assets. Its rival Morgan Stanley reported $5.5 trillion in total client assets at the end of 2022. UBS ended 2022 with total invested assets of $4 trillion.

But melding two global banks into one entity is a heavy lift. Whether UBS continues to grow or has to pump the brakes on its U.S. wealth market ambitions will hinge on how well it sells its sudden merger to advisors, both at the two banks and elsewhere. The combination of the institutions was announced on March 19.

"Onboarding that many advisors and clients all at once, while keeping them all happy, is not easy," Michael Wunderli, a managing director at investment bank Echelon Partners in San Francisco, said in an email. 

"If it goes badly, it will reflect very poorly on UBS. You don't want a bunch of advisors leaving your firm and talking badly about you." 

The tasks ahead could blunt UBS's plan to expand in the U.S. market, where the wirehouse aims to grow its storied wealth management franchise by collecting high net worth and ultrahigh net worth advisors and clients. 

Wunderli said the bank will face risks if it inherits unanticipated problems from Credit Suisse or isn't prepared to manage them. One risky piece of Credit Suisse's portfolio, $17 billion of contingent convertible "CoCo" bonds, has been written to zero and rendered worthless under the deal. Other thorny pieces of the Credit Suisse absorption could still surface. 

Right now, Credit Suisse advisors and clients will have "relatively minimal disruption to their business" and are likely heaving sighs of relief now, Wunderli said.

But that could soon turn to suspicion, he added. 

"Advisors and clients alike will be cynical and ultra sensitive about every little detail during the transition, and will not hesitate to go elsewhere if they don't like what they see," Wunderli said. 

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If UBS holds onto those relationships, Wunderli said, "it will greatly enhance their business, which in turn attracts more resources from the firm" — leading to a virtuous cycle in which the bank becomes more attractive to outside advisors.  

Hitting 'the pause button'?  
Wealth management industry recruiter Mark Elzweig said big mergers usually prompt advisors who might have considered joining a firm in the deal to hesitate.

"Prospective advisors usually hit the pause button during a merger because they want to stand back and see how the new firm takes shape," he said. 

At the same time, he added, "It's easy for current advisors to seize upon a problematic merger as a rationale for making a move" away to a different firm.

Said Wunderli: "I don't think recruiters or advisors will be looking to rush to UBS while this drama plays out. They'll want to be cautious and see where things settle." 

Case in point: When former UBS advisor Phil Fiore, the CEO of registered investment advisor Procyon Partners in Shelton, Connecticut, left Merrill Lynch in 2009, he rejected overtures from Morgan Stanley in favor of UBS due to concerns about how an ongoing merger integration could affect his business. At the time, Morgan Stanley had just begun to buy Smith Barney from Citigroup in the wake of the 2007-08 financial crisis. 

"We purposely didn't go to Morgan Stanley, because we were worried about that transition not being completed yet. And what that may portend for us post transition," Fiore said. 

Staying the course
When wooing advisors, UBS has branded itself a "capital-light" business focused on organic growth. But with its absorption of Credit Suisse, a deal it was pushed into by Swiss regulators, the bank risks losing that identity and focus. 

UBS is taking over a nearly 167-year-old global institution roiled by years of scandals, leadership changes, poor management decisions and lawsuits, and saddled with an unwieldy investment bank. Credit Suisse shares plunged last week as panicked investors lost confidence in the bank and customers pulled out as much as $10 billion in a day. Regulators feared the mega-bank's collapse could have triggered a meltdown in the global financial system, after feverish negotiations last weekend, UBS acquiesced to the deal. 

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In a conference call Sunday evening with investors, UBS CEO Ralph Hamers said the deal, while unexpected, would be cushioned by generous financial backing from the Swiss government. He presented it as a growth opportunity for the firm that could help its original plans for markets such as Asia, Latin America and the U.S. 

"The acquisition strengthens our position in our asset gathering business by adding further scale in wealth and asset management," he said. 

Hamers sought to cast the events of the past week, which saw large inflows to UBS, as proof of his bank's attractiveness for clients and ability to manage the crisis. "We are announcing this acquisition from a position of strength. The inflows that we saw during the days of the turmoil last week, they really demonstrate our status as a safe haven."

UBS has no plans to change its strategy, "including focus on growth in Americas" and the Asia-Pacific markets, the firm said in its press release about the acquisition. 

That may not be realistic, given the costs that integration will pose. 

'What does that do to me now?'
"What I would be thinking about if I were a financial advisor still at UBS is, what does that do to me now?" Fiore said. 

"There has to be questions raised, as to what does this mean? We just spent $3 billion on something we didn't want. We have to integrate it." 

UBS advisors will likely be concerned about the firm's ability to manage running the ship smoothly while still paying attention to their needs in product development and growth, he said. 

"Because it wasn't planned. I just don't know how you can get the organization to align itself that quickly, in swallowing something that large so unexpectedly." 

Shelby McFaddin, an investment analyst at Motley Fool Asset Management, an RIA based in Alexandria, Virginia, agreed. 

"There is a cost to just expanding the company," she said in an interview. "If they're not able to achieve synergies pretty quickly, they then have to make a decision on: How quickly are we going to expand in the US?"  

UBS higher-ups might have to say, "Okay, we're not able to do this quite yet. We may have to push this off, because we need to be able to achieve the cost goals that we've already set," McFaddin said of the bank's plans for U.S. expansion. 

Ideally, UBS would quickly assess what needs to be done at Credit Suisse and change things rapidly, without excessively impacting advisors in wealth management, according to Jodie Papike, the president of industry recruiting firm Cross-Search in Encinitas, California. 

Most advisors at UBS will likely "take a wait and see approach," she said, adding that "if compensation starts changing or bonuses, or they take away some of the resources," UBS advisors will stop and take a look at other options.

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UBS advisors could also do some chest-pumping. The merger may make them "feel pretty confident," she said, since "their firm was able to pull off such a sizable transaction."  

Credit Suisse exited its U.S. wealth management businesses in 2015, so there will likely not be an immediate addition of its advisors to UBS's U.S. wealth headcount. Credit Suisse reported 1,790 "relationship managers" serving rich clients in its wealth management business abroad as of the end of 2022, in addition to another 1,670 in its Swiss bank unit, according to its fourth-quarter earnings report. 

UBS ended 2022 with 9,215 financial advisors across its global markets. 6,245 were in the Americas. 

"There's an opportunity to get market share. But there's not a guarantee," McFaddin said of UBS.

"If they're not able to maintain their own brands, then it not only leaves a little bit of wiggle room for the large asset managers already in place, but for smaller ones as well."