Digital Transformation Strategies: A View of UBS Strategic Digital Initiatives

19 min readApr 14, 2022

How UBS has made its digital transformation strategy a key part of its growth.

UBS, a Swiss bank, has been making major strides in the Digital Transformation space. The bank adopted a technology first attitude under the stewardship of its new, digital savvy, CEO, Ralph Hamers.

UBS in a nutshell

6,266 financial advisors in the Americas
4.6 trillion invested assets
More than 50% of the world’s billionaires as clients

Source: WSJ

As I read the news about Wealthfront acquisition by UBS I decided to dig into their latest earning calls and the accompanying deck and look for signs of that subsequent move.

I read their SEC filings, and press releases and went back for articles, interviews, YouTube videos, podcasts etc.. There is a lot out there.These breadcrumbs tell the story of a company experimenting, building and ultimately bringing technology at the forefront of its strategy.

So what are the core tenets of UBS Digital Strategy:

Acquire capabilities to expand in market segments they have not penetrated
Invest in fintech firms via their VC arm
Multiply partnerships with fintech players to deploy new offerings
Partner with other banks and asset managers to penetrate new geographies and offer new products
Develop internal capabilities by investing in technology resources and creating innovative teams
Deploy new digital products to penetrate younger more digital savvy customers
Empower brokers and financial advisors with more powerful digital tools

In February 2022, UBS announced that they were buying Wealthfront, a robo-advidor, for $1.4 bIn. Wealthfront oversees $27 billion for over 470,000 US clients, focusing on affluent millennial and Gen Z investors, which number 130 million in the US alone. The plan is to let the company operates as standalone unit for now. In the longer term, however, Hamers said UBS intends to pair Wealthfront’s robo-advisor with a ‘remote advice’ offering, where clients can talk to a financial advisor through video meeting software.

‘That will be the next proposition for (our engineers) to develop,’ Hamers said. ‘What we want to build out to is the segment that we call the reactors… potential clients out there in the market that do have actual investment advice needs, but they don’t want to have 100% coverage by a financial advisor. However, they also don’t feel secure enough to just run it through a digital offering only.’

“They are kind of the upper affluent wealth clients that we need to have a more digital wealth offering for,” Hamers said. “Introducing a digital wealth offering to them after their shares are vested and they have sold their shares will actually keep the money in-house.”

Hamers also touted Wealthfront’s customers as a “very loyal client base” with a long-term lifetime value given they were in the early stages of their wealth accumulation. UBS U.S.’s core advisor-led channel would also benefit from being able to integrate some Wealthfront services such as tax-loss harvesting and indexing, he said.

“It will help us deliver a scalable, digital-led solution for affluent investors, and it will seamlessly complement our core advisor-led businesses,” Hamers said, heading off concerns of potential channel conflict. Citywireusa Advisorhub

UBS has been crafting and executing on its digital strategy for a while.

Since 2015, the bank has been testing pilots in Blockchain, deploying the new digital capabilities for its customers and revamping its internal systems and processes.

“ Make technology our differentiator” is one of the four tenets of the Swiss Bank strategy .

Why is UBS pushing so hard on digitization

In a Jan 2021 Reuters article, Vontobel analyst Andreas Venditti said that for an institution that already banks more than half the world’s billionaires, the much larger pool of the globe’s 1% of millionaires presents a major opportunity.

“I wouldn’t say UBS can’t grow further in the billionaires space … but it’s very clear that their market share outside the billionaires space is definitely nowhere near 50%,” Venditti said. “The potential for growth there remains huge.”
UBS’s emphasis on a digital approach to customers highlights a major shift in the world of private banking, where human connections and personal contact are usually the key to doing business with the very wealthy.

Some key data points from emarketer to understand the drivers of UBS strategy:

HNWIs control more than one-third of the investable assets in the US — and more than 67% are older than 60. On average, 52% of financial advisors’ clients are 60 or older, according to Cerulli Associates.

As those clients pass on wealth to the next generation, firms that stay focused on wealthy older clients and traditional investing could fall behind as their clientele ages and shrinks.
Advisers at incumbents like UBS are strategizing about how to reach out to millennials, but they have to cross a generational gap: Roughly half of brokers at US wealth management firms are over 55, according to Cerulli Associates, and UBS is in line with the average.
These advisors may not be as tech-savvy as what Deloitte calls the new “re-wired” investor, who increasingly turns to digital and mobile tools to take control of their finances. According to MagnifyMoney, 29% of Gen Zers would prefer a robo-advisor over a traditional financial advisor, compared with just 18% of all consumers surveyed.
Gen Zers tend to distrust conventional financial institutions and question whether these companies really understand their attitudes and needs. Friends and family were the top sources of financial advice for all age groups, including Gen Z, and all income levels. More than half (53%) of Gen Zers got financial advice from friends and family, compared with 44% for millennials, 37% for Gen X, and 25% for baby boomers, perCreditCards.com.
Through Wealthfront, UBS acquires a sizable customer base within the millennial and Gen Z demographic. It also gets the digital tech and an omnichannel experience needed to reach out to them.

According to the Wall Street Journal, U.S. rivals have continued bulking up. According to William Whitt, strategic adviser at Aite-Novarica Group, online and discount brokerages such as Schwab and Fidelity have been raking in the most digitally advised assets, with around $118 billion at the end of 2020. Startups and digital financial institutions like Betterment advised on $86 billion at the end 2020, while full-service advisory firms such as Morgan Stanley and Merrill Lynch trailed with only around $37 billion. Aite-Novarica anticipates the market is growing 32% a year and will reach $960 billion in 2025. WSJ

Most of the time deploying your digital strategy will require organic and inorganic initiatives.

The things you cannot build, you will probably buy.

That’s exactly what UBS did during the past 7 years.

Let’s have a look at some of the initiatives of UBS digital strategy

Acquired Wealthfront
Partnered with Lynk
Built a Strategic relationship with Envestnet
Built a Strategic partnership with iCapital Network
Built a Partnership with BizEquity
Deployed MyWay App
Launched Agile@UBS
Created The AI, Data, and Analytics team
Named the Chief Data Officer to the Bank board
Launched a big data tool for shareholder activism
Moved applications to the cloud
Decommissioned old systems
Took technology into account in every initiative

In earning calls and other other documents UBS described its overall strategy goals as follow:

Provide clients with a seamless digital experience with remote advice
Specifically for the US, it is the rollout of a digital-led service proposition, a scalable investment advice model for affluent clients.
Reduce costs
Remain #1 universal bank in Switzerland
Grow significantly in Americas
Become a holistic bank for clients, deliver full-service banking offering especially to business users
Deliver services, that are personalized, on-time, relevant, and seamless

The strategy seemed to payout when we look at 2021 Q3 Results:

$2.3 billion in net profit, the highest in almost 15 years
Pretax profit of $2.9 billion.
Return on CET1 capital was over 20%
Tangible book value per share was up 4% sequentially
Net profit up 9% to the highest level in over a decade
5% annualized growth of net new generating fees for private wealth clients
Reduced costs to 68.7% of revenues at UBS in the third quarter, down from 70.4% last year
Sold $1.5 billion of inflows in asset management in the quarter
The advisory and the equity and debt underwriting all had their best third quarter on record.
Global Banking revenues were up 22% against last year.
SPAC-related fees were 43% year-over-year,
with $1.4 billion in revenues. Equities just had its best quarter on record as well
During the first nine months of the year facilitated $26 billion of investments into the private markets and institutional investors as well

And in Q4 2021 results:

By the end of the year, UBS clients had $150 billion of drawn commitments invested in private markets.
Wealth Management clients drove $27 billion of inflows into SMA strategies
Invested assets and sustainability focused on impact strategies increased by 78% to $251 billion during 2021.
Assets in UBS managed, grew to $214 billion.

Obviously the bank has identified some Key Risks to the success of it’s overall strategy:

Fears of inflation
The spread of COVID variants
Policy uncertainty in China
Raising concerns around economic growth in the US
And now the war in Ukraine

But the bank also identified the following opportunities:

Customers are particularly interested in alternative investments in structured products, as investors look for investments with a positive real yield that are resilient in a higher inflationary world.
Focus on the US: The US remains the largest wealth pool globally and it’s also expected to grow faster than any other mature market, but it’s also a dynamic market.
In the next 10 years, $70 trillion in assets are forecasted to transfer to the next generation
Affluent clients in the Americas with up to $2 million to invest.

Improve and Follow up on the success of Myway App

The world’s biggest wealth manager is trying to improve its digital services to reach customers outside its super rich core client base, with a new online platform called MyWay open to people with 250,000 Swiss francs ($278,000) upwards. The new hybrid digital wealth management platform has attracted $3.7 billion in its first year. The project, started in May 2020 before Hamers’ became CEO, has the potential to pull in $30 billion within the next 12 months, a source familiar with the matter said. A UBS spokesman confirmed that target and current assets of $3.7 billion. Reuters

According to the WSJ. Before announcing the acquisition of Wealthfront in 2022, UBS announced it was working on a digital offering for customers who have $250,000 to $2 million to invest but don’t want to trade their own portfolios or hire a financial adviser. The goal was to give these well-off customers digital advice through their devices. Advisers will be on hand by video to talk about big investments or planning for life events, gut checks UBS has found most investors still want. The secret sauce, UBS says, will be streams of investment ideas from its chief investment office, a global team of 200 market forecasters. “They are going to be getting great UBS content, great UBS intellectual capital, just delivered to them in a different way,” said Tom Naratil, president Americas at UBS. He said UBS has a global perspective and capabilities that U.S. wealth managers don’t, and “that’s our real differentiator in the U.S.”

Wealthfront Acquisition:

Then came the announcement of Wealthfront acquisition

With Wealthfront, UBS acquires $27 billion in assets under management and more than 470,000 clients in the US for $1.4bn. Wealthfront’s primary focus is on millennial and Gen Z investors, a client segment with significant domestic growth potential.

And the most important part: “Wealthfront’s capabilities will become the foundation of its new digital offering which will also include access to remote human advice
The move was anticipated, in his October Earning call, Chief Executive Ralph Hamers said the bank intends to provide wealthy clients in the Americas with a “seamless digital experience with remote human advice”, as UBS wants to build a digitally scalable advice model for affluent clients in the Americas with up to $2 million to invest.

The acquisition is in line with the industry trend as Goldman Sachs launched Marcus investment targeting individuals with between $250,000 and $2,000,000 to invest, a demographic that is seen by analysts as having more growth potential than high net worth people, who have more than $2 million in liquid assets.

In the same vein, Morgan Stanley acquired E*Trade last year in a $13 billion deal executed in part to further its reach in the mass affluent sector.

So what is driving UBS Digital Strategy?

In a 2020 interview Mike Dargan summarized his philosophy for UBS digital transformation. five operational pillars of digital transformation at UBS, coffee corner by coffee corner.

1- Define the core vision

“ First has been defining the core vision — the ultimate objective of UBS’ technology journey: “Not just for the technology organization itself, but what does technology mean at UBS? How do we keep UBS competitive as the world increasingly digitizes?”

2- Harmonize the How

Second is harmonizing the ‘how’.

Dargan has placed a premium on the development of clear, business-aligned technical roadmaps. The aim is to end a pattern so ubiquitous in large organizations of siloed operations where applications and services tend to be developed in a vacuum, their outputs inconsistent and poorly integrated. “What do we do, how do people develop technology, architecture? So we have an efficiency strategy of standardized road maps for each area.”

3- Remap the organization

The third pillar has seen the remapping of the technology organization structure itself, from top to bottom, which in turn relates to a

4- Define and simplify operational processes

fourth pillar dedicated to defining and simplifying as far as possible the operational processes, KPIs and financials against which the organization’s performance is judged.

5- Articulate workforce and vendor strategy

Finally, the fifth pillar articulates workforce and vendor strategy. Or, as Dargan puts it, “how we actually get stuff done”. Simplification and efficiency is the key: “I inherited a workforce that was much more vendor than permanent staff. So we made some changes and continue to make changes on that, as well as vendors. We were operating with too many vendors. We’ve exited tens so far and we have more to do by the end of the year..” Crucially, they need their vendors and partners to meet not only technical requirements but also that they share similar values and support their cultural evolution. Technology magazine

Let’s now have a look at some of UBS Digital initiatives

UBS digital strategy also has an impact on its people. The strategy aims at streamlining headcount but also at empowering engineers and build a path to success to its 20 000 plus technology resources.

Digitization and Headcount
Hamers said even as digitization increases, the current headcount of 75,000 is likely to stay about the same, but what will change are the types of people the company employs. This means more people in advisory services and fewer in areas being digitized. «Changes are taking place gradually, and we are retraining our staff. Additionally, we can cushion the restructuring with natural fluctuation. People will retire, others will leave on their own,» he said. Finews

The Technology resources challenge
Around 20,000 of its 72,000 employees work in technology globally. Also like other big banks, UBS is looking to prune its technology spending while simultaneously preventing its technologists from leaving for jobs elsewhere. efincareers

Simplification
UBS’ IT has grown over decades. Old applications need replacing, and requirements for new initiatives are changing. The merger of the Swiss mortgage platforms Atrium and Key4 is one example. UBS stated that it would phase out 500 existing IT applications by the end of the year. Looming over all of this are the CEO’s demands: «There is so much more we can and must do,» Hamers said Tuesday. That reminder is likely to be heard in UBS’ engine room. finews

Creating an AI and Data Team
The Data and AI team was created in Oct 2021. UBS Group AG Chief Executive Officer Ralph Hamers is creating a new bank-wide team to use more artificial intelligence and data analytics to drive the bank’s digitization. The new team called AI, Data and Analytics, will be lead by the head of the investment bank Rob Karofsky and chief digital and information officer Mike Dargan origin

UBS Cloud strategy

In an interview with Microsoft Mike Dargan, of Chief Digital Officer of UBS says: “ The cloud is a key pillar of our tech strategy. Sometimes, it’s too easy to think of the cloud as just another place where we have software. But the cloud represents a fundamental, once-in-a-lifetime opportunity to change how we operate. It enables greater agility for our engineers. It lets us reimagine how we will build applications for our clients. In a nutshell, it is a fundamental catalyst to enable a transformation of how we do things.

If I go back to 2018, when we defined our cloud strategy of one-third premises, one-third private cloud and one-third public cloud, we are well ahead with our cloud strategy.

We’re almost at 50% in the cloud, and this is part of our broader focus to maintain the health of our tech landscape. We’ve decommissioned over 2,000 apps in the last four years. We have over 600 tech components using the public cloud. As our expertise in migrating grows, we accelerate how we operate overall.
Microsoft

UBS Next: Investing in the Fintech ecosystem with UBS Next

UBS is poised to invest $200 million in fintech startups through a new venture fund that will underpin internal modernisation efforts and strengthen strategic partnerships.

UBS Next will primarily pursues direct investments into early stage fintechs and other relevant tech companies. In addition, the bank has also entered a partnership with Anthemis to help identify up-and-coming fintech startups and boost deal flow.finextra

Investing in:

Trust & Will: In January the fund invested in US -based company Trust & Will, a fully digital estate planning platform. UBS
ConsenSys: In April 2021, the fund invested in ConsenSys, a software engineering firm for solutions in distributed ledger technology UBS
EndowUs: In July 2021, UBS Next invested into the Singapore-based digital advisor EndowUs. fintechnews

The fund is managed by Bogdan Gogu

Creating UBS Partner

UBS Partner was created in 2018 and is a part of the UBS Platform Solutions offering, scans client portfolios on a daily basis, assesses individual portfolios against corresponding risk profiles, key instrument quality criteria and investment goals. Identifying those clients which are not on track to meet their personal financial goal, UBS Partner creates tailored, actionable investment options to best help them get back on course.

UBS Partner is able to analyze millions of client portfolios daily and generates actionable investment options, enabling banks to enhance their advisory services
Landmark launch with first client mandates won; work underway to rollout UBS Partner with Banca Generali
White-label offering based on proven, world-class technology successfully used within UBS

UBS

Fintech Partnerships are another key area of the bank Digital Strategy. These partnerships allow to offer multiple niche products to UBS clients.

iCapital
BizEquity
Link

Partnership with iCapital

Through this partnership, UBS GWM can benefit from iCapital’s technology and solutions, which digitize and automate the entire lifecycle of private market investments.

In addition to enhancing access to information and expanding analytics, this partnership will significantly

Reduce the operational difficulties and many manual, paper-based transaction processes that advisors and their clients have historically faced when investing in this asset class.

finews

Partnership with BizEquity

BizEquity, the largest provider of online business valuations, announced today that it will renew its successful two-year partnership with UBS Wealth Management USA for another two years. BizEquity offers its cloud-based valuation platform and prospecting database of privately held businesses to a select group of UBS Financial Advisors (“UBS FAs”) in the US serving business owner clients.

Partnership with Lynk

Lynk, the “knowledge-as-a-service” platform, announced today it has entered into a strategic alliance with UBS to help the investment process of their institutional clients around the world. The collaboration means the banking giant’s research analysts and institutional clients, including hedge funds, private equity firms and sovereign wealth funds, will have access to Lynk’s database of 840,000 experts around the world.
Lynk’s technology uses machine learning algorithms to match clients with experts in its database. Lynk’s experts cover a wide range of industries and sectors and include C-suite executives, independent consultants, lawyers, engineers, financial analysts and scientists. The platform also has collaboration tools, so teams can automatically transcribe question-and-answer sessions, search transcripts and share notes.

techcrunch

Enlarging its product offering through partnerships based on technology integrations.

UBS also launched a wide effort of partnerships with other banks and asset managers to broaden its appeal to a wider pool of customers. While these partnerships are not directly linked to ots digital strategy per se, they give us an indication of the broader form broader strategy to extend in various markets.

Partners Group
Invesco
FlexTrade
Banco do Brasil
T-Rowe Price
Nomura
Yokoy

Private Markets and Alternative Investments

Partnership with Partners Group

Launch a series of long-term programs that expand access to private markets for UBS’ wealth management clients.
This program will offer UBS wealth clients private markets capabilities on a par with those Partners Group offers to institutional investors, including some of the world’s leading sovereign wealth funds. UBS

UBS Global Wealth Managment partners with Invesco Real Estate for a bespoke mandate

The offering will invest primarily in Invesco’s direct real estate strategies. It will also invest in real estate securities for liquidity, and selected co-investments or direct investments.
The bespoke real estate offering will enable UBS clients in Switzerland and other select markets across Europe and Asia to invest in Invesco’s real estate strategies, selected co-investments or direct real estate investments worldwide. UBS

Opening trade opportunities: Trading partnership with FlexTrade
FlexTrade partners with UBS Execution Hub — a global, cross-product outsourced execution platform July 13, 2021 –FlexTrade Systems (@FlexTrade), a global leader in multi-asset execution and order management systems today announces a partnership with UBS Execution Hub, a global, cross-product outsourced execution platform for asset managers and hedge funds. The platform leverages FlexTrade’s core multi-asset order management technology (FlexOMS), enabled by its open architecture and comprehensive compliance reporting. FlexTrade

Extending opportunities in Latin America with a partnership with Banco do Brasil
UBS Gains Share in $28 Billion Market With Brazil Partnership

Brokerage to adjust systems to grow in corporate-debt trading
Will offer equity trading to Banco do Brasil’s retail clients

A joint venture between UBS Group AG and Banco do Brasil SA is predicting trading volume will surge about 30% next year for local corporate bonds in Brazil, and is taking steps to grab a bigger slice of that market. UBS BB Investment Bank, launched by the two firms a year ago to focus on South America, is adjusting its internal systems to prepare for the expected boom, company executives said. Bloomberg

Offering new strategies to its Asian clients through a UBS Distribution partnership with T-Rowe Price
On Nov 9, 2021, T.Rowe Price formed an exclusive partnership with UBS Global Wealth Management to offer Asian HNWIs access to Flagship Health Sciences Equity Strategy. Under the partnership, the Strategy will be available exclusively through UBS to private wealth clients in these markets, allowing them timely access to T. Rowe Price’s investment expertise in the health science sector as the pandemic accelerates innovations and breakthroughs. Hubbis

Offering tailored investment ideas to Japanese investors with a partnership between UBS Partner & Nomura

As a pioneering move in the Japanese market, Nomura and UBS jointly customized the globally acclaimed “UBS Partner” offering for private banks to meet the diverse needs of high-net-worth individuals in Japan.

Based on the strategic asset allocation (SAA) which are also provided to institutional investors by the Nomura CIO (Chief Investment Office) Group, this tool will develop an asset allocation plan that matches the customer’s preferences. In addition, while constantly checking the quality of the portfolio and generating relevant and tailored investment ideas, Nomura will also provide investment planning and portfolio monitoring services.

Nomura Group is working to expand its business in private markets in addition to public markets, and the introduction of UBS Partner is a key part of that strategy. Going forward, UBS Partner and Nomura will work closely to implement new UBS Partner functionalities in a second phase. UBS

Offering financial wellness tools to corporate credit cards uses through a Partnership with Yokoy — November 5, 2021

UBS’ clients with corporate credit cards will enjoy access to new options for expense records, spending, and administration of their cards, the two said.

«The partnership with Yokoy ideally complements our corporate card solutions offering, as our clients with large transaction volumes can now benefit from a strikingly simplified management of their business expenses,» UBS Swiss corporate and institutional boss Alain Conte said.

Yokoy employs artificial intelligence to digitize and automate business spending and credit cards. Launched in 2019 in Zurich, it now has 100 staff and offices in Munich and Vienna. Yokoy recently won Balderton Capital, Left Lane Capital, Swisscom Ventures, and SIX’s fintech arm in a $26 million fundraising round. Finews

— — — -

Marketing / Sponsorship investments are also part of the broader digital strategy

Producing content for a sports streaming app

Players Media Group has landed a top sponsor for its TV vertical that’s backed by notable pro athletes. The company agreed to a multiyear partnership with global investment bank UBS. The Swiss bank will provide input and co-create content for the channel. UBS will also have a presence across PlayersTV digital and streaming properties.

PlayersTV launched last year with the backing of various athlete investors, including National Basketball Association stars Chris Paul, Kyrie Irving, Damian Lillard, and C.J. McCollum. Major League Baseball legend Ken Griffey Jr. is also involved with the company.

The channel was created to help athletes gain distribution for personalized content and it shares advertising revenue with creators. PlayersTV is available on Samsung TVs, Dish Network’s streaming service Sling TV, and other platforms like Roku. CNBC Cheddar

Revamping its communication channels with Accenture:
Marketing Digital UBS: Next-gen digital marketing operating model

UBS decided its communication channels must move towards cost efficient delivery and scalability, while continuing to be compliant. Accenture partnered with UBS and successfully designed and delivered a next-generation marketing operating model, along with an off-shore social and editorial media monitoring utility. For implementation, Accenture drew on the regulatory and hosting expertise of Swiss telecommunications and data center provider Swisscom. Jointly, the two designed the new infrastructure for the digital platform and integrated the outsourcing package as one managed service.

The new Swisscom-hosted platform allows UBS to leave behind former technical constraints while complying with the Swiss Financial Market Supervisory Authority as well as internal policies. Under a long-term contract, Accenture will run the new operating model end-to-end from near- and off-shore delivery centers, as well as through dedicated on-site resources in key locations to ensure close alignment and collaboration with UBS stakeholders across the globe.Accenture

Obviously UBS digital strategy goes above beyond the few examples we have cited here. So far the strategy is working and the bank is carving a name for itself in the digital advice space. Competitors are reacting. In March 2022, Goldman Sachs acquired NextCaptal, a retirement plan robo-advisor. The goal is to deepen relationships with key cohorts like corporate employees and diversify revenue by bulking up in money management, which is typically a steadier revenue source than trading and other Wall Street activities. CNBC

Melvine Manchau, Digital Strategy and Transformation Executive

All views are my own — April 2022