The global reach of UBS - from the UK regions to offices around the world - is giving its clients the confidence and security to look further afield for diversification. Mike Hughes discusses its strategies and success with two key decision-makers.
There is a lot to be said for loyalty. Sticking with what you know and keeping what’s important within easy reach can be reassuring.
But in a world full of investment potential a little guidance from the experts can open an investor’s eyes to new possibilities, and at UBS more than 900 analysts in more than 50 offices around the world have been creating, discovering and expanding new investment opportunities for generations. Their success in using such a vast network of the world’s leading investment experts to highlight changing markets and advise investors to focus further afield is spearheading a key change in strategies for thousands of individuals and organisations.
“If you look at our philosophy and the way we construct portfolios, it is all about diversification,” says UBS Wealth Management Investment Specialist Rikky Shoker. “If you look at Harry Markowitz, the founding father of modern portfolio theory, he said it was basically the only free lunch in investing – and it pretty much comes calorie-free. The more diversification you have in portfolios, the better the chance of a strong return.
“But as well as that return, the way we look at it here at UBS is that diversifying the risk is also so important because what is at the top of our priorities for our clients is not losing money,” said Shoker, who joined UBS in 2014 after working at Rathbones, Deutsche Bank and Merrill Lynch.
“People measure risk differently, but it is basically uncertainty about which outcome will occur and the possibility of loss when there is an unfavourable outcome. Wherever our investment experts are in the world, they have been telling our clients for many years that the best way to protect against that is by being diversified and managing risk first, and then returns.”
The reason that approach has been so successful is that more than 50 UBS offices in all the major international financial centres work in perfect synchronisation, building up an unrivalled matrix of information about the industries and regions that will provide the perfect combination for each investor.
What has always been at the core of the UBS philosophy is its relationship with its clients. Wherever they are based, knowing what sort of people they are beyond the formal agreements that are being signed means the investment advice can be targeted even more accurately, and advice which may differ from a client’s original instincts can be delivered in a constructive way that develops that relationship.
UBS analysts are already masters of behavioural finance, a fast-growing field based around knowing your client so well that you understand their behaviour and therefore what influences their spending and investing. These can be very personal, emotional and instinctive drivers of a person’s financial decisions, so redirecting those instincts without being dismissive of their importance to the client is a key skill.
That skill exists in abundance across the UBS group, which means that a client will get the same level of investment expertise anywhere in the world and the highest level of co-ordination between its offices allows a highly-prized matrix of information to be drawn up for every potential opportunity, from Edinburgh to Hong Kong and from Leeds to Brazil.
Regional deputy head for Scotland Scott Young says, for the clients he deals with the money is a means to an end, not an end in itself. “We like to ask “what is the money for? what is the ultimate purpose of the wealth you have worked hard and sacrificed much to create?”. Many of our clients are in the enviable situation of not being able to spend their wealth in this lifetime, so are looking at their families and the passing on of wealth.
“Psychologically, clients can be nervous about passing on substantial wealth, particularly if it is to young children because they want them to achieve in life. But we will also start conversations about philanthropy and giving, showing that for them and for us it is more than just an investment portfolio.”
Shoker adds: “Investment advice is very much an art as opposed to a science, which is when managing a client’s investment psychology really comes into it. If you look at our principles as a bank, near the top of our list would be ‘challenge’ because we will already have built up a deep relationship with a client, so we will feel in the right place to challenge them if we feel there is room to do so.
“Essentially, we are trying to protect them from their initial instincts and they way we do that is by using the evidence our analysts have gathered to show the benefits of diversification and looking further afield away from some of those behavioural biases that can result in people doing what they feel is right rather than being open to another option.”
“If you look at the UK market, it seems as if it is very domestic, but it is quite the contrary with 75% of FTSE100 earnings generated overseas. So that is quite a good bellweather for global growth and allows us to cater for a little of that home bias.”
“Also, our clients are very intelligent, have earned a lot of money and are very successful and so they feel that they may have a full grasp of certain financial matters and can read markets and gather enough information. That can lead to a home bias and a familiarity bias, which are often linked, and our research has shown that it can be futile to address this approach head-on because you are trying to change a client’s behaviour and expose those shortfalls, and nobody likes to be told that.
“So we might suggest putting them into a discretionary portfolio – as we do with about a third of our assets in the UK – because that is the best way of having a full and proper process that limits the client’s exposure to those biases. It is systematic and is all taken care of for you, and when they look at our capabilities and resources, clients are reassured that we can make those decision in thousands of situations and with multiple asset classes on a global basis.”
Brexit, and its uncertainty both leading up to a deal and after one is in place, is a new influence on where people feel their money will be most productive and has sharpened an awareness of the possibilities and helped with the diversification argument. A lot of UBS clients have business interests based outside the UK, or at least trade links with other countries, so there is a heightened interest in what the group can do and how it can given an insight into the perfect market timing.
“Of course, there is a systematic process behind what we do,” says Shoker. “But that process is designed to ensure clients can demonstrate the best possible returns for a given level of risk and we have products and services available to offer that confidence in any situation. But the way we deliver that work is very human - and very rewarding for those of us fortunate enough to deal directly with our clients. We are there to empathise with our clients, understand their needs and deliver the best solution.”
“And we are more than capable of doing that. We have attracted some of the best talent in the industry, with our chief investment office having more than 200 analysts who work for them exclusively and globally more than 900 who have a hugely valuable input into the investment process.
“They are all collecting local views and feeding them back into the investment office for us to make a decision on asset allocation and the instruments we select so that we can react to any challenge anywhere in the world.”
Young, who joined UBS in 2006 and has over 30 years’ experience advising wealthy individuals and entrepreneurs in Scotland, is an acknowledged expert in tackling those challenges.
“It is not just about investments, its about the appropriate use of borrowing to leverage a client’s ambitions for themselves and their family. Its about the appropriate use of structures to ensure the smooth transition of wealth across generations. It’s about working closely with the client’s other advisors to ensure every angle and opportunity has been considered.”
At UBS, its about leveraging the very best ideas globally to ensure our clients benefit from our international perspective. It is that personal side of the business once again, finding out the ultimate purpose for the wealth people have, not just managing it.
“From a Scottish perspective, we feel it is a privilege to work for UBS because our network of regional offices like Edinburgh means we live and breathe in the environment our clients are working in whilst providing a uniquely international perspective to many of the issues they face. Local advice backed by Global intelligence.”
“Our offices may be separated by thousands of miles in some cases, but the internal networks we have here mean we can tap into that skills base and bring expertise from Hong Kong to Edinburgh or from Brazil to Leeds. Only at UBS will you find this capability right across the asset allocation spectrum, through liquidity products, fixed income, equity, hedge funds, commodities and foreign exchange.”
Having a local view from anywhere in the world is what UBS is all about. With a knock on the door of any office that has the familiar crossed keys symbol outside a world of investment opportunities will be unlocked, each personally tailored and globally supported.
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