UBS (NYSE:UBS) has been hard at work for a few months revamping its business model to ensure the right mix of profitability and sustainability in an environment governed by stringent regulatory requirements for financial institutions around the globe. Most notably, the Swiss banking giant opted to do away almost entirely with its fixed income trading business and instead focus on its wealth management business. And in line with this strategy, UBS has decided to hire a team of in-house insurance experts to assist its Wealth Management Americas advisers to sell more life insurance products to customers. 
Pushing life insurance products along with debt and equities products through advisers presents UBS an opportunity to earn more in fee revenues from its wealth management customers. Also, the long-term nature of life insurance also means that customers are more likely to continue doing business with UBS over longer periods. Although all wealth management players recognize the importance of offering insurance products to customers, they have mixed views about maintaining a dedicated team of insurance experts to facilitate their advisers. While the largest brokerage Morgan Stanley (NYSE:MS) prefers to employ external insurance agencies, its closest competitor Bank of America-Merrill Lynch (NYSE:BAC) has an in-house team to cater to the same.
We maintain a $19 price estimate for UBS’s stock, which is about 5% ahead of the current market price.
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As shown in the chart above, UBS derives close to 40% of its value through its wealth management business, of which nearly a quarter (i.e. about 10% of total value) comes from wealth management services to clients in the Americas region. The decreasing focus on investment banking operations by the largest Swiss bank has only made the wealth management operations more important – something that has prompted UBS to come up with ways to squeeze more value from it.
Now, while advisers are quite eager to sell debt and equity products to customers, the life insurance products don’t quite figure on their list because of two reasons. Firstly, the sale of such products usually requires the adviser to pass on the customer to the affiliated third-part insurance agency – something that an adviser is often reluctant to do. And secondly, life insurance products earn them lower fee incomes than other products.
UBS aims to address both these issues by hiring several experience insurance experts to assist the advisers with life insurance products so that they can complete the sales without the need for any third-party agency and by attaching higher financial rewards for advisers with these products.
The success of these new measures by UBS in boosting life insurance products sales will eventually give a helping hand to the fees the bank generates through its wealth management services. The impact of an increase in fees for the Wealth Management Americas business on the bank’s share value can be understood by making changes to the graph below.Notes:
- UBS Americas hires in-house experts to spur life insurance sales, Reuters, May 15 2013 [↩]