This is an oddball, but first some context. UBS has two distinct businesses in Europe and North America. In Europe, they are a high end private bank that manages money for the extremely wealthy, in a market that can charge up to 200 or 300 basis points (i.e., 2-3%) per year. Roboadvice in Europe has not matured yet, despite the efforts of Scalable Capital and Nutmeg, which we believe are due to cultural factors that promote neobanks as the Fitnech app of choice. This means wealth management margins are not a melting ice cube yet. In the States, UBS is a tweener – not as big as Merrill, Smith Barney or LPL (15,000+ advisors), but not quite a lean boutique. Further, American wealth management in general costs about 80 to 150 basis points, with barely 50 bps for roboadvice. This implies that outsourcing roboadvisor technology is the right answer if you are subscale, or are not a technology power house.
Over the last several years, the firm has had a two pronged approach to digital wealth. In the US, they invested in SigFig and private labeled its third party tech. This implies dozens, if not hundreds, of implementation headcount from the startup to be dedicated to its gigantic client. In the UK, UBS built out a separate and unrelated service called SmartWealth. It was expensive for clients, simple by US robo advice standards, but integrated into the UBS stack. The item that hit the news is that this service is now being shut down, and the tech is being sold into SigFig. Here’s why we think this isn’t just a raw fail.
Having two approaches to deploying roboadvice across the organization is likely a logistical nightmare. You wind up with different data architecture, user experience, investment choices and pricing. Coordinating between an external vendor in which you have an interest, and a home-grown application (which is likely a lighter offering), is tough because they are competitors for the same management attention and customer business. The combination is a win-win, in that it allows SigFig to enter Europe, while letting UBS have a cohesive internal offering with a single counterparty responsible for tech delivery. End of the day, they should have just either gone all proprietary or all outsourced. Better late than never.
Sources: Reuters (SmartWealth), Company Websites