Finance

Christopher Langner is a markets columnist for Bloomberg Gadfly. He previously covered corporate finance for Bloomberg News, and has written for Reuters/IFR, Forbes, the Wall Street Journal and Mergermarket.

Nisha Gopalan is a Bloomberg Gadfly columnist covering deals and banking. She previously worked for the Wall Street Journal and Dow Jones as an editor and a reporter.

(Updated )

A private banker used to be the trusted person who'd ensure your wealth would grow and be passed on to future generations. Relationships were nurtured with more than just advice to buy stocks low and sell high. They could go as far as helping secure a vacancy for a child at a Swiss boarding school, or obtaining tickets for the NBA finals. Clients were so close that bankers would take them along when they moved employers. That was before robots could do the job.

The president of UBS Wealth Management, Juerg Zeltner, said at a conference in Zurich last week that the bank plans to start an online wealth-management tool, Reuters reported. Zeltner said the service would not be a robo-adviser, but suggested nonetheless that it was a response to similar offerings from competitors.

This comes as the private banking world tries to increase profitability by automating more of the tasks once performed by human advisers. Fat margins have spurred increased competition, with some institutions, such as UBS's Swiss peer Credit Suisse, reducing exposure to investment banking to focus on wealth management. The scramble for business is eating up profits.

Shrinking Profits
UBS's core area of wealth management is making less operating profit
Source: Company filings

How can a bank reverse that trend in an area as personal as wealth management? It can either get more clients, which permits savings from scale, or increase productivity, which in human terms means giving more accounts to fewer relationship managers. UBS looks to be doing a bit of both, cutting some personnel even as assets increase.

Asset Inflation
The assets managed by UBS for wealthy clients keep growing, and new bankers aren't being hired as fast
Source: Company filings

That makes sense. Private bankers are expensive, and compliance and regulatory costs mount with each one added. UBS seems to have decided that the solution is to add a machine to the equation. The bank had already been using technology to help relationship managers keep track of their accounts. Now it may be going one step further by offering what could be the full suite of services traditionally provided by humans.

It's not alone. Barclays has been dabbling with the idea and Singapore's DBS has been prompting clients to use the robo-adviser service it created based on IBM's smart machine, Watson.

Artificial intelligence investment-advice services are likely to become more popular as banks expand services for the less-than-fabulously rich. The so-called mass affluent -- with $3 million or less to invest -- are more profitable than ultra-high-net-worth individuals. (On average, the cost-to-income ratio at banks that cater to the very rich is about 80 percent, compared with 50 percent or less for banks that focus on the mass affluent, according to Edmund Lin, global head of financial services at Bain & Co.)

Banks increasingly are setting their sights on this segment, and that helps explain their focus on Asia, where the mass-affluent group is growing fastest. The share of global financial wealth held in Asia excluding Japan will increase to 26 percent in 2019, from 21 percent in 2014, according to projections by Boston Consulting Group.  

The banks' very wealthy core clients will still need stadium boxes in the U.S. and cosseting in Switzerland, so relationship managers for the super-rich have a future -- though it may be more about relationships and less about investment.

Away from that elite, however, the rise of the machines is looking like a profitable idea for private banks. Expect to be talking to one soon.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

(Adds Boston Consulting Group report in third-last paragraph. An earlier version of this column was corrected for the spelling of Lin's name in the seventh paragraph.)

To contact the authors of this story:
Christopher Langner in Singapore at clangner@bloomberg.net
Nisha Gopalan in Hong Kong at ngopalan3@bloomberg.net

To contact the editor responsible for this story:
Paul Sillitoe at psillitoe@bloomberg.net