A Pull-out of Foreign Banks will Limit Options for US Wealth Management Clients

It looks like the Swiss-based bank UBS, the worlds largest wealth manager, continues to scale-down its operations in the U.S. market. After last year’s announcement that it would terminate all relationships with clients from the US the UBS has now sold part of its U.S. branch network to Stifel Financial Corp.

Stifel will acquire 55 branches from UBS Financial Services Inc. pursuant to its previously announced agreement to acquire certain UBS Wealth Management branches in the U.S.. The 55 branch offices that Stifel expects to acquire are located in 24 states throughout the country. These branch offices have approximately $15 billion in assets under management. As of now the UBS will keep about 200 branches across the U.S..

What now looks like the beginning of the end of the UBS wealth management activities in the U.S. has it roots in a conflict with U.S. authorities that began a year ago. In May 2008 the SEC launched an investigation as to whether the UBS helped US clients avoid paying taxes between 2000 and 2007. In the following 12 months the case developed into a tough legal battle eventually even leading to conflicts at the government level. Finally the UBS could settle the criminal case with the US Department of Justice by giving-up all offshore business with US clients, paying USD 780 billion in fines and handing out account data of about 300 clients suspected of tax evasion. However, a civil case is still pending at the District Court of Miami in which the IRS wants to force the UBS to disclose names of 52,000 U.S. customers with foreign accounts.

Since regulators worldwide are cracking down big time on tax havens it is clear that offshore banking with or without the UBS will not be an option anymore for clients. However, the legal actions could eventually also hurt onshore U.S. clients. The developments of the UBS case in the United States are closely monitored by other banks and wealth managers based in jurisdictions that might have a different tax and legal regime than the U.S. Similar to the UBS some of them have been active in offshore banking but the vast majority of their business and expertise lies in wealth management of local clients.

If these banks were also to reduce their onshore activities to minimize their exposure to U.S. legislations, then ultimately clients would have fewer options to diversify their wealth management. Worse still, they would loose financial service providers with strength in fields in which many US providers have weaknesses: Advice on how to diversify assets globally and on how to manage a portfolio with a focus not only on (local) stocks but also across various asset classes.