UBS has agreed to buy US robo-adviser Wealthfront in an all-cash transaction valued at $ 1.4bn, as the Swiss bank expands further into the US wealth market.
The deal is the first significant move in chief executive Ralph Hamers’ plans to expand into the US mass affluent market. California-based Wealthfront, which is popular among millennials and Generation Z customers, has 470,000 clients and $ 27bn of assets.
“This accelerates our strategy,” Hamers told the Financial Times. “It is a proven model, it’s a successful unit and it is going to continue to grow under us.”
Wealthfront, which uses automation to provide banking services and financial advice, will become a subsidiary of UBS’s US wealth management business. The transaction is expected to close in the second half of 2022.
Next week Hamers will present his first strategic review for UBS since taking over as chief executive in 2020. He has already announced a key plank of the strategy will be a digital wealth manager for mass affluent customers in the US, which could launch as early as this year.
In December, Hamers indicated to the FT that the US digital push would be rolled out globally.
The US expansion will draw UBS more into direct competition with Morgan Stanley, which also targets the mass affluent sector, clients with between $ 250,000 and $ 2m of assets. UBS already has about 2m US customers in that segment.
UBS has recently nominated former Morgan Stanley president Colm Kelleher as chair, to succeed Axel Weber when he steps down in April
“Partnering with UBS will allow Wealthfront to offer our clients additional value-added services and best in class research that will help accelerate our vision to make growing wealth delightfully easy,” said David Fortunato, chief executive of Wealthfront.
Robo-advisers offer low-cost financial products via apps and other online platforms, using algorithms to suggest investments for their typically younger clients. The industry has grown increasingly competitive on both sides of the Atlantic since Wealthfront was founded in 2008 under the name kaChing.
It was launched by former Benchmark Capital partner Andy Rachleff and was aimed at individual investors who wanted to track – and match – the portfolios of other successful investors. It launched with the motto: “kaChing is here to rock the investing world”.
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It later changed its strategy to focus more on index-tracking and brought in Burton Malkiel, one of the pioneers of the passive investment management movement and a former director of Vanguard, as a part-time chief investment officer.
In December 2018, Wealthfront was hit by a $ 250,000 penalty by the Securities and Exchange Commission in one of the regulator’s first enforcement actions against a robo-adviser.
The SEC found the business had “made false statements about a tax-loss harvesting strategy it offered to clients” and improperly retweeted prohibited client testimonials, paid bloggers for client referrals. . . and failed to maintain a compliance program reasonably designed to prevent violations of the securities laws ”.
This article has been amended to correct the size of the transaction