By Joshua Franklin and Angelika Gruber
ZURICH (Reuters) - UBS (S:UBSG), the world's largest wealth manager, is convinced its new online private bank needs to get bigger. Now it needs to work out how.
The Swiss bank began piloting SmartWealth last year in Britain as a platform to rival start-ups such as WealthFront in the United States and British venture Nutmeg.
Juerg Zeltner, the head of UBS's wealth management division, told Reuters on Wednesday he was "very happy with the offering" but that scale was crucial for the model to be a success.
"This is a big learning ... the real question is how do you scale it to more?" Zeltner said.
Digital wealth managers are dwarfed by established banks like UBS, which manages more than $2 trillion in client assets.
But their lower-cost model of building an investment portfolio based on a client's risk appetite is seen as a possible threat to private banking's traditional advisory model.
"RISK APPETITE"
UBS SmartWealth targets clients whose wealth starts in the tens of thousands of dollars, whereas the assets of traditional private banking clients can stretch to more than $1 billion.
So far UBS, which has not said where it will roll the product out next, has seen a lag before clients start using the platform to make investments, Zeltner said.
One avenue for UBS to scale up SmartWealth is the bank's One Wealth Management Platform, on which Zeltner expects more than 85 percent of its assets will be by the end of the year.
These are part of efforts to improve performance at its main wealth management division, which was the source of almost half the bank's pre-tax income last year but has been hampered by negative interest rates in Switzerland and the euro zone.
Negative interest rates have proved particularly difficult with clients keeping larger cash positions in the aftermath of the 2007-09 financial crisis.
One way to cope with negative interest rates is to take advantage of the cheap money on offer with more lending, although Zeltner said UBS has no plans to do so.
"We've defined our risk appetite," Zeltner said. "I know how much earnings I'm willing to put at risk and that limits my exposure to how much lending I'm going to do."
Credit Suisse (S:CSGN), which competes directly with UBS in wealth management, has taken a different approach and is more active in areas such as ship financing.