Low Profitability Prompts UBS to Pull Out of India

Case Type: operations strategy, marketing.
Consulting Firm: L.E.K. Consulting first round full time job interview.
Industry Coverage: financial services.

Case Interview Question #01009: The client UBS AG (NYSE: UBS) is a Swiss global financial services company, incorporated in the Canton of Zurich, and co-headquartered in Zurich and Basel. The firm provides wealth management, asset management, and investment banking services for private, corporate, and institutional clients worldwide. UBS is considered the world’s largest manager of private wealth assets. In 2014, UBS’ assets under management (AuM) amounted to USD $1,966.9 billion.

UBS Wealth Management has been operating in India for the last ten years. However, it has faced significant profitability issues in its operations since the very beginning. Now it wants to make a decision on whether to continue to operate in India. What are your thoughts on this? What would you recommend them do?

Possible Answer:

Candidate: (Took two minutes to come up with a structure on paper) Although I have an idea about the wealth management services industry in general, could you tell me more about the industry so I can proceed ahead with a clearer idea?

Interviewer: Sure. Our client UBS competes in the wealth management services space which essentially means that we cater to people who have wealth that needs external management. High-net-worth individuals (HNWIs), small-business owners and families who desire the assistance of a credentialed financial advisory specialist call upon wealth managers to coordinate retail banking, estate planning, legal resources, tax professionals and investment management. Basically we provide all kinds of services that help them deposit, invest and grow their wealth.

Candidate: Okay, so in that case I am right in assuming that we cater to high net worth individuals?

Interviewer: As of now, we only cater to high net worth individuals.

Candidate: Is our firm an Indian firm or does it have external presence?

Interviewer: We are a firm with global presence and have retail banking services in Europe and America. In India, we have not explored the possibility of retail banking yet.

Candidate: Before I analyze our prospects for growth and reinvestment, I would first like to gain more information about the market and our competitors. What is the size of the market and expected growth rate? What is our market share?

Interviewer: The market as you can imagine is a fairly small market for us due to our stringent conditions on high-net-worth individuals (HNWIs) customers. It has been expected to grow at 10% CAGR but this has not reflected in the growth of our business. We cannot be certain about our market share since the HNWI market is not clearly defined. The definition of HNWI differs from organization to organization.

Candidate: Okay. How many players exist in the market and what kind of competition are we facing?

Interviewer: While we are one of three foreign wealth management services in the country, domestic retail banks are coming up with new products similar to wealth management services.

Candidate: Great, now that I have a background about the market environment, I think I should analyze the issue of profitability for our client.

Interviewer: Fair enough.

Candidate: For analyzing profitability, we would have to look at revenues and costs incurred by the firm. The main costs that could be incurred are rentals on premises, technology costs, equipment and employee wages. For revenues we should first segment our customers by product category and analyze how we charge them for the services that we offer.

Interviewer: What do you think is the primary source of revenue for us?

Candidate: I think we use the deposits with us to make profitable investments and earn our fees through interests on the investments.

Interviewer: That’s good. Why do you think profitability has been fluctuating in this model?

Candidate: There could be several reasons for this:

1. The number of customers we have is low.
2. Our investment strategy could be flawed.
3. The economic scenario might not be permitting significant profit making.

Interviewer: Let’s assume that we have a very small customer base. What might be the reasons for that?

Candidate: There are three reasons why we could have a small customer base:

1. Low awareness among the HNWI category.
2. Negative Brand Image of the firm.
3. Very few customers qualify our HNWI norms.

Interviewer: OK, what do you think we should do if we decide to continue to operate in India?

Candidate: A few measures that could be implemented are:

1. Increasing brand awareness and strengthening our reputation leveraging our strong presence in foreign countries.
2. Conducting market research on the Indian consumers to understand the income segmentation.
3. Develop customized products for the top 3 high income segments.

Interviewer: That sounds good. Good Luck with your next round!