The financial industry continues to change. Top-quality products, keen pricing, convenient access and flawless execution are taken for granted. Increasingly, banks will differentiate themselves on the quality of their relationships with clients. This is a lesson that other service industries have long since taken to heart and now it’s our turn. Banks, UBS among them, are learn-ing to think about how best to deliver their services so that they stand out in a highly competitive marketplace. And so they should. In the next few pages, our guest contributors from McKin-sey describe how huge performance gaps between branches of the same bank were reflected in corresponding differences in customer loyalty. Strong branches, a study found, were able to turn bad experiences into positive ones by solving problems effectively and giving client needs greater priority over their own branch sales goals. Greater client loyalty translated directly into a larger share of wallet. Organizations that excel at client service earn trust and loyalty during “moments of truth,” which are crucial opportunities to provide advice to clients about their per-sonal and investment lives. How effective-ly those interactions are handled shape the client’s long-term view of the organiza-tion. As a result, the McKinsey researchers conclude that banks should pay greater attention to the emotional factors underly-ing bank-client relationships. We at UBS came to a similar conclusion after a thorough review of our wealth management business. When we asked clients worldwide what they really wanted, the answers were clear. Our clients told us that banks frequently fail to take the time to understand their needs and goals. That, in turn, meant that products and solutions

often did not match those needs and goals. Our response: UBS put a systematic advisory process in place and adopted other best practices throughout the firm (see article on page 6). We also use tech-nology to help our client-facing colleagues deliver what we now call the UBS Client Experience (page 8). The ultimate aim is to improve all pos-sible touchpoints so that clients receive consistent, favorable experiences at UBS during those all-important “moments of truth.” Anecdotal evidence, as well as studies and surveys, show that the new approach delivers tangible results, reinforc-ing our belief that delivering compelling client experiences leads directly to positive outcomes for shareholders.

The moment of truth

News for BanksUBS Newsletter for Banks and Financial Institutions Winter 2007

2 Moments of truth Why it pays to improve the client experience and how to do it

6 Four steps to fill a gap Spreading the client experience message

8 Supporting the experience Technology for client advisors

9 Strict scrutiny The boons of broker review systems

10 Gaining momentum Conferences in retrospect

12 The case for multi-asset cores Diversifying for peace of mind

14 Climate risk New index on global warming

15 In brief News from around the world

Tom NaratilHead of Marketing Strategy & DevelopmentUBS Global Wealth Management & Business Banking

14 UBS News for Banks / Winter 2007

Bank to come up with the world’s first index that tracks temperatures on a national and regional rather than a local basis. Launched in April this year, the UBS Global Warming Index (UBS-GWI) is a trad-able benchmark for global investments in the weather derivatives market. It provides a rational and simple way to obtain finan-cial exposure to large-scale trends in the climate. The index should also prove useful to industries that need to hedge against damaging climatic trends. Potential users could include many branches of agricul-ture, tourism and construction.

How it worksThe UBS-GWI is based on existing CME weather futures contracts that settle on the difference between the average daily temperature and a base temperature of 65ºF. These are Heating Degree Day (HDD) and Cooling Degree Day (CDD) contracts, so-called because they measure how far it is necessary to heat or cool buildings in the prevailing weather conditions. At present, the index comprises contracts on the 15 US

A broader swathe of investors can now give climate derivatives a whirl

Weather derivatives have been traded for the best part of a decade. In theory, ski resorts could use them to hedge against warm winters or brewers to protect them-selves against cool summers. In practice, though, most users are in the energy sec-tor. The Chicago Mercantile Exchange (CME) established a weather derivatives exchange for temperature contracts ref-erenced to certain US cities in September 1999, later adding European and Asian references. More recently, the CME has added contracts on snowfall, frost and hurricanes. These innovations helped lift total CME turnover in weather contracts to some $45 billion in 2005–2006. This success has attracted attention elsewhere. In mid-2006, China’s Dalian Commodities Exchange announced that it planned to start trading weather futures, with the aim of helping Chinese farmers hedge their exposure to bad weather. Weather, though, is not climate. As cli-matologists like to say, weather is what you get while climate is what you expect. This insight prompted UBS Investment

Getting a grip on climate riskA new index lets investors express their views on how fast the planet is warming

Solutions

cities – including New York, Chicago, Atlanta, and Las Vegas – that are most actively traded on the CME’s weather derivatives exchange. Between May 2 and September 3 this year, an excess temper-ature of 0.68ºF on these contracts caused the index to climb by almost 35%. This performance showed minimal correlation with any other investible asset class, a fact that could make the climate an interesting candidate for inclusion in otherwise tra-ditional portfolios. Access to the index would be via structured products, perhaps in combination with other types of asset. More cities could potentially be included in the index. The CME currently trades weather derivative contracts for 18 US and nine European cities, as well as six Cana-dian and two Japanese locations. To be eligible for inclusion in the GWI, however, the volume of futures traded for any given city must represent 1% or more of the total weather derivatives contracts traded on the CME. Provided they meet this con-dition, European and Asian cities are likely to be included in the GWI over the me-dium term. A UBS-GWI governance com-mittee will meet annually to determine the composition and the weighting of the UGWI index and its family of sub-indices, which currently covers four US regions: the Northeast, Midwest, West and South. Although there has been a dramatic in-crease in weather derivatives volumes over the course of the last few years, traded products using weather remain inacces-sible to the vast majority of the financial community. Used mainly as a hedging in-strument by energy, insurance and com-modity professionals, weather derivatives remain largely untouched as an asset class in their own right. UBS’s new Global Warming Index could change that by pro-viding a simpler way for a broader range of institutional and private investors to gain financial exposure to global tempera-ture trends.

Ilija Murisic UBS Investment Bank, Non-standard derivative products ilija.murisic@ubs.com

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