A former senior UBS manager who went on to found his own wealth management firm argues that the UBS $2.3 billion trading loss affair proves that wealth management and investment banking don't mix.

More than three years after leaving UBS to start up London-based Vestra Wealth, David Scott argued that clients of his erstwhile employer have been sharply reminded of the alleged dangers of running wealth management and investment banking under the same roof.

UBS last week said a rogue trader caused around $2.3 billion in losses from unauthorised trading - the sum had originally been pegged at around $2 billion.

UBS stated last week that no client positions were affected by the losses. The alleged crime comes after Société Générale was hit by another rogue dealer, Jerome Kerviel, who was arrested in 2008 over unauthorised trades which cost the bank €4.9 billion.

Scott, who founded Vestra with 72 ex-UBS and other staff in the summer of 2008, said the claims of misbehaviour by the UBS trader demonstrates the dangers facing private clients where wealth management sits alongside investment banking.

“Private clients are simply not aware of the implicit risks inherent within the business model of these organisations,” according to a statement issues by Vestra last Friday.

“Wealth management should be concerned with the long term prudent preservation of client's assets, in stark contrast to the high risk and volatility of investment banking,” Vestra said.

“The apparent failure of the bank's control systems in this instance is a real worry to clients as such a failure could severely damage the stability of the bank. This is a further example of the benefits of some of the ring-fencing proposed by the recent Vickers report,” it continued, referring to the Independent Commission on Banking’s report.

UBS did not reply to a request from this publication seeking comment about Scott’s remarks. However, data about UBS does indicate that the bank is in relatively strong financial health with a Tier 1 capital ratio of 18.1 per cent.

Last week, London police arrested Kweku Adoboli, 31, after he disclosed his actions to colleagues. He has been charged in a London court with fraud by abuse of position and false accounting.

The disclosure of the trading losses at the Zurich-listed bank is a setback for UBS. It had seen its fortunes recover shortly before last week’s news, with its wealth management arm enjoying a rise in revenues in all regions, after having endured net outflows after the 2008 credit crisis. The bank has moved to put its asset management, investment banking and wealth management divisions into more separate structures, although it has held back from creating completely separate corporate structures.

A number of private banking operations, such as at Citigroup and Credit Suisse, are part of larger parent firms that also undertake investment banking. In the case of Credit Suisse, for example, the firm actually stresses the benefits of close collaboration between the private bank and the investment bank, referring to it as its "one bank" model. By contrast, other banks, such as Switzerland's Julius Baer, have in recent years stressed the benefit of its pure-play private banking model.