UBS’ Wealth Management Americas division reported improved performance in the fourth quarter on Tuesday, posting a pre-tax loss of $34.4 million compared with a loss of $49 million in the third quarter.

At the same time, revenues for the division increased 3% in the fourth quarter to $1.4 million from the previous quarter. Operating income rose 7% in the fourth quarter, the highest level since the third quarter of 2008.

Net new money inflows for the fourth quarter were $3.5 billion, up from net inflows of $313 million in the third quarter, in what UBS attributed to strong performance from advisors who have worked at the firm for more than one year.

The Wealth Management Americas division posted net new money inflows of $9.2 billion including interest and dividend income, an increase from $4.8 billion in the third quarter.

At the same time, net new money from same store advisors was positive at $3.5 billion for the fourth consecutive quarter compared to $939 million.

The net new money inflows posted mark a very positive sign for UBS’ wealth management business, said Aite Group Research Director Alois Pirker. But with only a difference of about $395 million between income and personnel expenses, Pirker said, that still leaves a profitability problem.

“They’re really sailing very close to the negative, and if anything happens, boom, they flip over to the negative,” Pirker said. “They really need to get costs under control and that’s a key part of the strategy.”

But the net new money, if combined with more client activity, would produce more revenue and move the division in the right direction, Pirker said. With that positive growth, the option to sell the business could become stronger, he said, a transaction that would address the operational efficiency side at the same time.

“As the business gets better and more healthy in terms of growth and the market gets better, the proposition of selling this unit might be more attractive as well,” Pirker said.

The results come as UBS faces challenges in other business areas.

“We still have considerable work to do in all divisions,” UBS Group Chief Executive Oswald J. Grubel said during the earnings presentation. “The microeconomic environment remains uncertain, and client confidence in the markets is still relatively low.”

UBS and other banks also face challenges to adjust to changing regulatory frameworks, Grubel said, which will likely require considerable time and costs.

While Grubel cited improvement in the Wealth Management Americas division, with strong transactional revenues and management account fees, he also acknowledged the need for stronger investment bank performance in the coming year. Investments made in certain investment bank areas, particularly the FICC business, should pay off and generate more value this year, he said.

He also noted that UBS’ contingent bonus pool for 2010 was 10% lower than a year ago.

“We will continue to compensate high performance according to the market, but we will clearly distinguish between services that create value for the bank and others,” Grubel said.

For the Wealth Management Americas division, personnel expenses rose reflecting higher amounts of grid-based compensation for financial advisors, UBS Chief Financial Officer John Cryan said, which was partly offset by lower bonus approvals.

The number of financial advisors increased slightly, by 13, to a total count of 6,796. Financial advisor attrition was also at its lowest levels since 2006, the firm said.