The deal will see UBS acquire approximately 340 financial advisors working from 51 offices across the US, significantly increasing its presence in North America.
Client assets controlled by McDonald Investments are estimated to total around $30 billion, with around 165,000 accounts currently being managed.
Commenting on the sale of the unit, KeyCorp's chief executive Henry Meyer said: "We believe McDonald Investments' branch business fits better strategically with UBS, which is dedicated to providing the necessary capital, technology and management resources required to expand this organization."
This is the second large acquisition in US-based wealth management made by UBS this year, following April's purchase of Piper Jaffray's private client branch network for $875 million.
The deal is expected to be finalized within the first quarter of 2007, subject to regulatory approval.