It’s not private banks but the whole of the private wealth management industry that has experienced changes. It is, moreover, a phenomenon that reaches well beyond Switzerland. There are numerous causes: the first is the very difficult economic environment which has negative repercussions on the markets. On the one hand, this has led to a drop in savings and on the other, it has reduced investors’ interest in long-term investments which are more lucrative for banks.
The second is the regulatory environment which has become stricter. This is a consequence in particular of the financial crisis which has revealed questionable practices among providers and the subsequent increased need of investors for protection. For Swiss intermediaries there is the additional problem of the strong franc. Our costs are in the main in our currency, while our revenue is largely in foreign currencies which have sharply depreciated in the last year.
The consequences of these combined difficulties, and in particular the speed with which they arose, have forced banks to reduce their costs and rethink their strategy.
We have therefore witnessed unprecedented consolidation. There is no shortage of examples: Sarasin, Clariden Leu or ABN Amro are evidence of this.
This phenomenon is going to continue at least as long as the causes I have just talked about are still around.
It is worth noting that private bankers have come out of this rather well. The partnerships typical in private banking, where the partners assume unlimited liability with all they have for the obligations of their company, where short-term requirements have not obscured their ability to look long term, where products have not taken the place of service, are more sought after than ever.
Regulatory requirements have changed considerably for certain countries. Non-taxed assets have been replaced by taxable wealth. With this comes the need for asset management which takes this into account, for fiscal reporting, and for complex services such as the reclaiming of tax paid in advance at a multi-jurisdictional level. Many clients want extra advice from their provider on how to reduce their tax burden in a completely legal way. This requires highly specialized skills and is generally a task that is not possible to make a profit on, at least as much as asset management.
On top of the regulations of the financial intermediary’s country of origin there are increasingly those of the client’s country of residence to consider. This all leads inevitably to increased specialization by asset managers, sometimes even by the companies that employ them. Geographical specialization in particular is becoming essential. I would also add that an eye must be kept on a growing trend for countries to want to keep savings within their borders and so to resort to protectionist measures. This is the fear that could accompany the MiFID II project or the European Union’s AIFM Directive, for example.
This specialization does not have anything to do with size. A small company with a clear business model and well-defined added value has every chance of success.
There’s no global solution. By definition something unique is needed; there is, therefore, no model. The only comment I would make is that the performance of asset management is probably going to become even more important. It’s the added value par excellence that will pay with increased economies of scale.
It’s impossible for me to answer this question, which affects every company. I would just say that it’s important to be familiar with these elements but even more important to know how to make use of them. If you use them to give minimum profitability targets to asset managers it’s better not to use them. This reminds me of a publication by one of your competitors which asked the question: “How to extract more value from your clients”! Clients are not lemons that you squeeze to get the last drop out of. Wealth management involves men and women; it’s a search for a long-term gain, the desire to be useful to another person. Admittedly this requires professional qualities, but even more so human qualities. This is not only measured in numbers, at least not in the short term.
I don’t believe in out-and-out segmentation. As I’ve just said: it’s a people business. Why lump together professions, account sizes, types of asset management beyond offering something that the client is free to choose? Why split clients into small groups that you then put into different boxes? It’s demotivating for the asset manager; it’s frustrating for the client.
Beyond the specialization made necessary by regulatory requirements, such as geographical segmentation, for example, the important thing is to have the skills available and to explain clearly to the client the choice he has and its consequences. He must remain free to choose.
The challenge isn’t so much to develop further a service for clients but rather to be certain that what we are doing is of high quality and provides real added value, otherwise there is a risk of not managing to make it pay. There are, for example, many professionals offering “family office” type services, which, behind this alluring label, can be very different. Helping a family to organize its assets and choose a good investment strategy is one thing. Hiring luxury cars, looking for a school or watering the plants when the owner is away is another.
We live in an age where information, while overabundant, is key. I therefore expect that online consultation tools and, more widely, anything that strengthens interactivity with the client will gain in importance.
On the other hand, I’m of the opinion that regulatory requirements linked to taxation or consumer protection will have an impact on technology, as it will be necessary to be able to record and use a considerable amount of information.
One might believe after all that managing accounts requires ever more efficient tools to achieve results, with regard to risk in particular, but also, for example, to ensure that transactions are carried out properly and transparently.
Switzerland will remain a favored location. Our advantages are clear, namely expertise, quality, innovation. There will, however, be fewer opportunities for making economies of scale in the future due to the stricter regulatory framework and to greater client expectations. As a result we shall no doubt have fewer players and they will be less profitable and more specialized than at present.
Interview: Andreas Hammer, Marketing & Communications