EXCLUSIVE CONFERENCE REPORT: How Can Swiss Wealth Management Stay Competitive As Old Model Crumbles?

Tom Burroughes Group Editor London 28 July 2015

EXCLUSIVE CONFERENCE REPORT: How Can Swiss Wealth Management Stay Competitive As Old Model Crumbles?

A recent WealthBriefing conference in Zurich posed the question of what Switzerland needs to do to ensure its wealth management remains competitive as some of its older features come under attack.

The country has an enviable record of political stability, has triumphantly reinvented an iconic industry and is renowned for accuracy, attention to detail and a high quality of life. And yet Switzerland’s banking industry faces an uncertain future while competitors hungrily seek to grab its business.

These were some of the points discussed by industry luminaries at a recent WealthBriefing conference in Zurich. Individuals from firms such as Julius Baer, Citi Private Bank, Pilotage, a boutique wealth management house, and McLagan, the performance, reward and benchmarking firm, ran through the challenges that this nation faces and were even able to reach some tentative conclusions on how Switzerland moves forward.

The background issue is clear – bank secrecy, as it has existed for centuries and in its modern Swiss form, since 1934, looks to be doomed, although the law of bank secrecy has yet to be formally repudiated by the Swiss electorate. 

The country has signed a number of cross-border treaties with entities such as the European Union and US that substantially erode this secrecy, and the benefits that once accrued to it. Bank secrecy was lucrative business while it lasted. It was a low-cost business model: book the money, the client gets a numbered account and that’s it. There was no need to focus on superior client service, strong investment performance and other “value adds”. Switzerland at one point had more than 300 banks but a period of pressure has seen that number fall to 283 (source: Swiss Bankers Association), and with some of these firms being small in size and arguably sub-scale, that number is likely to shrink further. Although numbers aren’t always easy to find and comparisons can be difficult, cost/income ratios for some firms are north of 80 per cent and this publication is sometimes told that certain institutions are barely breaking even.

Discussing these issues were Mark Miles, who is European head of wealth management at McLagan; Paul Arni, who is regional head, Zurich, Central and Eastern Switzerland at Julius Baer; Chris Brändli, senior banker, global family office, EMEA, for Citi Private Bank; Gregg Robins, strategic advisor, Pilotage Private Wealth, and Bruce Weatherill, chairman, WealthBriefing.  

Part of the problem, the conference found, was that there is a large gap between how well practitioners think they are doing and how well they are seen from the outside.

During the discussion, Weatherill asked the audience to give a show of hands if they thought that Switzerland had a client relationship manager resourcing problem. He got a near unanimous “no problem” show of hands. 

However, Weatherill then asked for a show of hands for those rating the quality of CRMs at 10:10, 9:10 and got no takers. A few assessed the quality at 8:10, more or most at 7:10 with a few also at 6:10. He did not ask for any lower scores! It is worth noting that under normal net promoter score (NPS) analysis this would rate Swiss CRMs as ‘’ok’’ at best, which is below promoter level and well below a score which would qualify them as “trusted advisors”. This would appear to indicate that Switzerland, along with the rest of the industry, does have a CRM staffing problem, Weatherill suggested. And another observation that he had was that while some fnancial centres have promotional agencies, such as Jersey Finance, Switzerland did not appear to have a comparable organisation to put itself forward, or at least it was not as visible.
Part of the problem is that Switzerland is somewhere between “Swiss Wealth 1.0” and “Swiss Wealth 2.0” in terms of its journey from old-style bank secrecy and low value-add to a more developed, transparent model, Pilotage’s Robins told the audience.

“Being in the messy place between the two systems, it is very difficult to talk about what private bankers should be doing. In the absence of a clear strategy from banks, it is wrong to impose a model of what private bankers should be,” he said. “We are seeing a tremendous amount of M&A…this is a symptom of our being in the middle of the transition process to Swiss Wealth 2.0,” Robins continued. “It is a difficult time for bankers to adapt and a hell of a difficult time for clients. It is difficult for a client not knowing from one day to the next what will be the name of the bank they are going to be a client of,” he said.
Julius Baer’s Arni acknowledged the challenges but was also upbeat about prospects. “Wealth Management in Switzerland has gone and is still going through massive changes but will remain an important building block of the Swiss financial centre,” he said. 
“We still see important NNM [net new money] inflows and clients who give us their trust because of our long tradition in private banking, our capabilities in this field, our talents and stability as well as professionalism,” Arni said. 
“However, we can also see in the industry that we lack a single and strong voice to formulate a coherent vision. We identify gaps and issues to be addressed but do sometimes find it hard to systematically work our way through these issues and are therefore sometimes too reactive rather than proactive,” he said, referring to the issue of whether Switzerland is effective at reaching a strategy for the industry, and then explaining it.
“What we have to further develop in Swiss wealth management is creating a clear vision and strategy, implement strong leadership on all levels and execution capabilities to deliver a differentiating value proposition and service offering to focused client clusters – put ideas into action and follow through. The best sales people are not necessarily the best leaders. Additionally we have to think about how to incentivise RMs and teams going forward,” he continued. 

McLagan’s Miles examined the issue of talent management – seen as an important element of how Swiss wealth management moves forward. 
“One thing we are seeing is banks getting more scientific in attracting and retaining talent. There is greater differentiation between rewards for top performers. Firms are using increasingly analytical approaches to benchmark the linkage between individual pay and performance,” Miles said. 
“There is no secret anymore to Swiss private banking – it’s about adding net new assets and keeping costs low…However, it is clearly more complex than that, and the key is to understand which elements of the client experience are driving which aspect of business performance,” he continued. 
He referred to recent Scorpio Partnership analysis showing that US banks are in the top rankings for the correlation between client experience and net new money. Only one European bank makes the grade. (Scorpio Partnership is part of the McLagan group of companies.)

“The US players are just far more rigorous at mapping and understanding impacts of client experience,” Miles said. 
“There is talent here...this [Switzerland] is a gateway to Europe, and firms should maybe think about how they better collectively market Switzerland as such,” he added. 
On the skills issue, Citi Private Bank’s Brändli said the ability to hire talent was not a problem because there is a large supply of it in the market. 

“The challenge is to be able to identify who are the best and the brightest. There are two types of hire: one who can bring in a book of clients, or second, a flexible, proactive person. If a person is proactive they may not have many clients they bring over but can get clients and have a strong entrepreneurial spirit,” he said. 

Client books 
Robins commented on some of the current changes in how bankers work and are paid. “The current environment has led to banks pushing for mandates from executive recruiters that are success-driven only. There is also too much calling around to get bankers with clients...there is a fear of failure. The recruiters are harming the market in trying to find quick, easy fixes for banks to difficult problems with no easy solutions,” he continued.

“The future is about professionalism and advice and that is what clients expect and more,” he said. As specialisation becomes increasingly important, “bankers need to learn to work in teams,” he added.

Robins also talked about what is known – taking the title from a recent McKinsey report – as “virtual banking”; there is also a need, he said, for the industry to clearly grasp the very different needs of HNW and UHNW clients. This implies different service models and banker skill sets.

The panel was asked by your correspondent about what the industry can learn from how the renowned watchmaking industry in the country, which was under pressure from digital technology brands in Asia during the 70s and early 80s, fought back with the image-shattering Swatch brands and new styles from names such as Hublot. 

Citi Private Bank’s Brändli said the banking industry should emulate the big changes made in the Swiss watch industry. The watch industry adapted to a changed marketplace and made a high quality “commodity-like product” in the form of Swatch and successfully marketed more exclusive brands.

Robins said: “It goes down to image and image of private banking...we should look at the achievements of Hublot and its CEO. Switzerland needs to go on the offensive and be less apologetic."

Panellists were asked, if they could sum up Switzerland’s strengths, what they would say. Brändli said that a possible strength for Switzerland is that it is seen as a more “neutral” place, whereas London is a more “Anglo-Saxon” financial centre – this gives Switzerland an appeal to people from certain parts of the world. 

Julius Baer’s Arni, in summing up Switzerland’s strengths, said: “History, professionalism and advice.”

Inevitably the issue of bank secrecy came up; Brändli stated that his firm had moved quickly in the past to avoid problems of undeclared asset. “Very early on I encouraged my clients to onboard with a waiver,” he said.


Register for WealthBriefing today

Gain access to regular and exclusive research on the global wealth management sector along with the opportunity to attend industry events such as exclusive invites to Breakfast Briefings and Summits in the major wealth management centres and industry leading awards programmes