This publication recently spoke to the managing partner of an executive search firm in Switzerland about the future of the wealth management market in the country.

It is often said that Switzerland’s heavily populated field of banks and wealth management houses is ripe for consolidation as margin pressures bite, but any M&A shakeout doesn’t mean only the largest firms win.

That is the view of Daniel Aghdami, founder of DART Talent and Executive Search, expressed during a recent interview with this publication. Aghdami examined some of the issues facing Swiss wealth management at a recent summit in Zurich that was organised by this publication, and he expanded on his views about where the country’s wealth sector is headed. Given his role as a recruiter, he is well placed to see how firms are trying to position themselves.

More important than size is the structure and business approach of banks in determining who is going to succeed in the market, he said.

“You have one group of financial institutions – large and small - that is working from a blank sheet of paper, starting from scratch and investing in technology. Typically the large firms are focusing on the core strengths of their group, and in turn focusing on those WM clients who can best make use of those services and products. Smaller niche boutiques such as multi-family offices are capitalising on their nimbleness in their investment approach, access to direct investments, and their more neutral, open-architecture approach. It’s really an exciting development. There are some others who are trying to capture what they see as gaps of coverage, more traditional services…which is in my view not a sustainable business,” he said. 

Although still technically in force, Switzerland’s renowned bank secrecy laws have come under international assault, and the days when firms could make a cushy living storing clients’ money and doing little by way of growing are coming to an end. Dozens of Swiss banks have signed non-prosecution agreements with US authorities, and the UK, Germany and France, among others, have sought to grab details of client accounts. Sagas such as the leaks of data from HSBC’s private bank in the country have been embarrassments. UBS, which was mauled in the credit crunch, is now thriving but only after some painful adjustments; its principal competitor, Credit Suisse, is reportedly turning more towards Asia for growth. The old traditional houses such as Pictet and Lombard Odier have ditched their old unlimited liability partnership structures in recent years. 

Swiss bankers that talk to this publication acknowledged that the country’s financial sector needs to adapt to a world beyond secrecy. Cost/income ratios have risen – among the long tail of smaller players, some of them are reportedly barely breaking even.

There are, according to the Swiss Bankers Association, 283 bank institutions in the country, a number that has already fallen from north of 300 in recent years and is likely to be further compressed.

With all that in mind, the mindset of Swiss wealth management must adapt, Aghdami said.

“They [Swiss wealth managers] need different skill sets than they had beforehand; they need to be a lot more investment-orientated,” he said. 

“There needs to be more of a commercial mindset and there also needs to be more investment in the next generation of advisors, for whom selection criteria [should] move away from 'what is the extent of your network' towards the level of drive, investment know-how and entrepreneurialism. For example, two of our more recent and successful hires into client advisor positions had previously never acquired a private client in their careers. They do however have the skills, motivation and intellect to connect the right dots,” he continued. 

New ways to earn a living
There are a number of avenues open to Swiss banks and wealth firms in earning a decent living if bank secrecy is headed for the exit. The SBA told this publication a while ago that asset management as a sector has space to grow. Some Swiss banks have said that corporate advisory as an offering should be a focus particularly because so many high net worth and ultra high net worth persons have operating businesses as well as liquid assets. Reyl, the boutique private bank, has made this point, for example. Aghdami agrees: “We are working on two mandates now for exactly this area.”

“This [corporate advisory] is a direction where a number of banks are going and where they have strengths at the group level. Most banks are establishing or investing in teams who are able to broaden the bank’s relationships with their UHNW clients, and in turn providing those clients with greater access to value-adding services to other parts of their lives and businesses. Examples include early movers Credit Suisse’s Solution Partners, UBS’s Corporate Advisory Group and Deutsche Bank’s Key Client Partners,” he continued. 

Watch the talent 
Talent remains a key differentiator and accelerator for change in the market, and such “needle tippers” are highly valued in the market, Aghdami said.   

The Swiss wealth industry has in the past had a blinkered view of the kind of people who made good wealth managers, assuming that only those who had already worked in the sector could bring understanding. That is changing, he said. There is a recognition that ideas and methodologies from other industries can help streamline processes, innovate offerings and cut costs in wealth management.

He said the amount of emphasis people place on DART’s advisory role has grown against this background.

“We get a lot of requests for expertise and consulting from the candidate side and from the client side. It often starts with validating if there is the talent available for the objectives that they have. The market and our role therein has changed over the years. With the overall employment numbers in wealth management in Switzerland falling over the last three years the volume of available people and interest in open positions has risen markedly, presenting banks with a new problem – how to cope with the volume,” he said.

With claims that Switzerland is losing its edge – not to mention feeling the pains of negative interest rates (see here) – it is easy to fall into pessimism. Aghdami states, however, that there are reasons for taking a more cheerful line. With the rise and success of client-focused and investment-oriented multi-family offices in Switzerland, the larger banks are responding by developing more institutional-style access to investments and their platforms for such financial intermediaries. “We expect the FIM business to grow as a source of revenues for banks as the number of sophisticated FIMs/ MFOs in Switzerland grows,” he said.

“The feedback we have received from clients is that people outside Switzerland will say that technical competence can, on average, be higher in London or New York but the unique thing about Switzerland is the strength of the relationships between banks and clients. The markets in EMEA will benefit from some cross-pollination of those skills. We have been moving a lot of people around the region to source the required skill sets,” Aghdami said.

“We need to have people with a commercial, service-orientated and entrepreneurial skill set,” he said.

However, such a move must not involve product pushing or short-termist thinking. Such a business also mustn’t be “ego-orientated” but have a clear focus on the importance of team work.