WealthBriefing recently marked the launch of its third annual external asset management report, sponsored by SS&C Advent, with a breakfast briefing in Zurich.

WealthBriefing recently launched “The Future for External Asset Managers in Switzerland - a Snapshot for 2018”, our third annual report examining the sector.

The Zurich Breakfast Briefing marking the launch centred on a high-level panel discussion featuring Benoit Barbereau (head of EAM and wealth management services at Union Bancaire Privée); Dr Ariel Sergio Goekmen (member of the executive Board at Schroder & Co Bank); Mike Toole (chief operating officer at Artorius Wealth); and Paul Bebber (regional sales director at SS&C Advent, sponsor of the report). Here, we summarise some of their key observations.

Swiss EAMs are being forced to rapidly evolve their offerings and how they present themselves, but, to paraphrase Mark Twain, rumours of the sub-sector’s death have been greatly exaggerated.

As our expert speakers in Zurich observed, the independent advisory (or Financial Intermediary) model has enduring appeal for both clients and advisors. Alongside a provider-agnostic approach to managing investments, the former can enjoy a level of personal, enduring relationship they may struggle to find elsewhere; meanwhile, the latter can have more scope to be entrepreneurial, specialised and service-focused than a larger employer typically affords. 

However, tightening regulation and a more demanding, cost-conscious client base means the days of independent advisory firms being set up as relatively low-maintenance, high-margin “lifestyle businesses” are coming to an end. The benefits of the independent model for clients will no longer be taken on trust alone. “The EAM proposition will have to be pitched differently in future,” argued Benoit Barbereau. “The focus will be on proving independence and transparency in investment product selection, custodian choice and being retrocession-free.”

A UK-style shakeout?
Developments in the UK’s Independent Financial Advisor sector proved a rich seam of discussion, with speakers focusing on the shakeout stemming from the regulator’s Retail Distribution Review package of reforms in 2012. Switzerland’s own regulatory overhaul is on the horizon, under its incoming Financial Services and Financial Institutions Acts (known as FIDLEG and FINIG), but these are not expected until at least 2020. Therefore, in the words of Barbereau, “sector consolidation hasn’t really started yet”, although, as Dr Goekmen observed, tightened cross-border regulations have forced many Swiss EAMs to refocus on “just one or two markets rather than 20”.

According to our panel, it remains to be seen whether the burden of additional compliance requirements and costs will eventually shutter large numbers of Swiss EAMs, as happened among the UK’s IFAs. (It should be noted here that EAMs tend to lead with investment management services, whereas IFAs in the UK often outsource this to larger institutions to focus solely on financial planning, and so their appeal and differentiation is perhaps not as strong as the Swiss independents enjoy). 

Support from banks seems to be very much stronger in the Alpine state, too. “Banks in the UK tend not to be interested in what they see as a cannibalisation of clients and so the sector isn’t very mature,” said Mike Toole. “In contrast, Swiss custodians see EAMs as a key part of the financial ecosystem that is here to stay, and one that can provide a lot of value to them, such as by removing distribution risk.” 

Symbiotic relationships
The concept of symbiosis came up repeatedly as our experts assessed the prospects of Switzerland’s EAMs and the custodial relationships that stand behind them, particularly as regards the need to offer clients broader investment options including many types of alternatives. “EAMs need to extend their offerings, but clearly this has a cost, so for many the only way is to rely on custodians for access to specialist expertise and solutions,” Barbereau observed.

“The capability to offer private equity is a huge advantage in itself,” added Dr Goekmen, noting that EAMs need to keep as many assets as possible on their own client statements, not only to promote profitability, but also to enable them to give truly holistic advice. 

Paul Bebber confirmed that product variation (even including private debt at the HNWI level) is consistently a top-three “wish list” item SS&C Advent hears of from firms. In turn, how well banks are able to broker and report on various asset classes and instruments appears to be a very significant factor driving their selection by EAMs.

“A bank’s technology for trading equities might be very strong, but for FX it might be poor and that creates this need for multiple custodian relationships even where you might aim to be more streamlined,” said Toole. “We’re also seeing clients very interested in getting consolidated asset views, so facilitating that would be hugely helpful.”

Correspondingly, efficient data aggregation is another top technology demand Bebber encounters and an area SS&C Advent has been working hard to improve. “We now have 400 custodian data networks live in the US,” he said. “We’ve not yet reached that tipping point in Europe, but we’re adding all the time.”

As such, the symbiosis theme was also extended to include technology vendors. Not only do they provide the “bridge” between banks and EAMs, Bebber pointed out, they also help smaller institutions compete on a more level playing field by effectively enabling “a pooling of resource - of budget and human capital”. 

Agility and innovation
In fact, Barbereau argued that EAMs are poised to become leaders on cutting-edge technology due to the relative lightness of their IT infrastructure making it easier to “plug and play” new tools (this possibility is discussed at length in the report). He also sees “EAMs pushing banks to transform themselves, providing particular inspiration in the way they are exploiting obvious synergies with cryptocurrencies and Initial Coin Offerings.”

Overarchingly, the message to emerge from this event was that Switzerland’s EAMs are by no means the embattled, rather sleepy corner of the market the uninitiated might assume them to be. Many are in fact at the very cutting-edge of investment and technology trends in wealth management. Nor are they a segment any bank can afford to ignore if they are interested in stable revenue streams and an abundance of opportunities in areas like product distribution and lending. As Dr Goekmen observed, independents manage 5-7% (or SFr300-350bn) of Switzerland’s total asset base, despite many of them being tiny operations. That fact speaks for itself.

Change is coming on several fronts, but as our panel powerfully argued, the prospects for this uniquely dynamic sub-sector remain largely undimmed. 

“The Future for External Asset Managers in Switzerland - a Snapshot for 2018” is essential reading for all independent wealth managers and the custodian banks serving them, but will offer invaluable insights for all readers interested in developments in the world’s premier financial centre.

Download your complimentary copy of the research here: