This is the second half of a two-part feature looking at the future of Swiss private banking and the pressures that this industry is under.

Editor’s choice: This article is by Options Group and is republished, with permission, by this publication. To view a link with full tables, footnotes and statistics, click on this link. As always, the views here are not necessarily shared by this publication. This is the second half of the article – the first part was published yesterday and can be viewed here.

Zurich perspective

Simi Dhody, newly promoted partner of the private wealth management practice and head of the Options Group Zurich office, says: "There is a continued drive toward specialisation - in both market and expertise. New client coverage models require hires with strong investment competence and the ability to communicate effectively with clients. Given current market and global economic conditions things are likely to get worse before they get better - I believe that there will be significant consolidation and contraction as we face the regulatory and economic challenges ahead."

Asia

Bouille discusses his views on Asia's wealth management future:  "Bearing in mind that regulators are putting more and more pressure on the system, I cannot see Asia retaining its current offshore status in the long run. It is a booming market that benefits from huge commercial inflows from Europe and the US.  Asia is building up expertise in private banking but I would say that their advantage is really on the commercial side. I believe that Switzerland will remain one of the most valuable private banking hubs in the world based on experience and flexibility." 

Bouille's emphasis on the experience and flexibility available in Switzerland mirrors the view expressed by all our Swiss-based commentators, both in terms of what Switzerland already has in place, and what changes need to be made for it to remain at the forefront of wealth management. Weber expands on this: "I do believe that Switzerland is the preferred booking centre for UHNW families. It is true though, that the growth in Chinese or Asian centa-millionaires is staggering, and those new Asian UHNW clients will most likely book a large part of their assets in Asia."

Domestic Asian growth

In addition to wealthy individuals seeking new jurisdictions in order to diversify, the boom and development in Asia has been underpinned by the emergence of a local middle class. China's increasingly liberalised approach to individual wealth has created conditions which have enabled the proliferation of millionaires. This will ultimately result in more even distribution of national wealth rather than a monopoly of super-rich families, as in Russia post-1991. James Persse takes up this thread, "...currently services can be provided locally from Singapore" meaning "no need for services catering to Asian clients out of Switzerland."

The nascent wealth management sector in Asia is ideally located to capture this local wealth rather than focusing all of its attention on attracting "grey money".  Philip Harris echoes this: "With China seeing a growth of a middle class, a great deal more money is staying locally. No one is too late in terms of servicing that client base." 

The international impact of Asian growth

According to the 2011 CapGemini/Merrill Lynch World Wealth Report, the wealth of the HNW individuals in the Asia Pacific region grew 9.7 per cent in 2010 to over $2.8 trillion compared with Europe's 6.3 per cent growth to $10.3 trillion.   It is clear why many wealth management firms have focused their expansion plans East. In 2011, a Bain and Company survey estimated that 60 per cent of mainland China's residents with $15 million or more have either already left the country or have made plans to leave. Many of these families have already sent their children overseas to complete their education. 

The advent of the wealthy middle class in China may be of less benefit to Switzerland but could still be a positive for London. Harris said, "London is still the global hub; London super-prime property is viewed by many international investors as better than T-Bills.  Investor visas from Hong Kong and China are on the increase although as yet, no Chinese mortgage requests." We sense that this is only a matter of time; Kensington and Chelsea have long been the preferred “pied a terre” purchase locations for wealthy Russians; Chinese investors cannot be far behind.  It hasn't happened yet, however - over the past 12 months, the main international buyers in London have been from Russia, India, Italy, the US and France, according to Knight Frank research.

Unsurprisingly, the local view of Asia's strengths differs markedly from that espoused in Switzerland. Marco Bardelli, CEO Asia of UBI Singapore, states: "Capabilities in main Asia offshore centres are now at best-in-class levels and the proximity to growth opportunities that lie within the region are also aspects that investors are taking into consideration." Contrary to certain expectations: "Regulations in the core Asian jurisdictions are increasingly convergent with the core aspects of regulations in Switzerland".  Instead of becoming a “grey money” jurisdiction, he says: "Singapore especially is notable less for the differences in regulatory approach, than for its similarities with other global jurisdictions."  On this last, Marco's view is, "...this will ultimately benefit customers but also those players who will quickly adapt in successful fashion to the upcoming new environment."

Much like our European commentators, Bardelli believes that Switzerland could remain the world's most important private banking centre, however: "it will be just a matter of time before [Asia], and especially Singapore, will surpass Switzerland.  A well defined regulatory environment is also giving Hong Kong and Singapore the necessary international recognition in order to be world class players."

Human capital

As with any major shift within an industry, the competitors with the best talent have a distinct advantage. In this particular case, the evolving tax and regulatory landscapes have been a steep learning curve for all, and it would be difficult to say whether any one bank currently has an edge in terms of expertise. 

Despite the stresses and costs of adapting to this brave new world, banks must not lose sight of the fact that human capital is their most precious asset. It can be very tempting in such a risk-averse environment to shy away from making big hires, which can be perceived as potentially risky decisions. When a bank limits its hiring programme - fails to bring in fresh talent, revenue generators and business developers - this creates a stagnant business, which ultimately hurts morale and reduces profitability.  Bardelli says: "The concentration of global functions of important players in the two hubs is a good catalyst for the attraction...of talent in this part of the world.” He says this recognises continued importance of the human capital element.  “More training will be a mantra for the years to come within the various HR departments, especially [for those on the] front line," he says.

Hiring at all levels is now typically taking significantly longer than pre-2007, as a result of both lengthened recruitment processes and increased due diligence by both hiring institutions and candidates.  Whilst we applaud increased rigour in hiring - one of the keys drivers to ensure "right fit" for both sides - when taken to extremes this leads to unnecessarily drawn-out processes and increases the chance of losing a hire.  A balance needs to be struck between due diligence, thoroughness and commercialism. 

Marked premium

Options Group has seen a marked premium now being placed on client-facing bankers with highly developed technical and product expertise. Tax knowledge has been growing in demand, although as previously mentioned, tax was not typically the domain of banks, a thorough understanding of UHNW tax issues has become a necessary facet of any team in order to remain truly competitive. 

We are seeing an increase in compliance levels being ranked alongside major commercial achievements on the resumes of senior bankers. They must not only demonstrate the ability to attract assets, retain clients and develop a strong revenue stream; this has to be done whilst maintaining high compliance standards.

Another growing trend is cross-selling.  Banks are developing teams specialising in offering UHNW clients a broader portfolio of products and services including those traditionally offered to institutional clients. Private client commercial advisory and M&A teams - often joint ventures between the wealth and investment banking arms - continue to be developed across EMEA.  Although certain institutions - Credit Suisse being a prime example - have embraced the “one bank” structure for some time, we have noticed recently other large wealth management institutions beginning to adopt this type of holistic approach. 

In a difficult hiring market, it is increasingly critical for firms and their search partners to work towards achieving short and long term goals. Heiner Weber has a strong view on this: "For a recruiting bank, it is essential to be accompanied by the right executive search firm; which is for me a firm who has my interests at heart, which means a firm that is as interested as I am, that the candidates will be successful in my bank in the long term. That is the major characteristic I’m looking for."

We couldn't agree more.  As the wealth management industry continues to evolve, search firms must also modify their approach, focusing on those candidates with the ability, skills and flexibility to effectively navigate both current and future challenges.  These talents can require months or even years to identify. 

Conclusion

We have witnessed significant changes in the wealth management industry over the past decade, particularly post-crisis.  If we work on the assumption that Swiss banks change their model in the manner we have discussed, despite the wealth management industry in Asia continuing its expansion and providing stiff competition and challenge to the Swiss banking status quo, Switzerland should remain the global capital of wealth management.  Currently the full impact of the growing population of millionaires in Asia has yet to be seen, therefore it is not yet clear whether there will emerge a new globally dominant jurisdiction.  Swiss banks, in order to retain their leading position, must continue to create a new class of sophisticated private bankers with an emphasis on asset management and transparency. The key question remains, how do firms identify and attract these individuals?