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EXCLUSIVE: Switzerland's IWM Sector Must Face Up To Big Challenges

Tom Burroughes

2 December 2013

Independent wealth managers in Switzerland can grow but some must shake up their business models to survive and prosper. These and other points were made by industry experts recently at the launch in Zurich of a new report into the country’s IWM sector by the publisher of this website, ClearView Financial Media.

The IWM sector in Switzerland is ripe for consolidation, it has been argued; there are around 2,600 Swiss-based IWMs with around SFr400 billion ($439.8 billion) of assets under management, accounting for 13 per cent of total private banking assets. The market has been growing steadily since 1990. The number of IWMs is, however, expected to fall due to consolidation and succession challenges as independent wealth managers retire and also because of regulatory factors.

The 68-page report, Swiss Independent Wealth Managers: Challenges & Opportunities Ahead, examines a sector comprising several thousands IWMs, a sector that, along with the larger, higher-profile banks, has been affected by the financial crisis and the pressures on offshore financial centres such as Switzerland. Among the takeaways of the report is that 28 per cent of respondents to the survey indicated they had discretionary mandates and 25 per cent provided advisory services. Almost a fifth indicated family office services and a tenth indicated wealth structuring services. A slight majority of 40 per cent of respondents see the erosion of Swiss bank secrecy as an opportunity for their business while 36 per cent see it as a challenge, while 24 per cent are indifferent.

Speaking at the report launch were Stephen Harris, publisher of WealthBriefing; Elmar Meyer, partner at GHM Partners AG; Daniel Wuethrich executive director, head of independent wealth managers, Switzerland, Coutts & Co; Klaus-Michael Christensen, director, head of independent wealth managers, Zurich, Coutts & Co; Dr Gabriela Maria Payer, head of education and member of the management board at the Swiss Finance Institute, and Nicole Kuentz, head of Zurich office, Swiss Association of Asset Managers.

Growth strategies

Meyer pointed out that the report found that a lot of IWMs are trying to grow their firms through business acquisitions; he said this is a trend he sees a lot of and there are a number of smaller investment managers working together to increase scale.

As if to underscore his point, last week, Infidar Investment Advisory, which is part of Julius Baer, and WMPartners Wealth Management, announced they are to merge, creating one of the largest independent wealth managers in Switzerland.

Meyer noted that not all the investment managers are prioritising funds in or outside of Switzerland.

“I was surprised that a majority of IWMs want to deal face to face with custodian banks. This shows that the banks are well-advanced and have good people working for them,” he said.

Nicole Kuentz said some of her members have lost clients and only a minority have gained new customers.

“About 18 per cent expect to grow by acquiring other wealth managers, but only 1 per cent plan to sell their business. This is exactly what we hear from our members and representatives from custodian banks. Even the smaller asset managers want to buy, but no one wants to sell,” Kuentz said.

“This also shows us that the consolidation of the industry has not yet started. We also see this when our members leave the organisations. The main reason is that they give up their business activities because of age, regulation or increased costs,” she said.

Kuentz said she wasn’t surprised to see that the majority of respondents feel that their interests as wealth managers are not represented in Switzerland, as she has heard this recently.

Common purpose

Christensen said that from a regulatory perspective “we need to find a common interest. The image of the growth of the Swiss financial industry depends on the success of IWMs”. “What I find surprising is that the IWM industry is so optimistic,” he said.

“The banks look inwardly into their processes and risk compliance issues, while IWMs look outward and are more optimistic. I am not surprised by this as they are entrepreneurs. They are generally very pro-business,” he said.

“IWMs want to invest in CRM and portfolio management systems. This tells me that they are preparing for the future. The banks could help IWMs by creating a standard interface portfolio management system so they are compatible,” he said.

Among the findings of the report were that survey participants were upbeat about AuM growth, with 58 per cent predicting that they will manage more assets in 2014. Just over a third (36 per cent) expected their assets under management to remain stable next year, while just 6 per cent foresee managing less money.

When it comes to Switzerland’s status as a premier wealth management centre, there seems to be a fairly high level of buy-in among the country’s IWMs. Over 60 per cent of respondents rate the quality of service delivered by the Swiss wealth management industry as good or excellent.