Swiss wealth management: Stuck in neutral or set to accelerate?

For decades, the culture of banking and finance at the top of Europe was as constant as a Bernese glacier, yet the winds of regulatory change have been blowing down the valleys in recent times, leading to a culture shift in this small nation whose GDP is among the highest in the world.

Switzerland has always excited the interest of wealthy families, attracted as much by its hospitable financial climate as its quality of life. Despite the end of banking secrecy in 2018, the myth of Switzerland as a fiscal paradise persists – and does a disservice to the tangible reasons why more private banking clients choose Switzerland over any other destination.   

Switzerland has persistently low levels of inflation and, in the franc, a currency that has increased in value against other major currencies over the past two decades.

According to a study published by Deloitte in 2021 that compared leading wealth management centers around the globe by asset size and competitiveness, “Wealth management in Switzerland has a long and proud tradition of success and stands for trust and discretion, upscale client experience, a stable environment, and deep expertise. With $2.6 trillion in offshore assets, Switzerland remains the largest center in terms of booking size.”

According to Deloitte, some of Switzerland’s advantages are a superior talent pool, tax competitiveness for family offices and investment vehicles, a broad capital market, and robust digital capabilities.

Challenging times
However, the recent past has been more challenging. The financial performance of Swiss WMs has been “lackluster” according to Deloitte. “The root causes for this development are mainly erosion in structural fees and margins in the industry, as well as increasing regulation that has led to higher costs, for example the cost of onboarding international clients.”

“The banking and finance industry in Switzerland has recalibrated its approach in an attempt to future-proof business capabilities and remain the global leader in wealth management”

Since January 1st, 2023, all independent wealth managers operating in Switzerland require authorization from the Swiss Financial Market Supervisory Authority, FINMA. Furthermore, the granting of a license to operate is dependent on fulfilling a number of criteria related to financial structure, compliance and reporting, a fact that has put the squeeze on smaller wealth managers, according to some observers.

Nevertheless, the banking and finance industry in Switzerland has recalibrated its approach in an attempt to future-proof its business capabilities and remain the global leader in wealth management, in the face of stiff competition not just from usual rivals the UK and USA, but newer, bullish centers in Asia and the Middle East. A fact noted by Deloitte in its report: “Swiss WMs are [attempting] to cut their cost base, mostly through headcount reductions (a decline of 18% between 2007 and 2019) and increased automation, technology and operating model modernization. In addition, leading globally oriented players in Switzerland successfully promoted cross-selling opportunities and developed campaigns to boost mandate penetration and advisory offerings.”

Outlook
Looking to the future, Deloitte believes there are five subjects which will play a decisive role in deciding the fortunes of Switzerland as a financial center going forward: the capacity of Switzerland to adapt to changing modes of client interaction; the ability to provide differentiated wealth-management value creation; maintaining ownership of the value chain; safeguarding control of client relations and; the capacity to exploit and monetize data.

In light of this, the four possible future directions for Switzerland as a financial center are envisaged: 1) It evolves into an ecosystem of family offices 2) The Swiss wealth-management market liberalizes 3) Separate, rigidly controlled digital fiefdoms emerge or 4) the big Swiss investment banks circle the wagons and create a “closed shop” climate.

Despite ferocious international competition and ever-tighter regulation, there is little doubt that Switzerland has what it takes to respond to the challenges of the moment in order to stay on top of the wealth-management world.