Independent Wealth Managers: Declining Customer Loyalty

The financial crisis in 2007/2009 shook the wealth management industry as a whole to its very foundations. One of the consequences that have been noticeable in the past 10 years is that the focus on the client has, in numerous cases, become secondary to the running of the business, due to the rising costs incurred for compliance, IT and staff, and also due to the declining revenues with low absolute interest and squeezed margins. This is not healthy from the client’s perspective since investors are looking for a more holistic approach. As there has been a clear change in the relationship between the wealth manager and the client, low client advocacy is expected. PwC (2016) states, according to its survey that: “only 39% of clients are likely to recommend their current wealth manager – this drops to 23% among USD 10M+ clients”. In the past, the theory was that the relationship between the wealth manager and his customer was a stable one that survived periods of crisis only based on the long term. Nowadays, it is certainly difficult for clients to find a wealth manager they can trust and rely on (Lin, 2016). The logical consequence is that a general loss of confidence has made clients suspicious and increasingly risk-averse.

Swiss Independent Wealth Managers (IWMs) have for far too long lived off banking secrecy and the concomitant lack of transparency over fees (Emmenegger, 2014). Banking secrecy will no longer be a factor of differentiation or a competitive advantage. Clients are requesting more transparency on the type of investments and wanting more information about pricing and reporting. Poor net performance and market uncertainty, along with the repatriation of offshore assets to developed markets, mean that customers have the option of shifting towards a more self-directed investment approach. IWMs must improve their marketing efforts; there is a need for communication with clients and with prospects. It seems there is a major professional bias as the private wealth management industry has for long relied on banking secrecy, and so practitioners have ultimately formed a society of men of few words. They must be more supportive of active, more expansive entrepreneurship. This is especially true given that their clients are themselves entrepreneurs who know how to invest and take risks to build their success.

Investors want to work with people who they are confident will implement what they want after they decide on the action that is to be taken for their portfolio and overall wealth. Until recently, clients logically and naturally gave a mandate to their wealth manager on the basis of the confidence they had in that manager. After several years of financial turbulence, clients are increasingly reluctant to fully delegate their investment decision-making. The trust in the ability of wealth managers to manage clients’ portfolios in accordance with their investment strategy and risk tolerance has bottomed out (Cao et al., 2017). Numerous clients have discovered products in their portfolios that they do not clearly understand or about which they have been wrongly advised. Inderst and Ottaviani (2009) analyzed “misselling” as the practice of misdirecting clients into buying a financial product that is not suitable for them. According to their findings, doubt remains as to whether the financial industry is only offering products that generate profit in its own interest to the detriment of investors. In addition, financial products have frequently not delivered the implied value they offered both during the European debt crisis and the global financial crisis.

In recent years, turbulence in the stock markets has demonstrated the importance of spreading portfolios, not only through asset allocation in different sectors and industries but across different wealth managers and even jurisdictions (Huij and Derwall, 2011). As communication costs have decreased substantially and investors have become increasingly well connected and informed, they will further diversify their investments across managers, and loyalty will wane. Investment that is purely relationship-based is currently disappearing.

These assumptions may define the swing in behavior of individual clients and influence wealth manager relationships with clients. The financial world is becoming more complex, but at the same time clients are asking for transparent, unsophisticated financial products and they want them to be tailored to their needs. The loyalty of clients to their IWMs could be one of the key challenges of the years ahead.

Yves Reichenbach (April 2018)


Cao, J., Fischli, M., Rieger, M. (2017) ‘Should your bank invest for you? Evidence from private banking accounts’, Journal of Behavioral and Experimental Finance, 13(3). pp. 1-8.

Huij, J., Derwall, J. (2011) ‘Global equity fund performance, portfolio concentration, and the fundamental law of active management’, Journal of Banking and Finance, 35(1), pp. 155-165.

Inderst, R., Ottaviani, M. (2009) ‘Mis(selling) through Agents’, The American Economic Review, 99(3), pp. 883-908.

Lin, W. (2016) ‘An innovation diffusion perspective to establish a business strategy model for wealth management banking based on the MCDM model combining DEMATEL and ANP’, Journal of Accounting, Finance & Management Strategy, 11(2), pp. 95-128.

PwC (2016) Strategy& Sink or Swim, Why wealth management can’t afford to miss the digital wave. London: PricewaterhouseCoopers LLP.

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