Independent Wealth Managers: Change in Return and Products

Consistently delivering long-term positive performance on a “net of costs and fees” basis is rather difficult; Cao et al. (2017) found that: “a simple passive strategy that invests in the MSCI World and a risk-free asset significantly outperforms both the better advisory and the bank-managed portfolios”. Some studies argue that it is even possible for many financial advisors to collect more fees and commissions than the performance of the accounts they manage (Hackethal, et al., 2012). Fischer et al. (2013) have identified a new trend that they call: “R3” or “real real returns”. R3 means providing a real yield after tax and inflation, and in addition being “safe” in terms of real assets. The key to future investment opportunities is to provide not returns that are limited to the nominal value but robust returns after tax and inflation. At the same time as the risk of global inflation rises due to the quantitative easing in the US and Europe, customers are increasingly looking for “real investments” in tangible assets, expecting more financial products with a safe return and stable performance. Due to the modest return of the public market, investments in private equity are becoming more frequent in an attempt to boost portfolio returns; Froland already highlighted that in 2005.

There is also growing interest in investments that are in line with sustainability and, in some cases, environmental, principles. Quite frequently Independent Wealth Managers (IWMs) miss reliable information resources that highlight the opportunities and investment methods relating to sustainable investments, and the required expertise is lacking. The offering could be developed to ensure that sustainable and socially responsible investment strategies are implemented. Several factors are curbing the expansion of these types of strategies – these products are yet not standardized and involve payment of a premium which makes them more expensive, and in general investors prefer liquid assets, and sustainable investments, particularly in the area of infrastructures, often have a long outlook, therefore they are in less demand.

A lot of financial products have been created using special investment vehicles and derivatives with various names. There is a wide variety of structured products and alternative asset classes. The financial industry has focused on offering an ever-growing product range and at the same time, those products have gained in complexity and sophistication (Célérier and Vallée, 2014). The complexity, at the height of the financial crisis, even reached a level that made some products difficult to understand even for the most experienced and insightful advisors (Brunnermeier and Oehmke, 2009).

Clients’ need for stability and their suspicion of off-the-shelf investments are altering their perceptions and expectations of transparency about risk, costs, and performance. Today they want to have a clear understanding of what their wealth managers are offering. Assuming that the customers’ level of financial knowledge remains more or less the same, more transparent products will be requested. Individual solutions will be required as clients want to assess how their portfolio is interlinked with the global economy. As financial products become more commoditized through technology and as fee structures become more transparent, it appears that advice will ultimately become the differentiating factor.

Besides the performance of the investment “products”, IWMs also have to provide the flexibility that is expected and they also need to improve their response times in the investment management processes. Selection of investments procedures that in the past needed several days to complete will be not acceptable – response time will be measured in hours.

Yves Reichenbach (April 2018)


Brunnermeier, M., Oehmke, M. (2009) Complexity in Financial Markets. Princeton: Princeton University.

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.

Célérier, C., Vallée, B. (2014) The Motives for Financial Complexity: An Empirical Investigation. Zurich: University of Zurich.

Fischer, R., de Jonge, M., Ko, D., Toepfer, O. (2013) Wealth Management in New Realities. Zurich: Roland Berger Strategy Consultants.

Froland, C. (2005) ‘Private Equity in a Low-Return World’, CFA Institute Conference Proceedings, 2005(2), pp. 2-10.

Hackethal, A., Haliassos, M., Jappelli, T. (2012) ‘Financial advisors: A case of babysitters?’, Journal of Banking & Finance, 36(2), pp. 509-524.

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