Independent Wealth Managers: New Challenges

The subprime mortgage crisis of July 2007 followed by the international economic crisis in 2008 curbed the global financial industry’s expansion. Since the bankruptcy of Lehman Brothers in September 2008, considerable energy has been expended by the financial sector on working on the survival of its business model. Pending a recovery, attention has been focused on regulation. The influence of the regulatory framework is considerable in terms of costs, and some business models or operations are no longer sustainable. There is an urgent need in terms of transforming the whole value chain; therefore, significant changes must therefore be made to business strategies.

Since some states had to provide massive support to their financial institutions; they are seeking out new financial resources. The G20 stigmatized banking secrecy and accused the latter of depriving them of tax revenue, and during its 2013 Summit world leaders endorsed AEOI as the new global tax standard (OECD, 2013). The main financial centers in Europe have lost some market share due to the changes related to tax regulation. As a result, the transborder wealth management sector is under pressure despite the potential linked to important needs of high net worth (HNW) investors, since they have, particularly in Europe, a tendency to regularize untaxed money or to move to other jurisdictions (Johannesen, 2014). For the new generations tax-evaded money has less value than properly taxed money as it cannot be safely used. However, following regularization of the situations inherited from the past; there are clear indications that the diversification and high-level service offered by the Swiss financial center remain attractive. As evidence of that, we can refer to the fact that Switzerland’s transborder wealth management market share was 27% in 2009 (PwC, 2016) and, according to the Swiss Bankers Association (2016), remained at 25% in 2015, and that The Boston Consulting Group (2016) estimates it is expected to remain the largest single offshore center through 2020. Nevertheless, this encouraging statement does not mean there is no need to reevaluate the business strategies.

Switzerland’s Independent Wealth Managers (IWMs) represent a highly client-centric model which remains popular among high net-worth individuals and families. Despite the fact that it is very popular, this model is under growing threat. Increasing competition is driving high structural pressure and resulting in a trend towards consolidation. The Swiss IWM sector is going through the same consolidation phase as banks (Swiss Bankers Association, 2015). IWMs will have to address several challenges and macro trends that are impacting their profitability and perhaps their survival. Implementation of new regulations, technology and digitalization, and increasingly intense competition are forcing IWMs to realign their operating models and fee structure. Clients’ requests are increasingly complex and they expect more in terms of transparency and technology.

Swiss IWMs have no banking or brokerage license. The analysis by Bergman et al.’s (2014) revealed that there are 2,300 IWMs in Switzerland: eight times the number of banks. An IWM is in a triangular Relationship between the client and the custodian bank and the relationship between the client and the IWM is based on a mandate agreement, which allows the IWM to make investment decisions on behalf of the client (Zollinger, 2007).

The IWM charges its client a fee for its professional services; in most cases, the fee is a percentage of the AuM. The custodian bank maintains the client’s account and the structure that enables the IWM to manage the portfolio. A third relationship exists between the IWM and the custodian bank since the latter has to authorize the IWM to access the client’s account.

IWMs operate in a niche market environment where the client appreciates being provided with individual support and having a wealth management solution that is optimally customized. This type of advisor is not always an expert on all issues but can refer the client to the right people through the network. He can give advice on asset management, structuring a will or a trust or whatever aspect it might be. Lin (2016) proposes a traditional definition of wealth management: “it deploys the assets and liabilities of customers, and provides all-sided financial products and services…”

These main factors, namely: return requirement, risk tolerance, taxation and individual circumstances, apply in a very different manner to each client. The service which consists in taking all these factors into account when performing wealth management is precisely what is performed by IWMs.

Switzerland has recently undertaken to revise its financial market law. A tremendous legal project has been launched consisting of a complete review of the existing legislation. IWMs will be subject to appropriate provisions. This vast legal reassessment aims to improve investor protection and to standardize the duties of financial services providers towards their clients. After the implementation of AEOI, transparency is key; performance is no longer measured in absolute terms but in relation to the post-tax performance that is generated by competition in the country of origin (KPMG, 2015). IWMs must offer real value to their clients.

Digitalization of processes and investment products is also revolutionizing the entire industry. On the one hand, technological progress generates costs benefits and creates new types of services (for example, in the distribution channels and communication) but, on the other hand, it strengthens the clients’ position and changes their expectations as demonstrated by Fischer et al. (2013).

The whole financial services industry initially exhibited digital paralysis and was reluctant to embrace digitalization. Since the recent appearance of a FinTech ecosystem (Swiss Finance + Technology Association, 2017) and even though there is at the moment some limitation to the automatized systems (robo-advisors, algorithms) this trend is unstoppable. Stefanova et al. (2017) summarize it by arguing: “…the industry is extremely profitable and excess profit pools attract competition” and: “…the financial technology venture capital is exploding”. Digitalization is efficient in terms of costs but it can also be a vector for additional revenues thanks to a better approach to the clientele. Today services that are provided are expected to be transparent, intuitive and friendly, rapidly and securely accessible, personalized, suitable with other services, and available on a centralized digital platform. Besides this, the increasing role of women in investment companies and of millennials who become the decision makers will form a new behavioral axis that will affect the whole wealth management industry.

Yves Reichenbach (April 2018)


Bergman, A., Fuchs, S., Rauskala, I., Fuhrimann, S., Kley, C., Asani, A. (2014) Regulierungskostenanalyse zum Finanzinstitutsgesetz (FINIG). Zurich: School of Management and Law.

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

Johannesen, N. (2014) ‘Tax evasion and Swiss bank deposits’, Journal of Public Economics, 111(C), pp. 46-62.

KPMG (2015) KPMG’s Clarity on AEoL in Asset Management. Zurich: KPMG.

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.

OECD (2013) G20 Tax Annex To The St. Petersburg G20 Leaders’ Declaration. OECD Publishing. Available at:

PwC (2016) Private banking in Switzerland and Liechtenstein: are its days numbered? Zurich: PwC Switzerland.

Stefanova, K., Teten, D., Beardley, B. (2017) Who Will Disrupt Asset Management and How. Available at:

Swiss Bankers Association (2015) Wealth management in a period of change. Basel: Swiss Bankers Association.

Swiss Bankers Association (2016) 2016 Banking Barometer. Basel: Swiss Bankers Association.

Swiss Finance + Technology Association (2017). Available at:

The Boston Consulting Group (2016) Global Wealth 2016 Navigating the New Client Landscape. Boston: The Boston Consulting Group Inc.

Zollinger, M. (2007) Rechts- und Haftungsverhältnisse in der Dreiecksbeziehung. Zurich: Universität Zurich.

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