When the pandemic burst onto the scene – throwing our established habits, social interactions and way of working into disarray – who would have predicted that the Swiss wealth management industry would not only weather the storm but emerge from it stronger than before? Clearly, though, the sector has remained strong, as shown by 2020 results.
The same was true during the 2008 crisis: at the time, the doom-mongers predicted that Swiss wealth management would see an inexorable decline. With the disappearance of banking secrecy and the proliferation of new regulations, the fate of private banks appeared to be sealed.
And indeed, the last decade has brought a narrowing of margins in Switzerland’s financial centre, along with growing consolidation. However, whereas the industry was widely expected to weaken, the reverse has happened. Private banks have made huge efforts to adapt, comply with new rules and develop new sources of growth, and those efforts have paid off.
Still in pole position
According to the Boston Consulting Group, in the space of ten years, financial assets have almost doubled at global level and some markets have seen exponential growth. Assets entrusted to wealth managers by Middle Eastern and African clients have doubled, among Eastern European clients they have increased by a factor of 2.5 and for Latin America clients they have tripled.
Despite competition from other financial centres, Switzerland is continuing to capture almost a quarter of that wealth, and it has bolstered its position as the world’s premier centre for cross-border wealth management.
Having dealt with the Covid-19 crisis in a relatively orderly way, although its economy has not escaped unharmed, the country has again confirmed its status as a safe haven in the eyes of clients from regions that have been hit hard by the pandemic or are seeing geopolitical tension.
Today, Switzerland is well placed to maintain its leadership when the post-Covid rebound takes place. Productivity gains have enabled some banks to improve their cost/income ratios, and now that most of the regulatory compliance work has been done, they once again have potential to invest.
Savings rates have surged around the world because of economic support measures and reduced spending during lockdowns. Some studies put the amount of cash that has been accumulated at USD 5,500 billion, a windfall that will mainly serve to drive the economic recovery. However, not all of this liquidity will be injected into the real economy, at least not immediately, and for wealth managers this presents opportunities, particularly in terms of fulfilling their responsibilities.
Given the major social and environmental challenges we face, financial intermediaries have a duty to help direct savings towards responsible investments. They can have a real impact because they have the analytical skills to select the most promising industries and companies, and because they have the ear of their clients.
Switzerland has acknowledged expertise in this area, allowing it to play a leading role. The momentum that has built up over recent years is confirmed by the huge growth in sustainable investments, driven by constantly growing demand from institutional clients and enthusiasm among private clients, particularly the younger generation.
Wealth managers have also innovated by encouraging their clients to invest in non-traditional asset classes such as real assets. These have proven their worth as alternative investments, having performed strongly compared with the anaemic returns produced by the money market and bonds. Above all, they allow investors to contribute directly to financing the real economy.
Finally, the recent crisis has been a catalyst for digital transformation in the wealth management sector. Digital tools have proven invaluable in keeping private banks operational during the Covid-19 crisis, and they will remain indispensable in the post-Covid world, having shown the value they add in terms of efficiency, security, risk management and customer experience.
However, in an industry built on trust and close relationships, these digital tools, useful though they may be, are no replacement for people. The future of our industry relies on the skills of bankers and investment specialists. Private banks must therefore continue to invest in talent. They need people capable of meeting clients’ specific needs, particularly in growth markets, and who can constantly hone their skills in ever more specialised fields.
Swiss wealth management, which is sometimes presented as traditional and even old-fashioned, has once again proven to be agile and innovative, which has allowed it to maintain its leadership despite competition from other financial centres in Asia and Europe.
However, the industry still faces a potential threat in terms of access to the European single market, and a framework agreement with the EU is needed to create the conditions required for the Swiss financial centre to remain competitive over the long term.
Head of Wealth Management Developing Markets, Geneva & Monaco