Elegant clothes and classy offices are hallmarks of wealth management, but don’t let first impressions play too big a role when deciding which asset manager to work with. There are much more important factors involved.
First of all, don’t be afraid to be critical. In Switzerland, the terms “asset manager”, “independent asset manager” and “investment advisor” are not legal titles. Anyone can use those titles without taking on added legal liability.
When you interview a wealth manager, have them explain complex concepts and products. If all they can offer you are run-of-the-mill answers or explanations, take your business elsewhere. Be ready to present them with questions about processes and terms which are difficult to understand. Asset management has become increasingly complex, but a good asset manager should be able to explain how your money will be invested in a clear and concise way.
Pay attention to the following points:
- An asset manager should be upfront and transparent when discussing their company and their performance record. Drawing on past performance relating to a single client, for example, will not normally suffice in helping you form a clear opinion.
- An asset manager should be open and honest about the way their business is financed and the fees they charge. The business models used by different asset managers vary widely, with some earning money through consultation fees only, while others use commissions-based models or earn money from fees and charges for services and transactions. It is of utmost importance that asset managers are upfront about the way they earn their income, and how it affects you. Wealth management fees of 1.5% and success-based fees of 20% are not justifiable. Comparing the cost of private banking services at Swiss banks will help you get clear picture of the going rates.
- An asset manager should be transparent with regards to their recommended investment strategy and the risk involved. If you do not fully understand a specific investment method or vehicle, ask the asset manager to clarify it. A good asset manager should be willing to patiently clarify all your questions.
- Ideally, an asset manager should either be registered with FINMA or with a self-regulating organization. The largest self-regulating organizations in the field of Swiss asset management are the Swiss Association of Asset Managers (VSV/ASG), the Financial Services Standards Organization (VQF), and PolyReg. These industry associations set standards for asset management with regards to rights and obligations.
- The asset manager should not only provide you with a wealth management contract, but also with detailed, written information outlining the agreed-on investment strategy and your risk profile.
- An asset manager should be able to provide you with clear and informative materials outlining their career, charges, services and investment methods offhand.
Be cautious if you notice these patterns:
- Your asset manager rotates more than one fifth of invested assets on a regular basis. This can hint at churning practices. Ask the asset manager for background into the asset rotations. If you have solid grounds to suspect them of churning your assets, drop them and find yourself a difference asset manager.
- After making losses, your asset manager wants to buy into high-risk investments. This could indicate desperation on the asset manager’s part, which could lead to heavy losses for you.
- Your asset manager makes use of expensive products and services. Ask them to explain why they used those specific services rather than more affordable alternatives. If they cannot provide satisfactory explanations for why they chose the products and services in question, they may be basing their decisions on retrocession fees offered by product and service providers. In that case, find yourself a more honest asset manager as quickly as possible.
- An asset manager primarily sells his own products and services. If more than half of the financial instruments delivered by an asset manager are their own in-house products, you probably will not get the best available products from that asset manager.