Wealth management is one of the key competencies of the Swiss banking industry. After being hit hard by bank customer secrecy concessions and new regulations, the Swiss wealth management sector is facing its biggest challenge yet in the increasing digitalization of the industry. The digital trend is driving transparency in the market, effectively bringing down fees and charges.
Swiss wealth management is expensive
In its comparison of fees and charges in the Swiss wealth management sector, moneyland.ch analyzed the private banking and investment consultation services offered by the most important Swiss universal and cantonal banks. Results show that Swiss wealth management is still a costly affair. Managing a stock portfolio worth 250,000 Swiss francs can cost as much as 5000 francs per year, or 2% of the invested assets.
"Costs are the most important factor when choosing a wealth management solution" says Felix Oeschger, analyst at moneyland.ch. Past performance also plays a role in the decision-making process, but it is often poorly understood or overestimated. Numerous studies have shown that future performance of service providers is rarely consistent with their past performance. High costs, on the other hand, always negatively impact future profits.
Banks are well aware of the impact of high fees and charges, and for this reason, some financial institutions do not openly publish their fees and charges and only provide them upon request.
In the case of Swiss private banks, this lack of transparency is the de facto norm. That isn’t surprising because fees charged by private banks are typically higher than those charged by the analyzed retail banks. Private banks in particular are concerned that more transparency will negatively effect their business.
Analysis shows major cost differences between service providers
For its comparison, moneyland.ch compared banks’ flat rate fees. These include administrative fees, custody fees and possible consultation fees. In almost every case, however, the flat-rate fee does not account for taxes, stock exchange fees and product fees (especially the costs of investment funds). The inclusion of expensive, active investment funds in portfolios is questionable because it results in customers paying double for the management of their assets.
The differences in fees charged between individual institutes are major. Example: A stock portfolio with a high risk profile and invested assets of 250,000 francs will cost the investor 1250 francs at digital wealth management service True Wealth.
At Migros Bank, the same investor would pay 3125 francs. The investor would pay 3375 francs using the Invest Mandate (Index) from Credit Suisse, and 5000 francs if they used the Managed Advance service from UBS. The most expensive service is four times as expensive as the cheapest service.
Robo advisors have the most affordable offers
By far the most affordable Swiss wealth management offers are provided by digital wealth managers, often referred to as robo advisors. The robo advisor True Wealth charges a fee equal to 0.5% of portfolio assets, regardless of the portfolio’s makeup. Only affordable, passive indexed products are used.
Although robo advisors are among the most dynamic fintech developments, they are still relatively unknown in Switzerland. Investment products are sold, not purchased, and the private banking industry is fed by numerous salespeople who work hard to acquire new customers. In the end, the investor pays for the high cost of customer acquisition by way of high fees and charges.
Robo advisor services are cheap because they automate most of the wealth management process, but they do not normally provide investment consultation. However, many conventional banks only offer personal consultation to very wealthy customers with assets worth millions of francs.
How investment strategies affect fees
In conventional wealth management, fees vary based on the investment strategy used. The general rule is: The higher the portion of a portfolio made up of stocks, the more the investor will pay for wealth management. Portfolios which are made up of obligations and do not include any stocks are the most affordable.
Another influencing factor is that the higher the invested assets, the lower the fees that are charged in proportion to invested assets. The wealthier the customer, the more affordable the wealth management service. Customized solutions generally come at an extra cost, and will normally only be provided to very wealthy clients.
Charging a flat-rate fee regardless of the investment strategy used is a relatively new trend among Swiss banks. The Zürcher Kantonalbank offers wealth management at a flat-rate fee equal to 1.3% of invested assets (up to 1 million francs) regardless of the client’s risk profile. Swissquote is another service provider which does not base fees on investment strategies. True Wealth takes the concept a step further by levying its 0.5% flat-rate fee regardless of the amount of assets invested.