Switzerland’s independent asset management (IAM) sector grew significantly from the mid-1980s through to the mid-2000s. At year-end 2011, up to 3,600 firms managed total client assets of up to CHF650 billion (12.3% of the Swiss total of CHF5.3 trillion). Basking in its cultural and operational differences from banks and operating within a far lighter regulatory environment, the sector offered an attractive option for bankers and clients alike.
Within the headwinds facing the Swiss wealth management landscape, however, the IAM business model faces significant change. In fact, the factors that drove its growth historically may now represent its greatest weaknesses. The changed tax and regulatory environment, new client expectations, a lack of scale, weak processes and a potentially misaligned skill set, all wrapped up within a move to institutionalize, raise major questions about the future of the Swiss IAM sector. Whether that means demise or reinvigoration remains an open question.
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At the heart of that question and the sector’s future alignment with its environment are the following dynamics:
- 79% of IAM firms manage less than CH250 million in assets
- 76% of IAM firms employ five or fewer staffers
- The vast majority of IAM firms manage assets for Western Europeans clients
In other words, the IAM sector today is dominated by small businesses that are heavily exposed to a client base of Western Europeans (challenging due to the region’s changing approach to taxation). In numbers, thousands of IAM firms are either too small (by AUM or staff), too independent, or too uninstitutionalized to ride out the market’s challenges.
Within that context, in the short to medium term and with some form of direct regulatory oversight likely to replace the current light-touch, self-regulatory environment, many expect to see many hundreds, if not thousands, of IAM firms exit the market. Many hundreds more may seek protection through consolidation and access to partnership or platform-like services that can withstand and share some of the rising costs of doing business (e.g., office space, IT, administration, compliance, and research).
The very essence of the IAM sector has shifted. The dominant model once involved one or two individual client relationship managers leaving their bank employer to form their own IAM with a book of clients (many of which will have undeclared assets). General institutionalization of the sector has all but killed that off. Today, unless the client book is well in excess of CHF250 million; focused on a specific client type, geography, or product; and run by a skilled and specialist team, that stand-alone business model is less likely to survive and prosper.
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By GlobalDataNew firms (and there remains a real pipeline of interest) are more likely to be large players — such as Metropol Partners, which spun out from Clariden Leu/Credit Suisse in 2012 with 30 staff and an AUM of several billion — or to operate within the aforementioned partnership or platform structure.
Change is of course also evident within the existing IAM sector. While there is a general need to focus on new clients, markets, services, and skills, there is also a clear trend to open firms or be regulated in new geographies, develop complementary product and business lines, make internal infrastructures available externally, and look at M&A and advisor recruitment. In addition, a growing market of service providers (investment specialists, compliance firms, etc.) seeks to serve the growing need for dedicated products and services.
In short, the Swiss IAM sector is shifting its shape as it faces up to a far tougher operating environment. Change is certain, but a full answer to the question of demise or reinvigoration will remain open until the full pain of change moves from discussion to reality during the next two to three years. Will the sector do or die?
Stephen Wall is a senior analyst with Aite Group
