The Swiss ‘one-bank’ concept – shared by Credit Suisse and UBS – has proved the winning wealth management model in recent years.
But prolonged success often leads to hubris. As if Credit Suisse’s back-to-back debacles in both funds and family office operations were not enough, PWM has received a detailed communication from the bank, refuting astounding claims.
These involve allegations that beneficiaries of 30,000 accounts holding more than SFr100bn ($110bn) – whose details were leaked to a consortium of media outlets – included clients involved in crimes including corruption, money laundering and drug trafficking. A colourful cast is alleged to include a Serbian securities fraudster, the billionaire boyfriend of a Lebanese popstar and a Cardinal of the Catholic Church.
The response from Credit Suisse suggests the matters described are mainly historical, that the vast majority of accounts referred to are no longer open and that partial, selective or inaccurate information has been taken out of context. The bank “strongly rejects” allegations about lax business practices.
But whatever the result of ongoing investigations, we have to ask ourselves a broader question: is the era of the big bank – incorporating wealth and asset management plus investment banking – finally drawing to a close? Credit Suisse is indeed claiming the latest allegations aim to discredit the entire Swiss market place, of which the biggest banks are a key pillar.
Should we instead be favouring a burgeoning cohort of boutiques, currently making hay?
Nothing new
The first thing to remember is that we have been here before. Two decades ago, investment banking drove profits, with private bankers treated as second-class citizens. Those attracted to become relationship managers were not the best qualified. Rather than being organised to efficiently run money for wealthy families, many of Europe’s private banks simply distributed capital markets products.
‘Structured solutions’, force-fed through this funnel to high net worth investors, were an accident waiting to happen, as were the ‘luxury’ hedge funds, which tanked during the global financial crisis of 2008.
A gradual realisation of the purpose of these banks eventually took root. Once Swiss banking secrecy was confined to the history books, major players also dropped their obsession with investment banking, re-purposing wealth management at their centre.
As a result, their offer – based on managing portfolios – became more persuasive. Once Zurich and Geneva actually lost their main competitive advantage, quality improved dramatically.
Yet recent events suggest the largest banks need to re-examine their models. With the latest spotlight on probity of clients, Switzerland’s major banks will be revising their risk management and due diligence, before their brands suffer.
After all, the early 2020s have shown that investors with time on their hands are re-assessing their banks’ offers, even switching providers in the post-pandemic hiatus. This perfect storm favours boutique players, steering clients away from big brands towards a more authentic, artisan experience.
The funds industry, which underpins the traditional investment world, is described as “one of the biggest scams of the last 30 years” by the boss of a recently-formed Geneva wealth firm, previously on the payroll of several leading global private banks.
Instead, he recommends “curation” of direct deals favoured by US endowments, investing in real estate and debt, rather than old-school bonds and stocks. His rationale is that big Swiss banks continue to work against their internal wealth management units, with whom they are reluctant to share lucrative deals.
A similar story about high-handed bankers emanates from the UK’s private investment offices. “They churn out the same stuff every time: in-house private equity product which is rubbish, expensive and illiquid,” says Max Thowless-Reeves, founder of Sorbus Partners.
The narrative of these smaller specialists is that once clients have “tried and tested” the aromas of bigger brands, they are left grimacing with the aftertaste of poor performance and high charges, before turning to smaller shops.
Chip off the old block
External commentators, however, have a more cynical view. The ‘boutique wave,’ believes Ray Soudah, head of Zurich consultancy MilleniumAssociates, far from being driven by consumer pressure, is a product of investment experts leaving the biggest houses to set up their own firms and boost revenues.
Despite their rhetoric of discovering a new religion, outside the mainstream, smaller players remain in the big bank ecosystem, as “external managers,” using their former employers as low-cost custodians, service providers and guarantors of credibility. In effect, they get the best of both worlds. Typically, many of these boutiques then merge, creating greater equity value, before selling out and starting all over again.
Parallel universe
“Next to the large global and regional players, there is a parallel boutique universe that will increasingly leverage on institutionalised platforms to provide a service that is in line with regulatory requirements,” says Matthias Schulthess, managing partner at headhunters Schulthess Zimmermann & Jauch.
Against this backdrop, the bigger players are still winning due to their increasing purchasing power. The rising stars, say our pundits, will not be the artisan shops, but the likes of Citi, Goldman Sachs and Julius Baer, jostling to challenge UBS.
Do not write off the big boys. “Credit Suisse will aim to remain independent as it stabilises itself and market perception improves, at which point it will be in a stronger negotiating position either to merge or even acquire others,” confirms Mr Soudah.
When it comes to dreams of a new wealth management paradigm, like much in life, these can exist but for a fleeting moment, before realism once again triumphs.
