Inheritance planning presents a strong opportunity for wealth managers in Switzerland to resonate with older HNW investors and business owners, according to GlobalData Financial Services.
The GlobalData report Wealth in Switzerland: HNW Investors 2017 says HNW demand is particularly strong for inheritance and pension planning.
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This is underlined by the fact that 33.8% of Swiss HNW individuals have accumulated their wealth through inheritance.
While a third of Swiss HNW clients have inherited their wealth, at the same time, half of Swiss HNW individuals can attribute their wealth to either ownership of a family business or as a first-generation entrepreneur.
Many Swiss HNW individuals can attribute their wealth to the property and real estate industry, followed by professional services.
The Swiss property market has historically seen nearly 15 years of interrupted growth. However, property price falls are expected in light of regional uncertainty caused by the UK leaving the EU.
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By GlobalDataIn March 2017 the Swiss government proposed a requirement that non-EU property owners in Switzerland sell when they leave the country.
In an effort to improve the overly expensive and scarce residential housing market, the government’s proposed law would also mean that non-EU citizens would need permission to purchase a home as their main residence in Switzerland.
With nearly one in every 10 HNW residents being an expat in Switzerland, this would certainly deter non-EU investors from purchasing property. This comes at a time when there is increased demand for property in markets that offer a high quality of life.
Compared to the regional average, a greater share of Swiss HNW residents are of foreign origin. Not only does Switzerland offer an attractive tax system but also a high standard of living, which includes excellent health and education services.
Our 2014–15 Global Wealth Managers Survey shows that 70.4% of the expat population have lived in Switzerland for eight years or more, making the country an established market for these individuals. As such, it remains an important segment for wealth managers, provided regulatory developments related to the property market do not impede on these relationships.
Investment style
In Switzerland and across the rest of Europe, HNW investors prefer discretionary mandates. Not only does this type of investment management enable the professional to make decisions on behalf of the client, it also frees HNW investors of the time and expertise constraints that come with more active mandate options.
The second largest proportion of wealth is held in advisory mandates, illustrating a notable preference by one segment of the Swiss HNW market to have partial control over their wealth.
GlobalData’s research shows that HNW inheritors are more likely to appreciate discretionary services, while entrepreneurs tend to prefer greater involvement, often opting for advisory mandates.
While the greatest share of HNW investments are managed through discretionary mandates, it is important to note the proportion of wealth that is placed through execution-only mandates.
At 22.6%, this is nearly double that of the regional average. This illustrates that HNW investors who are confident about managing their wealth on their own are comfortable holding this wealth in execution-only mandates. A mere 7.6% of HNW individuals’ assets remain outside professional management, demonstrating a strong preference for professional management.
Professional wealth demand
Demand for professional wealth management is strong in Switzerland, with 92.4% of assets placed with professional management. And rarely is this wealth placed with just one wealth manager: while half of the wealth in a Swiss managed portfolio is placed with their main wealth manager, there are often two, three, and even four other professionals involved in the portfolio’s oversight.
In fact, figures from GlobalData show that 75.5% of HNW investors on average use three or more wealth management firms.
This in unsurprising, given that these individuals are very likely to hold wealth in more than one country and display a strong propensity to work with wealth managers for their expertise and access to sophisticated investment products. HNW investors who do use multiple wealth managers may also do so in order to diversify each of the portfolios they possess.
Greater demand for both advisory and discretionary mandates is expected over the next two years, most notably for the former.
This is unsurprising given that Swiss HNW investors have a propensity to seek a balance of guidance from a professional but also control over their investments.
The weaker demand for execution-only services will continue, as nearly 70% of wealth managers believe demand for this type of asset management will decrease over the same period. There is strong potential for automated investment services to have a more prevalent role in the Swiss market, as 21.2% of wealth managers expect demand to increase in the next two years.
Automated services allow for cost and time efficiencies, as well as allocations and rebalancing to take place with greater breadth and depth compared to solely relying on human advisers.
Recipe for success
According to GlobalData, the critical factors for success in the Swiss wealth management market are
- Focus on discretionary offerings – Discretionary mandates are forecast to remain the preferred choice among Swiss investors.
- Wealth managers should ensure their offering is comprehensive and appeals to HNW residents. Inheritance planning services are key
- Expand equity and bond allocations – We forecast a strong increase in demand for equities and bonds, so wealth managers should ensure these remain at the forefront of Swiss HNW portfolios.
Private Banking International will be host the Private Banking Switzerland conference and awards in Zurich on 12 December. Click here for more details about the event: https://www.verdict.co.uk//private-banker-international/events/private-banking-switzerland-2017/
