As in other sectors in the financial services industry, competition in international wealth management is strong, and changes with some disruption are already underway.
By Patrik Spiller, Wealth Management Industry Leader Schweiz, Deloitte
The Deloitte International Wealth Management Centre Ranking 2021 found that Switzerland remained the world’s most competitive center, retaining the leading position it held in the previous 2018 report, but it is closely followed by Singapore and Hong Kong; and terms of absolute International Market Volume (IMV), Switzerland is also in the lead, followed by the U.K. and U.S.
The position of Switzerland as the leading wealth management center may now be narrowing. The Deloitte survey found that in 2020, it ranked only sixth when measured by growth in assets under management, a disappointing and perhaps surprising performance.
Most future growth in the sector is expected to be in Asia (and not least China), and the competition for wealthy clients in this part of the world is likely to be intense. Even so, Switzerland has maintained its impressive record as the number one offshore center over the past ten years: the current challenge is to maintain it.
International investors value political and financial stability, a long-standing comparative strength of Switzerland; but although rival wealth management centers such as Hong Kong and the U.K. may be experiencing some political uncertainty, Switzerland must innovate to stay ahead.
Pressure on Margins
Margins have come under pressure. Firms are experiencing higher costs, for example with onboarding new international clients and due to the increasing burdens of compliance in areas such as financial data privacy. There has also been some erosion of fees.
As competition in the sector intensifies, we can expect to see some consolidation as firms seek to boost their financial performance through M&As and operating on a larger scale.
What seems clear is that players in the wealth management industry must respond to changes that are happening in the market and develop a clear strategy for the future. They must recognize and adapt to the changing needs and behavior of offshore clients: as clients become increasingly digitally savvy, firms must develop a client experience that includes online services as well as the much-valued personal interaction.
Full-Digital Advisory Model May Be Appropriate
Basic services and products that do not require intense human interaction and specialist expertise can be delivered through digital platforms. In this context, discretionary and high-touch advisory offerings could be mixed with a light advice-oriented model, and even a full-digital advisory model may be appropriate.
The focus should be on profitable offshore segments. Firms must seek to attract high-net-worth individuals from high-growth regions, offering an extended and innovative range of products and services. Firms must also ensure that they have a resilient business structure capable of withstanding disruption such as the extreme levels of price volatility caused by the COVID-19 pandemic in 2020.
Flexible Technological Platforms
They must ensure operational resilience of their trading, settlement and clearing procedures and related systems. They must also enhance key business capabilities, such as client and sales analytics using CRM and data management tools to drive sales efficiency.
Firms need to invest extensively in digitalization, to compete with Big Tech and Fintech companies, or partner with them, in order to offer clients superior service and flexible technological platforms. Digital marketing will be used to attract new clients. Product offerings will need to be differentiated, not least as investor interest grows in ESG investments, private equity, cryptocurrencies and digitalized token assets.
The battle between WM centers and players for top talent will also remain fierce: a strong and inclusive culture may be a key differentiator to attract and retain talent, and engaged employees should be incentivized through training and personal development.
Disappointment in 2020: A Wake-Up Call
Switzerland continues to perform well as an offshore wealth management center. The slower growth rate in volume for Switzerland’s international wealth management center in 2020 may be attributable in some way to the disruption caused by COVID-19, but it should nevertheless act as a wake-up call, to review strategic direction and respond to the ways in which the market is changing.
It will be very interesting to observe the measures that firms and the Swiss government take to maintain market competitiveness, and the impact they have on their position in the market. By the time the next Deloitte International Wealth Management Centre Ranking report is published, the global market may look substantially different.