SwissBanking
The online magazine of the Swiss Bankers Association
April 02, 2020

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How much private wealth does Switzerland manage?

How much private wealth does Switzerland manage?

The difference could not be greater: according to the SNB, securities of foreign private customers totalling CHF 513 bn were managed in Switzerland in 2018. Boston Consulting Group (BCG) estimates cross-border assets in Switzerland to be CHF 2,300 bn. Why the large discrepancy and which figures should be trusted?

The best way to assess Switzerland’s competitiveness as a wealth management hub is to look at total assets under management. The main focus here is cross-border wealth management: Switzerland has been a global leader in this business for decades, which is why great importance is attached to these figures.

Banks provide the SNB with a large number of figures on an ongoing basis, including the customer custody account balances held in Switzerland. On the one hand, this includes investments that are “managed”, i.e. the bank provides advisory services or, in the form of a portfolio management mandate, makes investment decisions according to the client’s specifications. On the other hand, they also include “held in custody” investments, for which the bank assumes custody of the securities in the form of a custody mandate. In this case, the bank typically acts on behalf of a foreign financial institution.

It comes down to the definition

The SNB statistics distinguish between private customers, commercial customers (i.e. companies) and institutional customers (e.g. pension funds, investment companies or financial institutions). The banks inform the SNB of their contracting partner responsible for account management . The SNB therefore does not receive information on beneficial owners. Beneficial owners are those persons who own the investment and are entitled to its income. These are either private individuals or legal entities, such as pension funds or companies.

The BCG estimate uses a slightly different classification: its calculation is based on the assets that are managed by the banks’ private customer business, not including the domestic business. Although this can lead to small inaccuracies if, for example, a bank maintains the bank account of a micro-enterprise within its private customer business, the focus is almost exclusively on private customers as beneficial owners. For regulatory reasons, banks are obliged to record exactly who the beneficial owner of a bank account is – irrespective of the question of which (legal or natural) person is the contracting party – and usually assign this person to the business unit in question.

The different definitions explain the large differences between the figures provided by the two sources: if, for example, a foreign family has its assets managed by a family office, the SNB records these assets as custody account holdings of institutional clients, but BCG records them as private assets.

So which figures are correct?

The simple answer is: both. In most cases, however, what is generally of interest is not the bank's contracting partner, but the beneficial owner. And here the BCG figures are far more informative than the SNB statistics. In a recent report on tax evasion by private individuals, the European Commission uses figures similar to BCG’s for foreign private client assets managed in Switzerland – USD 1,998 bn for 2016. The report is based, among other things, on academic studies.

Simple plausibility tests clearly support this: for example, the big banks alone manage over CHF 3,000 bn in assets in their private customer business. A large proportion of this is attributable to the Swiss business units and cross-border customer relationships. Added to this are the assets managed by other banks in Switzerland with a focus on cross-border business.

It is also unclear who the beneficial owners of the CHF 2,300 bn of institutional assets calculated by the SNB could be, if not family offices, private label funds and other organisations in the hands of private individuals. In most countries, pension assets, sovereign wealth funds and other larger institutional assets are managed mainly domestically.

BCG figures more conclusive for analyses

No one doubts that the SNB collects its statistics on securities with the greatest possible precision and accuracy. However, the definition it applies limits their conclusiveness with regards to the competitiveness of the Swiss financial centre. For this reason, the SBA generally uses BCG figures to measure the volume of foreign private assets and for international comparison.

Boston Consulting Group’s (BCG) Global Wealth Report

BCG has published the Global Wealth Report annually since 2001. The study aims to determine the size of private financial assets in 97 countries and provides forecasts on their future development. It also explores implications and trends for wealth managers. The study is based on public sources of data, BCG models and experts as well as on a survey of 150 wealth managers worldwide.