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Swiss Wealth Management

Wealth management – i.e. the management of private assets – is the Swiss financial centre’s leading area of expertise. It encompasses the provision of comprehensive financial services for private individuals and the management of their assets. In 2018, banks in Switzerland managed a total of CHF 3.7 tn of private assets, of which around 62 percent originated from customers domiciled abroad. Wealth management is thus one of the most important services exported by Switzerland.

Attractive home market

At 7.5 percent of the total population, Switzerland has the world’s highest density of millionaires.

Switzerland is the leader in cross-border wealth management

The internationally managed private assets have increased by CHF 300 bn from 2013 to 2018.

Comprehensive and first-class services

Wealth management is an important export industry for the Swiss national economy.

A total of CHF 1.4 tn of domestic private assets are managed in Switzerland. The high-net-worth individuals (HNWI) segment accounts for around 42 percent of these assets, while a further 28 percent comes from the ultra-high-net-worth individuals (UHNWI) segment. Even if the number of customers within the affluent, mass affluent and retail segments is significantly higher, cumulatively they account for only just under 30 percent of private wealth across the whole of Switzerland. Banks typically segment their customers according to asset volume and sometimes other criteria.

Chart 1
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Source: BCG

Typical customer segmentation by asset volume in the private customer segment:
Up to CHF 100,000: Retail
CHF 100,000–1 m: Mass affluent / affluent
CHF 1 m–20 m: HNWI (high-net-worth individuals)
Over CHF 20 m: HNWI (ultra-high-net-worth individuals)

Note: Customer segmentation varies from bank to bank. In some cases, criteria (e.g. advisory form chosen, family environment, mortgages) are considered in addition to asset volume.

Role and relevance of wealth management in Switzerland

With CHF 3.7 tn of assets, wealth management is of central importance to the financial centre and the Swiss economy. Banks offer a comprehensive range of services for private customers and cover all areas of holistic asset planning. There are few financial centres that can provide a similar density of specific services and long-standing expertise in the field of wealth management compared to Switzerland. These services range from investment advisory, tax advisory and inheritance advisory to philanthropy advisory. Switzerland’s international focus and multilingualism, as well as the knowledge of cultural differences in target markets, its central location in Western Europe and its first-class transport links allow banks in Switzerland to provide customised services for customers from all regions of the world.
Chart 2
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Source: SBA

With a market share of around 27 percent, Switzerland is by far the most important financial centre for cross-border wealth management. In addition to its unparalleled range of high-quality services, its highly experienced workforce and its favourable regulatory landscape, Switzerland’s geographical and cultural proximity to what were previously the most important growth markets was a major factor contributing to this result.

In view of the continued difficult economic environment in Western Europe – the most important market for wealth management – and as a result of significant regulatory changes, the Swiss wealth management industry has experienced weaker growth in recent years than other locations, especially in Asia. During the last few years, emerging markets in the Far East, Latin America, the Middle East and Eastern Europe have seen the strongest growth in private wealth. This is also the reason why Swiss banks have, for some time, been operating at a local level in foreign locations and are increasing the scale of these operations. Customers are also more and more interested in receiving services from different locations and on a combined basis.

Chart 3
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Western Europe is by far the most important market for Swiss wealth management, accounting for 42 percent of assets under management, followed by the Middle East, Latin America and Asia. Even though Switzerland does not border on the most important growth markets and gains less benefit from their development than other wealth management centres, it displays a high level of global diversification in terms of customer domiciles: four regions of the world account for more than 10 percent of assets under management and no one region has a proportion of over 50 percent. Apart from the UK mainland, which has a significantly lower volume of assets under management, none of the other main competing financial centres displays a similarly diversified portfolio of customer domiciles.

Chart 4
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Overall, the volume of assets under management in Switzerland grew from CHF 1,970 bn in 2013 to CHF 2,270 bn in 2018. The volume of assets from customers from all regions of the world increased. The largest growth of CHF 110 bn was seen in the category “Other”, which encompasses Eastern Europe, CIS countries and Africa. Customers from the Middle East as well as Asia/Pacific collectively accounted for around CHF 120 billion of additional assets. The net growth in assets from customers in the Americas and Western Europe regions was lower at CHF 50 bn and CHF 20 bn, respectively, but remained clearly positive.

Chart 5
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Swiss Wealth Management

“Regulatory competitiveness” benchmarking

Both Switzerland as a location for business and the Swiss financial centre enjoy a leading position in international comparison. An analysis of different rankings conducted by the SBA shows where exactly Switzerland stands in comparison to other financial centres and where it must improve.

Framework conditions wealth management
Relative positioning of Switzerland

Competitive factors 
Goal: the higher the better

International standards
Goal: golden mean

Chart 6

Key messages
Swiss banks are fully committed to implementing the AEOI and other tax-related international standards. Switzerland is particularly affected by the AEOI, as almost one-quarter of the world’s cross-border private wealth is managed in Switzerland. Therefore, data protection and data security during the effective exchange of information as well as in the respective recipient states are of paramount importance for Swiss banks. At the same time, appropriate pressure should be kept on the US to align its standard with the OECD’s provisions in order to achieve a truly level playing field. All jurisdictions must implement the same standard if the fight against tax evasion is to be successful.

Chart 7

Key messages
Switzerland has strict rules aimed at preventing money laundering and terrorist financing and Swiss banks implement the FATF’s international standards with due care. Nevertheless, certain reforms may be necessary to fully eliminate the shortcomings identified in the FATF and Global Forum evaluations in order to maintain Switzerland’s good standing.

Chart 8

Key messages
In international comparison, Switzerland continues to be among the countries with the strictest capital and liquidity requirements and, in certain areas, even exceeds existing international standards. In order to maintain the financial centre’s competitiveness, it remains important that capital and liquidity requirements continue to be adjusted in close alignment, both in terms of content and timing, with global standards and with the implementation in other jurisdictions (e. g. EU, US). Following the early introduction and implementation of Swiss TBTF, further over-regulation or gold plating should be avoided in future and timing as well as content aligned with international consensus. It is equally important to ensure a level playing field for all participants, nationally and internationally. In this respect, rules should be consistent in the sense that adherence to some rules is not punished by other, conflicting rules. In addition, regulatory requirements should reflect true risk potential and adjustments should be made to capital ratios if a framework proves to be inconsistent.

Chart 9

Key messages
Switzerland is strongly positioned with regards to corporate governance standards. The reforms made by FINMA concerning corporate governance and the further reforms planned in the context of the revision of the Corporate Law Act are expected to address the identified shortcomings in the area of shareholder protection and further improve Switzerland’s position. In this respect, a “Swiss finish” should be avoided. In overall terms, in particular due to the FINMA circular on “Corporate Governance” which entered into force on 1 July 2017, the Swiss financial centre now has modern and seminal new rules for corporate governance. Nevertheless, Switzerland must not jeopardise its current positioning by making legislative adjustments that are incisive for Switzerland as a business location. This could particularly be the case against the backdrop of the “Responsible Business Initiative” and of a possible counter-initiative.

Chart 10

Key messages
Switzerland is very well positioned when the general level of the security of clients’ interests is taken into account. In this context, Switzerland continues to be considered a major hub for wealth management services, and this position results in large part from the stability of its legal framework (incl. dispute settlement), excellence of customer service, judicial independence, client capital rights protection and the low level of public sector corruption. However, due to the fact that Swiss private banks remain highly reliant on access to their international client base, a harmonisation of Swiss regulations with existing and upcoming EU regulations is needed in order to fulfil equivalency requirements. In this context, the envisaged new financial market acts (FinSA and FinIA) need to provide the Swiss financial centre with a balanced and up-to-date overall approach in the area of client / investor protection.

Chart 11

Key messages
Swiss banks have quickly embraced digital innovations and Switzerland generally wants to further strengthen its position as fintech hub. However, it will also be necessary to continue efforts aimed at improving the regulatory framework to support future developments and trends. In this context, Swiss banks advocate best possible framework conditions for innovative business models in order to maintain the competitiveness of the Swiss financial centre.

Chart 12

Key messages
From a banking perspective, the free movement of persons and the ability to attract the best talents are critical to the success of our financial centre. It is therefore important that the Swiss labour market maintains liberal labour laws, a low regulatory burden and social stability, as highly-skilled personnel is extremely mobile. Even though Switzerland currently scores very well on the quality of its labour market, structural measures (reform of the pension system) as well as clarification with regards to Swiss-EU relations is needed in order to preserve this position. The announced initiative aimed at abolishing the free movement of persons between Switzerland and the EU must therefore be resolutely opposed.

Chart 13

Key messages
It is in the interests both of the financial centre as well as the overall economy that Switzerland positions itself as a country with an attractive tax regime for companies and individuals alike, including a tax system that meets international standards.
However, particularly in the area of taxation of the financial industry, there is still room for improvement, because the design of the withholding tax system as well as the various stamp duties currently represent significant locational disadvantages for the Swiss financial centre. As a direct consequence, the majority of investment funds are issued abroad instead of in Switzerland. Same applies to structured financial products. Euro bond trading, originally present in Switzerland, has largely moved to London. Switzerland consequently loses value added and potential income and profit tax substrate. Therefore, this self-imposed handicap must be abolished as soon as possible. In addition, the Tax Proposal 17 and especially related substantial local reforms of the company taxation in the cantons Zurich, Geneva and Ticino are a matter of great urgency for the Swiss economy and the three wealth management centres. Swiss banks therefore welcome the efforts of the Federal Council to strengthen Switzerland’s position as a business location with the Tax Proposal 17 so that Switzerland can remain attractive for domestic and international companies.

Chart 14

Key messages
Given the rather small size of their domestic market, Swiss private banks are particularly reliant on facilitated access for the provision of services to foreign-domiciled clients. In order to preserve the current value creation in Switzerland as well as avoid the relocation of highly-qualified jobs, access to focal markets (particularly in the EU) must not only be preserved but also significantly improved in a sustainable manner. This is particularly important in light of the implementation of MiFID II by individual EU member states and the ultimate EU-UK agreement on financial services, as these developments will significantly influence the shape of the financial services landscape in Europe over the coming years. In addition, both market participants as well aspolicy makers must make substantial efforts to further improve the location qualities ofthe Swiss financial centre in order to attract foreign providers and thereby safeguard the internationality of our business location. In order to ensure the key priority of access to foreign markets or to expand such access, Swiss banks continue to support the simultaneous pursuit of three different strategies. These are independent of oneanother in terms of timing, political sentiment and approach: bilateral agreements with both individual EU member states and focal countries outside Europe, EU equivalence and further evaluations with regards to a possible Financial Services Agreement with the EU to minimise any loss of sovereignty for Switzerland. This is necessary inview of the future solution for cross-border trade in financial services between the EU and the UK, which will have profound consequences for other third countries to the EU such as Switzerland. In this context, dedicated efforts should also be made inparallel to gain improved market access to emerging economies with high private wealth growth rates.

Chart 15

Key messages
The protection of sensitive client data and of client privacy (and in general, protection of personal data) remains part of the Swiss banks’ DNA to this day. Switzerland can generally be considered to have a good level of data protection, which will be further enhanced with the revision of the Swiss Data Protection Act. Additional regulatory requirements were introduced recently by the Swiss regulator to combat systemic risks linked to cyber criminality and cyber threats. Rapid technological developments and legislative initiatives at the European and international levels require close monitoring of the Swiss legal and regulatory framework for data protection in order to adapt it as needed to international developments and emerging threats. The Swiss banks recognise this need and support the Federal Council in its efforts to adapt the Swiss provisions in line with the changing technological and social framework conditions, and to harmonise them with legal developments at the European and international levels. As companies operating internationally, Swiss banks depend on the EU to continue to grant Switzerland the status of a third country with equivalent data protection, so that cross-border data transmission remains uncomplicated with the EU. High regulatory, technical and operational standards in terms of data protection are desirable for Switzerland. Switzerland should aim to upgrade its current rating among peers. A “Swiss finish” should be avoided.

Action points to strengthen competitiveness

© SwissBanking 2020


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