04Mar2024
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The Balance Sheet of an Independent Wealth Manager: A Closer Look🔍

Disclaimer: The views and opinions expressed in the vapa Swiss independent wealth management blog posts featured on this page are solely my own and do not necessarily represent the views of any institutions or organisations I may be associated with. These posts are intended to share personal insights and perspectives and should not be interpreted as official statements or positions of any affiliated entities.

In the realm of wealth management, there are numerous misconceptions, especially regarding the topic of the balance sheet of an independent wealth manager. Here are some clarifications:

🏦 Where Are Clients’ Funds Held? Firstly, it’s vital to understand that clients’ funds are never directly held by the wealth manager. They are deposited with a meticulously selected custodian bank. This important fact means that it’s not the financial soundness of the wealth manager that should be our primary concern but that of the custodian bank.

📊 What’s on the Bank’s Balance Sheet? Even while the bank’s finances are important, it’s noteworthy that securities are held off the bank’s balance sheet. Only cash balances are genuinely on the bank’s balance sheet. With more significant liquidity positions, it’s recommended to diversify cash positions by using money markets, call/time deposits or ultra-short-term bond funds. It’s crucial to recognise that, for instance, only amounts up to CHF 100,000 are insured.

❗ What Happens in the Worst Case? A trading error occurs. Most wealth managers have proactively secured a Professional Indemnity Insurance (PII). The coverage volume of these insurance policies is usually much higher than one might anticipate from the balance sheet of a wealth manager.

In conclusion, while the balance sheet of an independent wealth manager may seem like an essential indicator at first glance, a closer examination reveals many other, far more pertinent factors that should be considered when evaluating the safety and reliability of a wealth manager.

Source: LinkedIn

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Graphical representation of a balance sheet with focus on wealth management industry standards and practices.

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