04Mar2024
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Compensation Models For Wealth Manager RMs: A Look At Switzerland’s EAMs

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.

The author of this article argues that selecting the optimal wealth management platform entails meticulously examining compensation frameworks.

A topic that is sure to grab readers’ attention is their compensation. In Switzerland, the external asset managers (EAM) sector has been wrestling with new regulations from the Swiss Financial Market Supervisory Authority, FINMA. Beyond that, changing economic conditions amidst higher interest rates also affect the kind of compensation packages that EAM professionals can expect. It is worth bearing in mind that EAMs have often been created by breakaway teams from banks, seeking independence and a closer relationship with clients.

To discuss this topic is Patrick Stauber, chief executive of the Swiss external asset manager Marcuard Heritage. The editors are pleased to share these insights and invite readers to respond. If you wish to do so, email /">.

Remember that the usual editorial disclaimers apply to the views of guest writers.

In the ever-evolving landscape of wealth management, one of the pivotal considerations for professionals contemplating a shift to an independent wealth manager  especially within the nuanced Swiss independent wealth manager market  is the rigorous examination of compensation structures. While offers boasting lofty total compensations, often exceeding 80 per cent of gross revenues, might appear tempting, it’s paramount to delve deeper into the basis of these calculations and the enduring viability of such business models. In this article, I aim to offer an analytical perspective to evaluate these models, emphasizing the need to align with the aspirations of relationship managers and meet client expectations.

Compensation models

To dissect and compare compensation models in wealth management effectively, it is crucial to understand the underlying wealth management activities that yield to qualifying revenue streams. A hypothetical gross revenue of one million is a pertinent benchmark for illustrative purposes. 

Requesting a comprehensive breakdown of your personal “profit and loss” statement from wealth management firms is indispensable. This breakdown should importantly cover all possible charges, from pension fund contributions to travel expenses and other revenue deductions.

Observing how such compensation has fluctuated over the past three to four business years is equally important. A model marked by inconsistent cost-allocations may suggest inherent anomalies in its compensation framework. Relationship managers ought to approach such models with caution. Over generalised statements like “in a typical year” can easily mask the specific details and natural fluctuations in financial paths. Exercise caution with these generalisations, as they might conceal more than they disclose.

Meet clients’ expectations

An in-depth exploration of the compensation model represents just one facet of the equation. Similarly vital, if not more, is ensuring that the chosen platform meets the demands of your discerning clientele. The allure of a promising compensation model diminishes if the wealth management platform can’t provide the desired services. In our constantly changing financial environment, expecting expertise and adaptability from the chosen platform or employer is essential.

Prioritising value chain and cost allocations

A guiding principle in compensation model analysis is that it might be time to explore other options if you’re not positioned at the forefront of the gross revenue-sharing chain or if costs are mere approximations. The focus should be on a compensation model that is not exposed to uncontrollable cost allocation volatility, is in alignment with your professional goals, and is dedicated to your client’s wellbeing. Transparency in compensation structures fosters trust among all parties.

Conclusion

In conclusion, selecting the optimal wealth management platform entails meticulously examining compensation frameworks. This involves grasping how income is derived, a detailed review of historical compensation fluctuations, and a commitment to transparency. Although this article primarily discusses the Swiss independent wealth manager findings, the principles delineated apply universally across the wealth management domain. By adhering to these review principles, relationship managers can make well-informed choices that enhance their professional efficacy and career progression. 

Source: WealthBriefing

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Graphic depicting various compensation structures in Swiss External Asset Managers (EAMs) and their impact on wealth management.

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