There’s a common belief that independent wealth managers in Switzerland are more expensive than Swiss private banks. This idea mainly stems from the notion that wealth managers incur double fees: one from the custodian bank and another for their services. However, a detailed analysis of fee structures and business practices reveals a more nuanced picture. Hence, it’s advisable to examine the entire cost structure closely.

Double Asset-Based Billings

Independent wealth managers often benefit from bulk discounts from the total client assets held at a custodian bank. Clients thus face two types of asset-based fees: a reduced fee from the custodian bank for holding the assets and another fee from the wealth manager for portfolio management and advisory services. These seemingly higher costs must be viewed within the context of the overall cost structure.

Transaction Fees: The Key Difference

A significant difference between banks and wealth managers lies in transaction fees. Banks often charge these as a percentage, leading to higher costs for more substantial transactions. Wealth managers, on the other hand, tend to prefer an all-in model or a fixed ticket fee, regardless of transaction size. This approach encourages fewer but more targeted transactions and positively impacts investment success.

Banks’ Products vs. Open Architecture of Wealth Managers

Many banks rely on their in-house products to generate additional fees, often leading to less cost transparency. Independent wealth managers with an open architecture focus on low fund fees and continually invest in institutional share classes thanks to larger investment volumes. Moreover, they scrutinise offers from various providers for structured products to select the best for their clients.

Hidden Fees: Another Factor:

Private banks tend to incur additional, often hidden costs in asset management, such as commissions on foreign currency transactions or interest surcharges on Lombard loans. In contrast, independent wealth managers have no incentive to increase these costs, as they derive no direct benefit, and these costs affect the end performance.

Overall Consideration

Independent wealth managers tend to be more efficient in their fee structure, as they usually charge only one asset-based fee. This behaviour supports clients in achieving their investment goals and often provides a more cost-effective alternative than private banks.

Conclusion

While independent wealth managers might seem more expensive initially, a detailed analysis often reveals a more cost-efficient and personalised alternative to traditional private banks. The tiered volume and hidden cost structures at banks require precise analysis. A comprehensive understanding of fee structures and an appreciation of transparency are crucial for an informed decision. I think a deep dive is essential.