Wealth management is a significant area of business in the Swiss financial sector, providing a full range of financial services for private individuals and their wealth. Banks in Switzerland managed a total of CHF 3.9 tn in private assets in 2021, around 61% of which came from foreign-domiciled customers. Wealth management is thus one of Switzerland’s biggest export industries.
Cross-border wealth management: Switzerland’s lead under threat
Switzerland is the leading centre of cross-border wealth management worldwide, outstripping its two closest rivals (Singapore and Hong Kong) with foreign private assets of around CHF 2.4 tn and a global market share of around 22%. Besides its uniquely broad range of high-quality services, high level of experience and stable political environment, it has also benefited considerably from its geographical and cultural proximity to what used to be the fastest-growing markets. The continuing economic difficulties facing wealth management in Western Europe, its biggest market, and far-reaching regulatory changes have caused Swiss wealth management to grow less strongly than rival centres, especially those in Asia, over the past few years. On top of this, restrictions on access to key foreign markets for Swiss banks make active customer relationship management much more difficult. Meanwhile, private wealth has shown the sharpest increases in the emerging markets of the Far East, Latin America, the Middle East and Eastern Europe. This is why Swiss banks have been increasingly seeking a presence on foreign soil for some time already. Customers – especially those in Asia – are also increasingly interested in receiving a combination of services from different locations. However, it is still the case that not all financial centres offer the requisite know-how and broad range of services. As a result, private customers continue to have their assets managed on a cross-border basis. Improving cross-border market access thus remains a prime concern for banks in Switzerland. However, this lead has decreased in recent years as the Asian centres have recorded much stronger growth in assets. Swiss banks are highly active in Asia with cross-border services and increasingly serve customers there directly from local bases. BCG forecasts that Hong Kong will overtake Switzerland to become the leading centre of cross-border wealth management in 2023 due to substantial volumes of assets flowing in from mainland China. Other European wealth management centres such as Luxembourg, the Channel Islands and the UK mainland are also likely to post slower growth, for similar reasons to Switzerland.
Revenues set to grow, margins stabilising
BCG estimates gross revenues for the entire industry in 2021 from foreign-domiciled customers at CHF 20.0 bn. The volume has grown by 1.1% a year since 2016, which is relatively small compared with the 3.3% growth in assets. Margins have thus been eroded. Return on assets is an indicator of how much gross revenue institutions make on each Swiss franc under management. The figure for cross-border business fell from 92.8 basis points to 83.4 between 2016 and 2021. According to BCG’s forecasts, the margin will fall further to 82.3 basis points by 2026. The decline should thus slow down. However, it forecasts overall revenues rising more strongly than in recent years at 2.2% a year up to 2026.
Switzerland: best-diversified wealth management centre
With a 41% share of assets, Western Europe is Switzerland’s biggest market for cross-border wealth management, followed by the Middle East, Latin America and Asia, each of which has a significant share. Geographical proximity plays a key role in this business, as shown by the fact that assets in the global financial centres come largely from their surrounding regions. Compared with other financial centres, Switzerland is much more diversified with regard to the origin of assets under management. Six regions of the world each account for over 5% of the total, with no single region making up more than 41%. As shown above, other financial centres display a significantly higher level of concentration in this regard. Switzerland’s pronounced diversification brings with it both advantages and disadvantages. For example, the financial centre is less sensitive to economic trends in specific regions than its rivals. Its size and global presence bolster its image and add weight to its claim to offer outstanding quality of service for customers from all over the world. However, dealing with customers domiciled in a variety of places means that efforts to improve market access must be spread across a large number of countries. Institutions must also comply with regulations in different jurisdictions, which results in fixed costs for each country. Nevertheless, the Swiss financial centre’s large volume of assets under management per region is likely to generate economies of scale for the individual domicile countries. Overall, therefore, the high level of diversification offers considerable advantages for the business success of banks in Switzerland.
Private financial assets growing more strongly than real assets
In addition to financial assets, which are largely managed by banks, people in Switzerland also own real assets in the form of real estate, valuables and other goods. Financial assets totalled CHF 3,182 bn in 2021, ahead of real assets with a total of CHF 2,600 bn. BCG forecasts that financial assets will grow more strongly than real assets and liabilities going forward. With nominal growth predicted to be 2.6% a year, overall net assets are likely to grow more strongly than Swiss GDP has over the past ten years (1.2% a year on average in nominal terms).