With pleasure, I can report that Switzerland retains its position as the leading global provider of cross-border wealth management services. According to the Boston Consulting Group’s (BCG) research report, Global Wealth 2021: When Clients Take the Lead: “Switzerland remains the world leader with US$2.4 trillion in cross-border assets under management.” However, there is no room for complacency. The most recent BCG report, ‘Global Wealth 2022’, reconfirms the leading position of Switzerland but does predict Switzerland will be overtaken by Hong Kong, probably sooner than later. Therefore, the Swiss wealth management industry is aware that standing still is not an option.
The reputation of the Swiss wealth management community for being professional, trusted, as well as innovative, is well-recognised. No surprise then that the Global Innovation Index 2022 prepared by the World Intellectual Property Organisation confirms: “Switzerland is the most innovative economy in the world in 2022 - for the 12th year in a row”.
The Swiss wealth management industry is well supported by a dynamic WealthTech sector, vital in a world where technology is key to the future. As President of the SFTA, I can say we were proud to be a media partner for the inaugural Point Zero Forum held in Zürich in June. This innovative joint Swiss-Singapore initiative drew over 1,000 senior global players from the world of FinTech. Members of the Association invited to speak included SDX (SIX Digital Exchange) and METACO (Institutional Digital Asset Custody, Trading and DeFi).
The Swiss WealthTech industry is a world leader in its breadth and depth, playing a crucial role in supporting the wealth management industry in its quest to innovate and adapt to today’s demands and anticipate tomorrow’s needs.
Innovation is further supported by the excellence found within Swiss universities, with ETH Zürich ranked #1 in Europe and #11 globally. It is a leading university for engineering and technology, meanwhile Zürich University is world ranked #3 in Blockchain and globally #82. EPFL Lausanne is ranked globally #41. Graduates are snapped up by players such as Google. In fact, Zürich is home to Google’s largest technological corporate headquarters in Europe. And Zug is home to Ethereum, the Crypto Valley Association, Bitcoin Suisse and Tezos. Crypto Valley is the largest Blockchain and distributed ledger ecosystem worldwide. Founded in 2013, Bitcoin Suisse is the Swiss crypto-native pioneer and gateway to crypto asset investing.
Why do I emphasise digital assets? According to BCG: “Up to US$1 trillion of crypto wealth is at stake for wealth managers. Traditional wealth managers have known for years that they need to accelerate the pace of their own digitisation. Now they have an additional incentive. Digital wealth managers are outperforming them in the markets, out-innovating them in client service, and outclassing them in core operational efficiency. To protect their future growth, wealth managers must begin to emulate the practices of these digital leaders.”
The Swiss wealth industry is also supported by a forward-looking regulator, the FINMA, keen to support innovation and embrace change. The new FinTech license has been granted to Klarpay Bank AG, Yapeal AG, and SR Saphirstein AG (FIAT24), the first Swiss bank on the Blockchain. The FinTech licence allows institutions to accept public deposits of up to CHF100 million or crypto-based assets, provided that these are not invested, and no interest is paid. At the same time, the Swiss Stock Exchange has launched the SIX Digital Exchange (SDX), the world’s first fully regulated Financial Market Infrastructure offering issuance, listing, trading, settlement, servicing, and custody of digital assets. Since October 2022, SDX Web3 has been live with its institutional custody service for crypto assets.
Digital investment and currency dovetail nicely into the Metaverse, something that we are all hearing a lot about. Indeed, the Metaverse is a hot topic and one that the industry is keeping on top of. JP Morgan is trialling it with the Onyx virtual lounge, and UBS has been looking at VR for training purposes. HSBC has launched a fund to capture investment opportunities in the Metaverse. Its Metaverse Discretionary Strategy Portfolio is managed by the HSBC Asset Management arm, which will focus on investing within the Metaverse ecosystem across five segments: infrastructure, computing, virtualisation, experience and discovery, and interface. Swiss bank Sygnum has created a three-storey hub located in the virtual equivalent of New York’s Times Square in Decentraland. Fiat24, meanwhile, offers Swiss banking in the Metaverse, with its signature NFT designated as an account with the bank.
For sure, the demand for enhanced user experiences will only rise, and the Metaverse has the potential to deliver these enhanced experiences and reach a value of US$5 trillion by 2030, according to McKinsey research. But for now, the jury is still out on Mark Zuckerberg’s Meta avatars, legless or not, and Decentraland’s absence of visitor traffic.
User experience is also at the forefront of the minds of wealth managers in the physical world. To succeed, banks will need to be able to deliver their services in a way that delights customers and is also operationally and cost-efficient. For that, they will need the assistance of technology. Partnering with the right tech firms to deliver a best-inclass customer experience, attracting and retaining customers will become key to longevity and success. Tech also plays into a further quandary in who owns the relationship. If it remains with the trusted adviser, then the quest is to retain the adviser and the client. Providing the right tech solutions to advisers becomes another facet of how technology contributes to success.
Indeed, banks cannot be complacent. According to KPMG, stronger banks have positioned themselves well for the future, adopting digital technology to introduce customer-centricity and operational efficiency. But many banks will struggle as we move past the Covid-19 era and into one of high inflation, rising interest rates, and significant geopolitical tensions. Independent asset managers have gained considerable ground, taking over the smaller end of the wealth management industry. The largest IAMs are already responsible for more AuM than all small private banks combined.
Surprisingly, the long-predicted tsunami of M&A transactions for consolidation within the 2,500 external asset managers has not yet happened. Up to now, there has been a limited impact of FinIA, the Swiss Federal Act on Financial Institutions, which has ended industry self-regulation. Existing IAMs have until the end of 2022 to make the necessary changes and submit their license application as portfolio managers to the FINMA. In many cases, an M&A transaction scenario will be a preferred solution. The clock is ticking, and there are deals to be made.
Technology is and will remain a key component of success. It is no surprise that the world’s biggest companies are tech companies. We have already seen tech giants enter the financial world, and we know that it is much easier for a tech giant like Apple to act as a bank than vice versa. It seems inevitable that the banks and wealth managers of the future will be dominated by global tech platforms run by tech companies offering financial services.
For example, Ant Group is the largest financial technology company in the world. It is an affiliate firm of China’s Alibaba Group. Ant owns Alipay, one of the world’s largest digital payment platforms. Ant also operates other financial services, such as Tianhong Yu’e Bao, the world’s biggest money market fund, and Zhima Credit, a private credit rating system. It is currently valued at US$144 billion, i.e., 13 times bigger than Crédit Suisse. It serves over 1.3 billion users and 80 million merchants. This makes it the second-largest financial services corporation in the world after Visa. In 2015 Ant Group launched Ant. Fortune a wealth management platform which offers hundreds of financial products from Chinese Fund Managers. Ant also launched a digital bank in Singapore called ANEXT in 2022.
For Switzerland, for Swiss wealth management, and for the Swiss WealthTech startups, 2023 will be an uphill battle with a strong headwind. But given the industry track record and the innovative spirit of Switzerland, I am confident that the challenges will be met and turned into opportunities.
This article is from The Wealth Mosaic’s Swiss WealthTech Landscape Report 2022. Access the full report here.
