Executive summary

  • Private banking is undergoing a revolution. It used to provide clients with services for free, recouping costs via commissions. Now the industry is starting to charge clients for investment advice.
  • Swiss private banks are first movers in this shift to a fee-based model – already most advisory assets held for Swiss-domiciled clients are managed this way. EMEA and Asia-Pacific clients should follow this year, and the trend will likely spread to banks in other regions.
  • Why has the model changed? New regulations aiming to enhance transparency around fees are challenging traditional revenue streams while adding to costs. Digitalisation is also allowing relationship managers to deliver more value-added services to clients.
  • Establishing a contractual fiduciary relationship with clients is one of the biggest transformations the private banking industry has ever undergone. To offer state-of-the-art investment advice at a defined price is forcing banks to change their approach. Before it was about product placement. Now solutions are key.
  • The result is that private banks need to offer clients a top-down investment view focusing on asset allocation. A structured process ensures that all investors can be advised equally. Consistency also helps restore trust in the advice process.
  • A robust asset allocation process requires investment building blocks, for example alpha from high-quality active funds, low-cost beta, while adding environmental, society and governance (ESG), and other thematic overlays. Similarly, asset managers should reassess their offerings to private banks.
  • Clients are the winners. They receive transparency on advice costs and more research expertise, juggling price with the service needed. Meanwhile, this new model helps private banks by improving their interaction with clients – a big benefit in markets with reverse solicitation regulations.
  • What is more, banks should benefit from better client retention as well as a potential increase of net new asset flows. And whereas before bank revenues were volatile and dependent on market movements, the new model offers more certainty.
  • The adoption of fee-based advice by large and mid-size private banks looks set to transform traditional banking not only in Switzerland but globally. Banks and investors should benefit, while opportunities open up for asset managers.
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