PATRICK ODIER

"In order to have the highest competence, the best instruments, the infrastructure and the independence, clients will accept paying higher fees to some institutions."

Patrick Odier
Chairman, Swiss Bankers Association

The evolution of private banking

How will regulatory measures being introduced by the EU change the nature of private banking? 

Private banking in Switzerland will certainly be influenced by these regulatory changes but not necessarily radically because Switzerland has already put in place many of the frameworks being implemented inEurope.

The more significant regulatory impact might be felt in some client advisory service areas, in particular with regard to the correct appreciation of a clients' risk profile - the so called suitability requirement - and the quality of the execution of the idea or the advice - the 'best execution' concept.

Do you think that all of the wealth management firms will be able to adapt to those sorts of changes and to the higher barriers that are going to be put in place?

In Switzerland, which has specialised in this industry with management firms active internationally for a number of decades, it's certainly not going to have such an impact. It might require additional professional accreditation for firms which do not have a regulatory status and it could  lead to some consolidation for small companies

The impact of these regulatory changes will also be determined by the cultural characteristics of those who provide the service and some will find it harder to adjust than those who are already used to working in this kind of environment.

How have clients' demands for services changed since the crisis and particularly return expectations?

Clients will continue to look for a financial centre where they feel there is stability and long term political visibility, particularly after recent turbulent times. They want a financial environment that will continue to operate consistently and independently of governmental swings. Clients will want to make sure they are getting the best advice and will look for those providing specialised services in some asset classes. Private bankers will face specialised niche players that are very well  educated in their speciality so the private banker will have to integrate those specialities as well.

How should wealth management firms respond to this challenge from specialist niche players?

Private banking and wealth management clients have become more risk adverse. The pressure to get the best return for less risk will translate into more specialised private bankers on the one hand and a better defined network which will enable the advisor to bring the best professional to their client.

How have investors risk profiles' changed due to the financial crisis? 

With the more sophisticated, more professional clients in this sector you see a demand for a beta type of instrument to replicate trends in a way that diversifies away the risk while targeting a market return. These clients want this combined with high alpha generation capacity in more selective areas. The third element would be the liquidity of assets, ie the readiness of having access in a specific timeframe to their investment. One of the key qualities that will increasingly be sought by all clients, not only the sophisticated, is the ability to combine these three.

Ten years from now how do you think the fee model for private banking services is going to look? 

It's clear that fees will increasingly take into consideration the quality of the results but I still think that in order to have the highest competence, the best instruments, the infrastructure and the independence, clients will also accept paying higher fees to some institutions. 

What challenges and opportunities do emerging markets present?

Emerging markets represent natural sources of business development due simply to the very strong wealth creation we have seen in recent years.  The biggest challenge for firms looking to open in emerging markets will be to properly combine the cultural fit with the professional service. There should be a mix of understanding the culture and having learned professional servicing the correct way, with knowledge of its history and tradition. Switzerland is extremely well positioned to bring that blend because the country had to open up to other countries in order to successfully survive and thrive over the last two centuries instead of solely focusing on its internal market. Switzerland had to be very open to the rest of the world early in the history of its financial sector development.  Countries such as Switzerland that have been forced to be international for a long time will play a leading role in exploiting, developing and serving these new markets.

What can established private banking services bring to emerging markets?

If I take my own firm, we've lived through more than 42 financial or economic crises and we continue to develop. This experience helps us analyse how to manage the next potential crisis. That knowledge is something that some of the countries we're talking about have not been in a position to develop either because they are too young or because wealth and portfolio management of domestic savings were regarded as unnecessary.

What lessons would you draw from the financial crisis and what will be the main challenges for private banking and wealth management over the next ten years?

Crises can be used for identifying areas of weakness and areas of strength.

The financial crisis has led to the requirement for more transparency, more agility in switching from one investment class to another and more ability to determine, understand and quantify the maximum potential draw-downs. 

The crisis has emphasized the rhythm of cycles and how risks can develop more quickly. Investment decisions have to be made much faster since and therefore we should have both the instruments and skills that allow us to switch quickly from one investment to another.   

We also need to make sure that there is balance and a strong rationale when it comes to selecting one instrument or improving it in a way that fosters better understanding and visibility about their weaknesses and strengths without throwing it due to past mistakes or public scepticism. I think there is a strong future in better mastering the existing asset classes. .