Wealth Management in Change: 4 Competencies the Industry Needs to Build for the Future

Wealth Management in Change: 4 Competencies the Industry Needs to Build for the Future

Like other business areas within the Swiss financial center, wealth management is facing major challenges. What adjustments to the business model are necessary? Find out which competencies will be helpful in connection with data and technology.

Wealth management is considered one of the most important business areas in the Swiss financial industry with trillions of Swiss francs in private assets managed by resident banks. However, digital transformation, changing customer needs, a dynamic regulatory framework, and the market entry of competitors creates uncertainty about future direction.

How Big Is the Swiss Wealth Management Industry?

The Swiss financial center, with its over 240 banks and many other participants such as family offices and independent asset managers, offers a wide range of financial services and is of great importance for the Swiss economy. A significant part of this is wealth management, with 3.7 trillion Swiss francs of private assets managed at Swiss banks as of 2019. This represents about 46% of the total managed at banks in Switzerland. Some 2.3 trillion Swiss francs of this total come from foreign clients. This makes Switzerland the global leader for cross border wealth.

In the white paper “Future of Wealth Management: Harvesting the Power of Data and Technology”, SIX, together with the Lucerne University of Applied Sciences and Arts, has derived four key implications for the Swiss wealth management industry. Here, wealth managers must build competencies for the future:

1. Data and Analytics as the Basis for Holistic Wealth Management

The Swiss wealth management industry is not yet harvesting the full power of data yet. Data and analytics allow for new business models, and for new ways to generate added value in wealth management. However, the data pool of wealth managers usually does not go beyond the internally collected information in customer interactions as well as externally sourced market data. Enriching this data with external financial and non-financial customer-specific data would enable a holistic wealth management service.

But this requires the availability of high-quality data and a robust infrastructure, which is not yet in place for most wealth management providers. Moreover, data security is also a critical factor for harvesting the power of data. This particularly applies to protecting data.

2. Wealth Management as Part of an Ecosystem

A modern infrastructure approach is needed to efficiently access financial ecosystems and thus new customer segments. One way to achieve this is “as-a-service” solutions that are produced by an external provider, but used or offered by the wealth manager itself. Such solutions are most efficiently provided through open finance platforms, that facilitate interactions and data exchange between a large number of participants, e.g. bLink.

For wealth management, open finance platforms could help source methodological and conceptual services, for example, regarding artificial intelligence or big data. But operating in an ecosystem can serve not only to obtain missing resources and competencies externally, but also to reduce high personnel costs, one of the biggest challenges in the industry. However, for the future success of ecosystem-oriented Swiss wealth management, the use of state-of-the-art programming interfaces is crucial.

3. Access to High-Quality ESG Data for Wealth Management

Sustainable investing is here to stay and will continue to grow due to changing investor demands and regulatory pressures. Nowadays, to make sound and good investment decisions, ESG criteria have to be part of wealth management. However, high-quality ESG data is still a big challenge. This starts with the vague definition of sustainability, which allows for different interpretations. Today, most of the ESG data about certain companies is self-declared and cannot be verified. In addition to this, inconsistent methodologies to collect and derive data and their sources make it difficult to compare data. And finally, connecting the data to the Sustainable Development Goals in a meaningful way also turns out to be complex.

ESG data is growing in volume, and in the future there will not only be more company-reported data, but also alternatively sourced ESG data. One key driver that promotes the generation of accurate and reliable ESG data is regulation. There are sustainability-related regulations developing in multiple jurisdictions e.g. the EU. Not only does regulation increase the pressure on companies to report their ESG-related data, but it also helps reduce greenwashing. High-quality ESG data should be of great importance to any wealth manager.

4. Regulation as an Opportunity and a Challenge for Wealth Management

There will not only be more regulation, but more data-driven regulation, which will take center stage. Regulation and availability of data, coupled with the increased investor interest, are a huge opportunity for innovation, but not easy to handle for wealth managers. Implementation will involve all relevant parties from senior management, business, IT, as well as legal and compliance. Data specialists and third-party vendors will therefore play a crucial role as the industry evolves.

How Can the Swiss Wealth Management Industry Retain Its Leadership Role?

To compete in such a dynamic environment, it is essential for the Swiss wealth management industry to continuously monitor the drivers of change and establish the necessary competencies. Only if wealth managers make appropriate adjustments to their business models at an early stage, will they be able to perceive change as an opportunity. If the industry succeeds in making these changes, Switzerland can continue to operate as one of the leading locations for wealth management.