Switzerland still the world's largest hub for wealth management

18 June 2018 Authored by Consultancy.eu

Switzerland remains the go-to-destination for international wealth managers, but the country faces stiff competition for assets from rival financial hubs in the UK, US, and South East Asia. Deloitte analysis reveals that – despite its reputation for client experience, digital maturity and political stability – Switzerland may be losing its grip on the wealth management market.

Even in the 21st century, Switzerland’s reputation for financial secrecy and discretion remains largely intact. Famed for its political neutrality, the country has the largest International Market Volume (IMV) in the world stashed within its banking and digital jurisdiction.

IMV refers to assets that are managed in a location separate from where the owner is domiciled. It is the plaything of international wealth managers paid handsomely by clients to administer in territories known for their stability and competitiveness.

A new report from Big Four professional services firm Deloitte reveals that, at the tail end of 2017, a total of $1.84 trillion worth of IMV assets were being managed in Switzerland. The alpine country has led the IMV league table unchallenged for the past decade, with managed assets regularly surpassing $2 trillion.

The gap is now closing. Deloitte’s latest Wealth Management Centre Ranking found that IMV managed in the UK now totals $1.79 trillion. A slightly more distant third is the US on $1.48 trillion. The more significant story is that the IMV stored in Switzerland has fallen by 7% since 2010, while in the UK it has risen 9%. US-based IMV has soared by 48%, up from a paltry $1 trillion seven years ago.

International market volume

An even more impressive surge was witnessed in South East Asia. Although between them the US, UK and Switzerland still manage 60% of the global IMV total, Hong Kong’s volume has shot up by 122% since 2010 and is now approaching $1 trillion. Singapore’s has risen 12% and is nearing the half trillion mark. Between them, the two hubs account for 14% of total IMV.

Other traditional centres in the Middle East and Caribbean are struggling to keep up with the pace. Bahrain and the UAE muster a few hundred billion between them, while IMV kept in Panama and its neighbours has fallen spectacularly – from $1.81 trillion in 2010 to just $600 billion in 2017. Luxembourg, meanwhile, is quietly growing – having increased total volume by 25% over seven years to a respectable $260 billion.

First world problems

Switzerland had a poor 2017 by Deloitte’s measuring stick and, alongside Bahrain, was one of the few countries to see a decline in IMV volume. Its relative market share fell from 25% to 21% and it is characterised as ‘struggling’ by the consulting firm.

Yet Switzerland still excels at competitiveness and performance thanks to its digital maturity, unrivalled pedigree as a wealth management hub, and first-rate client services. 

“When it comes to choosing a location to invest their assets, today’s international wealth management clients are looking for excellent service, which includes digital tools, and a top-notch advisory experience,” said Daniel Kobler, who leads Deloitte’s Private Banking & Wealth Management Industry in Switzerland. 

International market volume (in US $ trillion and percentage of total IMV)

“Switzerland is still the go-to place for first-rate client experience, which is why we can be confident about the future of the Swiss wealth management hub. Swiss banks have done their homework well in the last couple of years, and even got their relatively high costs under control, increasing their cost-to-income ratios and profitability.”

So what’s the problem? Kobler and his colleagues at Deloitte found that Swiss wealth managers were having trouble attracting new assets. Although the country has risen to the digital challenge – with an expert workforce and advanced capabilities – such foresight has not been deployed when it comes to the transformation of outdated business models.

The Swiss market needs to improve its cost efficiency and innovation, says Kobler, if it is to maintain its top ranking. As things stand, its rivals to the east and west are poised to grow the most. The US is absorbing much of the IMV which Panama has lost and has loosened wealth management regulations. Hong Kong will continue to balloon as long as China continues to mass-produce billionaires looking to avoid stringent tax laws in the People’s Republic.

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