Banking services are far too expensive in Switzerland and customers even aren't aware of this fact, Matthias Reinhart, founder of VZ Vermögenszentrum, said in an interview with finews.ch.
Mister Reinhart, how do you see the future of Swiss Banking?
The future doesn't look too bleak really, but the local financial industry has to markedly improve on three major issues. Firstly, banking services have to become cheaper, even though customers often aren't even aware of the high costs.
How do you mean?
I'll give you an example: You certainly won't fill up at a gas station where gasoline costs you 5 francs per litre. You will go where gas costs you 1.60 francs per litre. Not so in banking. The biggest player is charging you five times more for deposits than the cheapest in the market, for exactly the same service. Customers won't notice because the charges are drawn directly from their accounts. If they were forced to use a pay in slip, price sensitivity would be much higher.
«The focus isn't on the solution of a customers problem»
Secondly, we need more innovation. Products, which banks sell as innovations - for instance the numerous structured products - either serve to reduce their own risks or to increase the return per client. The same is true for the service packages on offer at the large commercial banks.
And thirdly?
Banks are short on consulting expertise on topics that really matter to their clients. Instead they offer a sales pitch. The focus isn't on the solution of a customers problem. During the financial crisis, the consequence of this became apparent as clients lost a lot of money with highly questionable products.
The result was a massive loss of confidence.
Yes, and banks still grapple to come to terms with this. I'm convinced that the bank, which succeeds in those three areas, will win.
Lower prices lead to lower wages and more job cuts in the banking industry.
Indeed. If the size of the market remains the same, capacities need to be reduced. Which means fewer people and a downwards adjustment of the wage structure. But things could turn out differently.
«Currently it is very complex and expensive to take care of customers offshore»
How's that?
The potential reduction of capacities could be compensated by an increase in demand from abroad, in the offshore business. In this segment, Switzerland still has a good starting position.
True. However, taking care of customers in the European Union from a Swiss base has become challenging from a regulatory point of view.
You're right. Currently it is very complex and expensive to take care of customers offshore. You need to concentrate on certain markets to generate economies of scale or to switch onshore. However, the situation may look differently in five or ten years time.
Talking about onshore: You're expanding strongly in Germany. Why is that?
Yes, we are expanding at a fair pace at our German branches, but we're still very restricted in respect to the selection of products. Today we're simply a pure portfolio manager. Which is why we want to acquire a banking licence in Germany. Only then can we offer the entirety of our consulting portfolio.
«The Swiss care about their money, but the Germans maybe a little more»
When will that be the case?
We aim to have the project ready for implementation by the end of the year. Our target is to book the first clients on the German banking platform in 2017.
Where will you put your headquarters in Germany?
In Munich, an ideal place for our banking platform.
Are you building a «hub» in Germany, from where to expand to other EU markets at a later stage?
Absolutely. With a German banking licence we basically hold the EU passport. To be precise, we are targeting the Austrian market. All countries where pension systems accumulate capital for a later disbursement in principal are interesting for us. Amongst those we consider England and other Commonwealth member states but also the Scandinavian countries.
Germans are known as penny pinchers. Are you profitable in Germany?
The Swiss also care about their money, but the Germans maybe a little more, you're right. Still, we do earn money in Germany, and have done so for years. The entire expansion is being financed by the operative business in Germany. It has to be that way. A startup has to be able to finance itself.
«We also are a fintech company»
Catchword fintech: with your investment strategy you expanded from an early stage in the fintech sector.
We put a norm-based investment strategy online in 2009, as the first bank to do so in Switzerland. This is equal to a Robo-Advisor. Thus we also are a fintech company. As we offer norm-based investments not just online, we're going much further though. Our customers are always welcome to pass by or to join a workshop.
Which is why you're also more expensive than a pure online fund manager such as Zurich-based startup Truewealth.
No, we're roughly on the same level. Our cheapest norm-based investment, the intelligent Rebalancing, costs 55 basis points all inclusive, hence with no extra fees for deposits and transactions.
How many customers are using your Robo-Advisor?
Some 15'000 customers are booked on this plattform, with total assets of about 2 billion francs. But this is only a start. We expect significant growth still.
How many customers and assets under management are you aiming for?
There are no fixed goals. It is up to our clients to decide, which type of asset management they prefer. Currently, more than half opt for a norm-based modell.
«The number of people reaching the statutory pension age is increasing every year»
You specifically target customers in the age group 50+. Don't you have an interest in younger clients?
Our efforts are indeed all geared towards the clients in the age group 50+. The customers in this age group have almost reached their personal finishing line and are ready to pay for our expertise. Young people don't do that even though it would make sense to get advice even starting at the age of 30 - not least in today's zero interest environment.
With all due respect to your expertise - but everything about pension provisions and inheritance issues can be found on the internet.
And that's exactly what everybody does. But to verify that the result of your research is correct and corresponds to the legal requirements you need the help of a professional.
Switzerland is a relatively small market. What is the growth potential for your business model?
In Switzerland, the number of people reaching the statutory pension age is increasing every year . By 2025, the first generation will retire, having saved for their entire working live, some 40 years in total. Our potential customer base is growing and getting more attractive with every year. But you are right, the growth potential in Switzerland is limited. Which is why we are expanding in Germany.
Which of your competitors are giving you most of a hard time, the big banks?
In respect to our customers, the big banks and the cantonal banks are our main competitors. Economic and consulting companies such as EY and PwC are however vying for the same talents to employ as we do, namely lawyers and taxation experts.
You've boosted your headcount to 773 in the 12 months through June, an increase of 70. Do you expect to add new people at a similar pace?
We put our emphasis on organic growth and are thus continuously looking for new people, primarily in customer services. In the past years we added a net 50 to 80 people every year. Increasing demand suggests that this will continue.
«We know where these incentives lead to in the finance industry»
You been at the helm of VZ Vermögenszentrum ever since it's been founded in 1993. How long do you intend to stay on as chief executive?
If you start a company, you do everything to lead it to success. The VZ Group has grown so strongly that I rescinded my double mandate two years ago, which was good. In the current phase it makes sense for me to remain in the operative lead. I will return to the board of directors in due course.
As founder of VZ Vermögenszentrum you hold 61 percent of the shares, the rest was sold on the stock exchange. Is this a sensible combination?
Yes. Stability, guaranteed by the leadership of owners is thus coupled with the transparency of a listed company. Owners think long term, which is why they deal with risks carefully. An employed manager on average stays for five years in a company. They are forced to take big risks to achieve results in such a short period.
«You need to be disciplined and never overestimate a situation»
We know where these incentives lead to in the finance industry. Listed companies have to comply with strict rules. They have to totally open their books and allow external controls. VZ embraces this transparency, it is basically one of our most important principles. Our customers like the stability and transparence and they will remain part of our success also in future.
You're considered a successful entrepreneur. What's the secret of your success?
You need to be disciplined, never overestimate a situation, always ask customers and employees about their opinions and integrate them into the decision-making process. Expansions should be conducted in small steps. Large-scale takeovers are mainly undertaken by managers, who want to shine.
Of which you are you immune?
I think so. On the one hand because a large portion of the money invested in VZ is mine. On the other because the rules of a listing on the Swiss exchange demand a corporate governance with meaningful control mechanisms.
The bosses of many banks are golfers or sail around the globe to recover. How do you replenish your batteries?
Work doesn't put a strain on me. If you start a company in your garage and foster every single step, you come to understand it through and through. And we're still not that big that I should lose overview. A person coming in from the outside would find it harder of course.
So you don't have any fancy hobbies at all?
No. I'm happy without.
Matthias Reinhart (55) in 1993 founded VZ Vermögenszentrum with Max Bolanz. Their principal idea was to provide independent advice for buyers of insurance policies and thus set themselves clearly apart from the sellers of the products. Step by step, VZ expanded the consultant services to pensions, inheritance, investments and taxation. The graduate of elite university HSG in St. Gallen and former McKinsey consultant holds 61 percent of VZ, a stake Swiss business magazine «Bilanz» valued at 950 million francs.
