In a guest article, Vontobel CEO Zeno Staub responds to finews.com editor Claude Baumann's critique of the Swiss banking business model.
Claude Baumann, the publisher of finews.com questioned the future of Swiss Banking in a recent opinion article. Specifically, he asked whether Swiss Private Banking was a sustainable business model.
I argue that each company has two decisive levers to determine the future viability of Swiss Private Banking. Switzerland will remain an excellent location for an appropriately positioned business model.
Client Benefits First, Then Shareholder Value
Since the Reagan-Thatcher revolution and the global financial crisis, business models were reduced to benefit analysis for the shareholder, where shareholder value was not only at the center of the debate but the only debate. In this Zeitgeist, customers were degraded to counterparties at many institutions.
In the investor communications of many banks, customers or benefits generated for them were missing. Only the proudly reported margin was a distant reminder of customers. Instead, return on equity and capital discussions dominated, often adjusted by every trick in the book to underlying, normalized profits above an ever more radically reduced equity base.
Today, shareholder value is no longer openly flaunted, although it still dominates investor communication and most compensation models. But I hold with the wisdom of Peter F. Drucker: «The purpose of business is to create and keep a customer.»
Only when a company solves a customer problem better than its competitors does it have a right to exist. After all, shareholder value, to which I was and remain thoroughly committed, is the result of solving the customer problem successfully and operating the company's internal processes efficiently. The focus on customer value is the starting point, orientation, and the first decisive lever for a sustainable business model.
From Asset Custody to Asset Management
To quickly identify the second lever, I turn to Drucker again: «What the customer buys and considers value is never a product. It is always utility, that is, what a product or a service does for the customer.»
But what's the customer benefit the customer pays for in Swiss private banking? What do they ask for? My thesis is that the customer is looking for wealth management, be it investment advice or asset management. That's the benefit the client is looking for. Added value to the assets. That's what they pay for.
The source of most of the complaints and legacy issues Baumann refers to is an understanding of private banking limited to mere asset safekeeping. The convenience of the past is the poison that made too many lazy. Banking secrecy and the strong franc allowed a more than adequate fee model with mere asset safekeeping.
In the course of global transparency, the pressure on margins on interchangeable services such as custody, the latter was too often offered for funds that, in retrospect, turned out to be too risky.
The Future is Here
Client-focused, benefit-driven wealth management is the basis for a sustainable business model in Swiss private banking. Every institution has these two levers - client orientation and competence in wealth management - in its hands. Customer orientation is achieved through leadership, appropriate assessment and development processes in HR, adequate incentive systems, and appropriate brand positioning.
Credible wealth management, on the other hand, requires competencies and skills in research, analysis, and portfolio management, with the claim to compete with the best in the field worldwide. This requires an international footprint and attracting and developing diverse teams.
At Vontobel, we call these levers «client-centric» and «investment-led» for simplicity. For many years, we've put them at the core of our brand, strategy, and leadership. With the arrangement of my succession, the Board of Directors decided to make them the heart of our management, both structurally and in terms of personnel.
Made in Switzerland
What companies need for customer-centric wealth management is talent and first-class framework conditions: open labor markets, a stable legal system, first-class educational opportunities, and a competitive breeding ground of globally minded and active competitors.
Political stability, sound public finances, well-funded pension systems, a strong currency, and a social environment where globally mobile talents feel welcome and safe are also helpful. Quite simply, made in Switzerland.
