Pius Zgraggen of OLZ & Partners describes the approach that both advisers and clients take to managing wealth in Switzerland, and looks at what Asia can learn as the industry develops and matures.
Date: Oct 2010
When looking at some of the main differences between the Asian wealth management industry and what exists in Switzerland, clients in the West are in the fifth, sixth or seventh generations. By contrast, in Asia, most of the wealth has been created in the past 20 to 30 years, making it mainly first-generation money, explained Pius Zgraggen in an interview.
Since wealthy individuals in Asia generally made their money through their entrepreneurship, this tends to mean through making a large bet, explained Zgraggen, by putting one amount of money in one industry and one firm. Although most people go broke doing this, a small percentage can get very rich.
As a result, he said wealthy Asian clients equate taking a lot of risk to making a lot of money.
In Switzerland, however, money has been in families for several generations and has grown over time, he said, leading to more experience in managing wealth.
Managing wealth in Switzerland
Private banks in Switzerland therefore don’t try to convince their clients to speculate with their money, said Zgraggen, because clients cannot see the purpose of that approach.
They would rather preserve the majority of their capital, he explained.
Wealth in Switzerland is therefore managed more in what Zgraggen described as “pots” – the family pot, which might have between 50% and 90% of all the wealth, and the speculation pot, which is used for riskier products.
According to Zgraggen, wealthy individuals in Asia will over time go through the same process as their counterparts in the West – once they see that they cannot create value just by taking their hard-earned money made in the real economy and then putting it into the capital markets.
The capital markets simply redistribute risks rather than create value, he warned.
So when enough people learn from their mistakes, Zgraggen said they will get to the same point as the fifth- or sixth-generation private clients in Switzerland.
The key to the evolution of the industry, he emphasised, is know-how, experience and education – to better support clients.
Challenges in Swiss wealth management
When it comes to challenges for Swiss private banking at the moment, Zgraggen said that if various players can solve their incentive problems, then the industry can recover to its previous strengths.
For example, he said, people in the industry need to be less greedy and concentrate on what they do best – know-how and good service.