The continued disintermediation of Swiss private banking

Swiss private banks are fast becoming an endangered species following the 2018 abolition of tax secrecy and their frequent failure to bring client-facing technology up to date.

According to a KPMG report, published last year, the banks fell in number by 38% to 101 between 2010 and 2019 due to consolidation and closures. Their cost/income ratio is a daunting 84%. Their growth strategies have often failed. Net inflows are close to zero.

Stephen Wall, co-founder of London-based data provider Wealth Mosaic has repeated calls for tech-driven client engagement made by advisory firm MyPrivateBanking a decade ago: “Swiss wealth management cannot rely on its historic status and strengths. Time has moved on.”

Martin Stadler isn’t too surprised by these developments after 20 years as client director at UBS, followed by his 2017-initiated purchase of Altoo Wealth Platform from Flynt Bank with financial backing from two family office clients.

He is not unsympathetic to the banks, saying the change in client needs and digitalisation is their enemy, rather than him. But he confesses to being underwhelmed by the way private banks have conducted their affairs.

“Family offices don’t want to be dependent on a single relationship manager working at a bank who keeps their spreadsheets with all their assets in one place. What happens with the knowledge when he leaves the bank? Surely a family office would prefer to use a system which is always there, rather than relying on an individual to keep its spreadsheets together.”

Clients can also be unimpressed with the investment returns generated by the majority of asset managers. Structured products are out of favour. Stadler points out wealthy clients increasingly use quant tools which check costs and returns. They want to be certain of picking the best managers, or go passive.

Family offices have also become less inclined to use banks for advice on business deals. They prefer to pick their own venture capital opportunities, often through funds or co-investment.

When Stadler worked for UBS Swiss client confidentiality was an important aspect to the service on offer. But can clients rely on discretion in all circumstances?  Legacy IT infrastructure and continued pressure for transparency lead in other directions. He points out their databases have been traditionally tracked relationships by aggregating information, client by client. This leaves clients exposed to data theft by discontented staff, as was seen in the Panama Papers scandal of 2016.

“What we bought from Flynt was a modern private cloud architecture where wealth information is broken up into different sections individually encrypted so you need a private key to recreate the portfolio. It works a bit like a neural network, through a technical approach which is similar to blockchain.”

Zug-based Altoo, which employs 25 staff, derives its name from “all together”. It enables wealthy individuals to move away from spreadsheets: “The whole time you are adding things onto them you end up with confusion.” Users can end up using outdated data to rebalance portfolios, particularly during fast-moving markets experienced this year.

To achieve timely valuation updates, Altoo asks for price data on listed assets to be supplied by custodians. The Altoo platform also keeps comprehensive data on illiquid assets such as real estate, infrastructure, classic cars and art so that clients receive the complete picture.

Advisers, including tax specialists, can be allowed limited access to the Altoo platform to store client documents and log valuation changes relating to illiquid assets.

Altoo also seeks to use its clout to force maximum disclosure out of notoriously secretive private equity firms.

This aligns with its use of granular data on stocks, bonds and costs to achieve comparisons of returns between different stocks, sectors or managers:  “We show total performance,” says Stadler. “A bank would only show you the unrealised profit and loss purchase price versus the market price but not other relevant cash flows like fees.”

Its pooling of assets facilitates a multi-adviser approach under a virtual umbrella designed to be simple to use.  The systems can show whether portfolios are hitting targets or require a rebalance.

Clients can inspect Altoo via desktop or mobile phone.

For investment advice, however, they still need to request a view from third parties. These can include advisers sitting on an investment committee. Or asset managers. Maybe even a private bank. Stadler says: “Focusing on technology rather than advice helps, otherwise it would create a conflict of interest.”

Multi-family office Belvoir Capital uses Altoo white label services, along with advisory firm IFS. In a February review of Altoo, Andreas Dietrich, professor of finance at Lucerne University, confirmed clients worth $10 million, or more, access the firm.

Altoo stands ready to work with private banks, on a white-label basis, to help them update their services. Dietrich said advisers at Credit Suisse, Rahn + Bodmer and Reichmuth & Co have recommended Altoo, which was taking on five clients a month going into the coronavirus crisis.

According to Stadler, clients have lately agreed to take the system without a physical inspection. No doubt referrals have helped. Using the platform, he says, is simple. Enjoyable, even: “It’s like Christmas when you unwrap a new gift and you get a cool toy and you play with it all night. Then you can share data securely with your network. And you know your privacy is kept intact.”