The Bankers’ Plumber on FinTech: The Swiss and UBS have good chances to win the battle of digital wealth management.


The Swiss are world leaders in many things: watches, chocolate, Swiss Army knives and wealth management. Although the world of Swiss private banking has had more downs than up lately, wealth management is in the national DNA. There is good reason to see the Swiss coming out on top as private banking reinvents itself as a more digital product. Amongst the Swiss , UBS is well set up to lead the pack; its recent announcement of its intentions in the UK: “UBS to launch digital wealth management platform in Britain” offers much promise, as does history, or rather deja vue.

In the world, several different terms are used to describe expected changes or influences on the same thing: Digital Wealth Management. -Advisors. Machine Learning are all being applied in relation to what commentators see will be the future in the world of asset or wealth management.

In essence, this is about applying more advanced processes to the matter of looking after people’s money; making the interaction between bank and clients function faster, better and cheaper via mobile and internet channels, using rules to drive investment decisions and using AI, artificial intelligence, or Machine Learning to learn lessons and fine tune those decisions. For all the new terms and new , the underlying core banking discipline is not changing;

  1. Asset allocation according to investment goals, which are based on risk appetite and risk experience, or awareness.
  2. The two basic approaches to investing: as an investor either I am “self directed”, making my own decisions, with varying degrees of input from my banks or advisor, or I am a passive investor giving a “mandate” to my advisor.

Swiss banks have been managing money on this basis for a very long time. There is an ingrained culture of formally setting investment strategies based on investing goals; growth, balanced, capital preservation and of dealing with the multi-currency needs of an international clientele.

The theory is underpinned by solid back-office processes, for example in investment controlling, making sure that the investment guidelines are followed. Having been the product manager for a Shariah complaint cash management fund, I have seen this working first hand at Credit Suisse. Asset servicing is another discipline where the Swiss excel; the international client base means the banks have a very diverse set of asset information and detail to keep on top of. Prices, corporate actions and dividend information are all effectively gathered and processed.

Historically, the Swiss have not been that efficient; fat, super-normal, profits bloated by lots of offshore, black money have masked high costs and poor processes. The game plan worked as long as the vast majority of those assets were processed on the big, old-iron, mainframes in Switzerland. Neither UBS nor Credit Suisse managed too build really great platforms for offshore processing that would replicate the efficiency of the HQ machinery. In the US, firms such as Vanguard have led the way in offering low cost investment vehicles.

So, the core already exists as the industry transitions to another generation, both of clients, technical capabilities and regulatory requirements. The challenge is to adapt. According to head of digital at one of the major banks, the key challenges are:

  1. Moving from a push business model to a pull model, including the move from a predominantly offline experience to an online first experience.
  2. Transformation of legacy technology stack into a modular, open-API platform which is more horizontally integrated
  3. Biggest obstacle is culture change, i.e. to find the talented people required to create new world and change existing mindset to a digital one

In thinking about where the industry is headed, I had a sense of deja vue. In the early nineties, securities lending, or Stock Borrow & Loan as our American cousins like to call it, became possible in Switzerland. The challenge was to to open up all the “internal drawers” where the security positions were filed away and channel the aggregated holdings to the market. The assets were there, they just needed to be connected up and channeled to the borrowers. UBS, or rather the then SBG, led they way. Led by the charismatic Felix Oegerli, a very capable team added a great deal to the industry. Credit Suisse had the same starting position, but could not get out of the starting blocks. From days at Goldman Sachs, where we were active borrowers, I recall a time lag of about two years between the first deals with the leaders at UBS and the laggards at Credit Suisse.

Another recent announcement UBS’s private banking arm suggests the bank is taking the steps to simplify their infrastructure: “UBS’ European Bank Finds a Home”

Lessons Learned: Digital private banking is really the world of what the academics call the “adjacent possibles“. What is close to what we are already doing?

Apple did not invent MP3 music storage, they innovated around it, creating the iPod and the iTunes music store. Apple was not a start up when it made that move. In the mid aughties, Credit Suisse, then under the leadership of the ex McKinsey duo of Lukas Muehlemann and Thomas Wellauer pursued a “mass affluent” strategy. This was based on “bricks” rather than “clicks”. That was an idea ahead of its time. The “mass affluent” will not pay 100 basis points or more for advice. What they will pay will support a “clicks” based approach, but not a “bricks”based one.

There is wonderful advert for Ricola, a Swiss company which makes lozenges. The main character pops up to challenge others around the world making claims to have invented the sweet, challenging them: “Who invented it? The Swiss!”

My money, well at least the deeply out of the money options my wife has as a UBS employee, is on the Swiss mastering this evolution and UBS leading the pack.

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