This article in two parts is available under “public access”.
Second part (see part one)
A truly independent asset manager should not belong to any financial group and should be paid exclusively by his clients. This is the case at Vierny Partners SA and constitutes the guarantee of real independence.
The idea that the services of an external manager represent an additional cost is widespread and false. His remuneration is in fact largely covered by rebates obtained from funds and banks. Those rebates are then passed on to his clients.
Vierny Partners SA has been able to negotiate substantially reduced commissions with the banks and obtain privileged treatment in a number of universal and private institutions. Its critical size also makes it possible to obtain management fees corresponding to institutional share classes in most funds. It is clear that many funds accumulate sales commissions, management fees and performance fees. In these cases, the fund manager will have to make up 2% – 3% performance to compensate these fees before starting to generate a possible profit for the client. With such lucrative remunerations, the temptation is great to select a fund based on commissions and retrocessions that it will offer. Let’s not forget that investment funds are marketed almost exclusively by banks. This creates an ambiguous interdependence.
By joining an external manager, the client not only obtains better conditions than in banks, but he also has the guarantee that his investment choices will always be respected and not driven by any hidden interest (kick-back commissions …). Freedom in choices and independence arise naturally from the remuneration of the external manager paid exclusively by his clients and also from a lack of conflict of interest when the external manager does not propose funds he managed or created.
This freedom by itself contributes to performance. Indeed, the external manager pays particular attention to the performance of his management, the only source of his income. In his thesis “Virtue of Independence in wealth management” (Editions Slatkine, 2018), Julien Froidevaux estimates that an independent manager generates an outperformance of 2.6% to 2.7%.
Transparency and results naturally leads to loyalty. The relationship between an external manager and his client builds over time. Vierny Partners SA has been operating for 10 years already and more than half of its clientele is made up of customers loyal to its founders, often spanning 2 generations. This loyalty is also linked to stability : No frequent turnover of staff or change of relationship manager. This stability is more difficult to measure in a bank where customer relationship managers and support staff often change, thereby increasing the risk of leaks of confidential information and discontinuity in investment policy.
According to the 2018 Banking Barometer of the Swiss Bankers Association, the total wealth management in Switzerland amounts to CHF 7 292 billion. Boston Consulting Group confirms in BCG Global Wealth 2018 that “Switzerland remains the leader in international cross-border Private Banking with a market share of 27.5%, which should grow by 5% per year by 2021, especially on the UHNWI (Ultra High Net Worth Individual) clientele. This large and growing market share is logical in a world full of upheavals where Switzerland, haven of stability, still retains the AAA rating.
Independent wealth management, with around 2,500 companies, manages 10-15% of this pool. This figure is stable despite the many upheavals.
Independent advice and savings kept in a Swiss custodian bank : a strong trend, a necessity to assure performance, full transparency and long term stability.
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