Wealth Management in Switzerland

Wealth management in Switzerland: Everything you always wanted to know about investing money in Switzerland but were afraid to ask... We have the answers to the most frequently asked questions about investing money for you on this page. Are you looking for the best wealth manager or the best private bank for your individual needs? We are happy to help.

How Much Wealth is Managed in Switzerland?

According to statistics from the Swiss National Bank, assets totalling CHF 7.176 trillion were held in the securities custody accounts of Swiss banks at the end of 2023. Of this, CHF 804 billion came from Swiss private clients and CHF 574 billion from foreign private clients. The majority of the investments therefore do not come from private clients, but from commercial (companies) and institutional clients (insurance companies, pension funds). In addition, CHF 1.5 trillion is held in account form (savings accounts, private accounts, current accounts) at banks.

Of the CHF 7.176 trillion, approximately half belongs to domestic (54%) and half to foreign (46%) customers.

With Whom Can You Invest Your Money in Switzerland?

According to the National Bank statistics, Swiss banks are divided into the following groups:

Big banks
Cantonal banks
Regional banks and savings banks
Raiffeisen banks
Stock exchange banks
Private banks
Branches of foreign banks
Foreign-controlled banks
Other banks

All of these bank groups offer investment services. Private banks are the only banking group that specializes exclusively in investments for private clients. You can find out more about this in the article about the best private banks in Switzerland.

In addition to banks, you can also consider independent wealth managers. They are also investment specialists. Client assets are always held at a custodian bank, which clients can choose themselves if they wish.

Very wealthy individuals and families sometimes set up so-called family offices, which manage and grow the wealth according to the owner's wishes. Family offices usually also offer their owners additional services such as legal advice or international tax optimisation. If several individuals or families have their assets managed by the same family office, this is referred to as a multi-family office.

In recent years, fintechs have also developed algorithms for asset management. Robo-advisors are particularly noteworthy in this category. They allow customers to choose their individual portfolio components and then have them managed through an automised algorism at low cost.

What Investments Are Available in Switzerland?

The best-known investment instruments are shares and bonds. With shares, investors own shares in certain companies and benefit from their value creation. Shareholders benefit from price increases and dividends (profit distributions). With bonds, investors make money available to companies for a certain period of time and in return, investors receive interest.

While the lion's share of investment capital is invested in shares and bonds, there are other so-called alternative investments. The most important categories are

Gold and other precious metals
Commodities Real estate
Private equity (shares in companies not traded on the stock exchange)
Hedge funds
Structured products (deliberately increasing or decreasing the investment risk)
Crypto investments (best known: Bitcoin)

The purpose of alternative investments is to diversify risk in the client portfolio. For example, if share prices fall, this does not necessarily mean that house prices will also fall. Alternative investments can therefore bring more stability to a customer's portfolio. Bank accounts are of course also worth mentioning. They are suitable for the short-term deposit of funds that are not to be invested for the longer term.

In What Form Can Money Be Invested in Switzerland?

When buying individual shares or bonds, we refer to direct investments. These are suitable for investors with an investment volume of around CHF 500,000 or more. In order to avoid unnecessary cluster risks in the portfolio, the investments must be allocated (diversified) across various shares and bonds. With an investment volume of less than CHF 500,000, the individual position becomes too small and therefore too expensive when buying and selling.

Investment funds pool money from many investors. In this way, the funds can be invested efficiently and the above-mentioned problem with diversification can be avoided. There are investment funds that map entire investment strategies (mixed funds or portfolio funds). There are also investment funds that cover a narrower investment area, such as European equities, American bonds or Swiss property. Most investment funds are actively managed, i.e. the fund managers aim to generate the highest possible outperformance for investors through the targeted selection of investments. Because many fund managers are unable to do this, passive investment funds have become very popular in recent years. They invest in a predefined universe of equities or bonds and replicate an index such as the Swiss Market Index. Passive investment funds are less expensive than actively managed funds and are known as ETFs (exchange traded funds) or index funds.

Structured products work in a similar way to investment funds. Here, investments are combined with derivatives (options, futures) to create investment opportunities for specific market expectations. Barrier reverse convertibles (BRCs) are popular. They enable investors to make money in sideways trending markets (neither large upward nor downward movements). However, investors must accept risks in return.

If the responsibility for investment decisions is delegated to a specialist, this is referred to as asset or wealth management. In this case, clients authorize the asset or wealth manager to buy and sell investments on their behalf. Asset/Wealth management mandates are suitable for clients who do not have the expertise, time or inclination to look after their investments themselves on an ongoing basis.

Investors who want to make use of the help of experts but want to make their own investment decisions opt for an advisory mandate. Depending on the structure of the advisory mandate, the advisor is active and suggests investments or is passive and advises customers who are looking for a second opinion on an investment idea.

Costs: What Does It Cost to Invest Money in Switzerland?

Various cost components must be taken into account when investing money:

Wealth management costs: If you wish to have your assets managed professionally, you will pay a wealth management fee. This depends on the size of the assets under management. The more wealth is managed, the lower the percentage fee.

Advisory fees: If you want to make decisions about your assets yourself, but would like the support of a specialist, you pay an advisory fee. Here too, the higher the assets, the lower the percentage fee. Advisory fees are an alternative to wealth management fees. Depending on whether you give your wealth manager a management mandate or an advisory mandate, one or the other fee will apply.

Custody fees: Your securities are held for safekeeping by a custodian bank. You pay a custody account fee for this. This is also calculated as a percentage of the assets and depends on the size of the custody account.

Transaction costs: If you or your wealth manager initiate transactions, i.e. purchases or sales of securities, there are fees involved. Traditionally, these fees are calculated as a percentage of the transaction size. Nowadays, many custodian banks have switched to applying so-called "ticket fees". These are independent of the transaction size and are therefore particularly favorable for large transactions. With regard to transaction costs, special attention must be paid to foreign currency fees. If a transaction is settled in a currency other than the account currency, the currencies must be converted. Favorable or unfavorable exchange rates may apply. Ask your bank about the exchange rates or margins applied.

Execution costs: Many custodian banks offer a flat fee for the execution of wealth management or advisory mandates. This includes the above-mentioned custody account fees and transaction costs.

Product costs: When investing money, investments are usually made not only in individual securities (see above), but also in investment funds or structured products. The costs of these products vary greatly, but actively managed products are generally more expensive than passively managed products.

All-in-fees: Banks have the possibility of offering both management/advisory services and execution of trades together. They can therefore offer "all-in-fees". These include all costs incurred by the bank. They do not cover charges that are not incurred by the banks themselves, e.g. taxes or so-called issuance levies.

In the article on costs in Swiss private banking, we have analyzed how high the individual costs are in practice.

TIMING: WHEN TO INVEST YOUR MONEY?

The choice of when to invest is known as timing. Ideally, you want to buy securities at low prices and sell them at high prices. As you only ever know the optimum times in hindsight, there are two ways of determining the entry point:

With a one-off investment, the money is invested at a specific point in time, basically as soon as it is available for the investment. The argument in favor of this is that the stock market moves upwards in the long term and the earliest possible investment allows you to participate in this growth in value for as long as possible.

When staggering the investment, the money to be invested is divided into different tranches and then invested at regular intervals. This avoids the entire investment being invested at a single unfortunate point in time (before a stock market crash). This strategy is suitable for investors who want to reduce their risk and are prepared to forego some upside in return.

WHICH RISKS SHOULD BE CONSIDERED WHEN INVESTING MONEY?

The textbooks on investing state that shares are risky and bonds offer steady returns with little risk. Today this is no longer true, because even with bonds, you can only earn a return if you take risks. There is no such thing as risk-free returns, because risk-free investments such as federal bonds sometimes deliver negative real returns.

Determining the right investment strategy is based on two factors:

Risk capacity. Risk capacity asks the question: what proportion of your capital can you lose without substantial consequences to your personal financial situation? We invest wealth in order to increase it. But as mentioned above, this is only possible by accepting risks. If you need the money to buy a house in a year’s time, you can take fewer risks than if you are saving for your retirement in 20 years’ time. The most important factor influencing your risk capacity is your investment horizon. This indicates how long you will not need the assets to be invested.

Risk tolerance. Risk tolerance answers the question: How much loss can you endure? If a temporary loss of 30 percent worries you and prevents you from sleeping, you should invest in such a way that this does not happen. However, taking fewer risks also means limiting your potential gains. The balancing act between possible losses and possible gains must be answered individually for each investor

Article 12 of the Federal Act on Financial Services obliges providers to thoroughly review the suitability of investments for certain clients.

WHAT ARE SUSTAINABLE INVESTMENTS?

Sustainable investments are suitable for investors who pay attention to the impact of their capital. There are two types of sustainable investments:

Exclusion process. Many asset/wealth managers ensure that they do not invest (on behalf of their clients) in companies that damage the environment, violate human rights, discriminate against groups of people or do not report transparently on their business activities. The more companies are excluded from investments, the more difficult it becomes to put together a well-diversified portfolio of high-yield investments.

Impact investing. While the exclusion process excludes harmful companies from investments, impact investing seeks out the particularly “good” companies. Here, investments are made in companies that make a significant contribution to society. This can be, for example, the production of “green” energy or the development of low-CO2 production processes.

A key issue in sustainable investing is so-called «Greenwashing». This is when asset/wealth managers offer sustainable investment strategies in which only very few companies are excluded from investments. Although these investments are given a “green” name, they hardly differ from conventional investments.

WHAT ARE THE MOST COMMON INVESTOR MISTAKES?

In our experience, the most common mistake by far is not to be invested. People who are not familiar with the world of investing are afraid of the risks because they find it difficult to assess them. Others think that investing in securities is for millionaires and not for “normal people”. The costs of not investing only become apparent at second glance. If you don’t invest, you miss out on potential returns and, at the same time, inflation slowly eats away at your cash.

However, even people who are familiar with the financial markets make the mistake of not investing. Whenever the stock markets are highly valued, they want to wait for a more favorable entry opportunity. This often fails to materialize for a very long time and the non-investors miss out on high returns. Stock markets move upwards in the long term, i.e. prices rise. If this movement were completely linear, shares would be permanently at all-time highs. As no one can predict the upward and downward movements, it is normal to enter at highs. If you are afraid of a bad entry point, you should stagger your entry (see Timing).

An entire field of research deals with the irrational behavior of investors. It is called “behavioral finance”. Even if investors are aware of the mistakes, they still often fall into the trap. Daniel Kahneman was honored with the Nobel Prize in Economics in 2002 for his research into this field. Here is a selection of the irrational behaviors studied.

Risk aversion: People prioritize losses about twice as much as gains. This leads to fewer risks being taken than would be purely rationally “reasonable”.

Herd instinct: Instead of forming a suitable picture of an investment for themselves, people like to follow others.

Overconfidence: When things go well, people attribute success to their own abilities, while failures are often blamed on “the markets”. Anchor effect: People like to orientate themselves on the price they paid for a share and make a possible sale dependent on this. The right thing to do, however, would be to forget the initial price and focus on market conditions.

FOREIGN INVESTORS: WHY INVEST IN SWITZERLAND?

At the end of 2023, Switzerland is still the largest offshore financial center in the world. Nowhere else have so many investors invest across borders. The main reasons for this are:

Know-how: By specializing in wealth management for international clients, a great deal of know-how has been built up in Switzerland. No matter where an investor comes from, he will find a provider in Switzerland who understands his needs and is familiar with the conditions in his home country.

Currency: The Swiss franc has been the hardest currency in the world in recent decades. Even though the reference currency for many foreign investors is the euro or the dollar, the Swiss financial center offers access to investments in a currency that tends to appreciate against the home currency in the long term.

Political stability: Switzerland’s form of government ensures that changes of government do not steer the country to the left or right. The risk of the financial center’s framework conditions constantly changing due to the government’s values is small. Experience shows that the framework conditions of the financial center change more as a result of pressure from international organizations and other countries.

Reliability: The Swiss financial center has built up a reputation as a reliable partner over decades. Promises are kept.

Security: Providers in the Swiss financial center are closely monitored and the risk of losing money due to a bank failure is minimal. Swiss banks generally have more than sufficient capital reserves. Since 2023 independent asset managers are also monitored by the Swiss Financial Market Supervisory Authority (FINMA). Investing in Switzerland therefore offers customers a high level of security.

WHAT DOES PRIVATE BANKING MEAN?

Private banking refers to banking services that are provided for wealthy clients. Although private banking is conceptually close to “private banks”, the two terms should not be confused. Private banking is also offered by large banks, cantonal banks, regional banks, etc. Private banks, however, specialize entirely in private banking. The same applies to independent wealth managers. They also offer exclusively private banking services.

There is no clear answer to the question of the investment amount at which private banking begins. The individual providers have different minimum amounts. FinGuide has defined CHF 500,000 as the minimum amount. However, various providers only accept customers with a minimum of one or two million Swiss francs.

DOES THE SWISS BANKING SECRET STILL EXIST?

The almost legendary Swiss banking secrecy (bank customer secrecy) has been protecting the privacy of customers of Swiss banks since 1935. The original intention was to protect customer funds in neutral Switzerland from access by warring states. Customers at home and abroad also used banking secrecy to hide their funds from the tax authorities. International pressure, particularly through the OECD, meant that Switzerland also had to join the international automatic exchange of information (AEOI). Since 2017, Swiss banks have been reporting their customers and their assets to the tax authorities of the countries participating in the AEOI.

The fact that Switzerland is still the world’s largest offshore financial center years after the abolition of banking secrecy for foreigners shows that customers did not just come to Switzerland to evade taxes. Banking secrecy remains intact for customers domiciled in Switzerland. The tax authorities do not receive any information about customers and their assets.

5 TIPS FOR INVESTMENT

Your most important ally is time. If at all possible, start investing early. The longer the investment period, the stronger the compound interest effect. Anyone who invests 500 francs in stocks every month from the age of 25 and reinvests all earnings is very likely to be a millionaire when they retire.
Stick to your investment strategy. Anyone who changes their strategy when the market fluctuates usually loses a lot of money. Investors who sell their shares during turbulent times on the stock market are most likely to miss the recovery that follows any downturn. The investment strategy should only be adjusted if the general conditions change, for example if the money invested is needed earlier than planned.
Be realistic about your own abilities. Do you understand enough of the subject matter to make informed decisions? Investors who want to “save” on asset management fees often pay dearly for this with unattainable returns.
Just as important as a realistic assessment of your own abilities is clarity about how much time and inclination you have to look after your assets. If you don’t have enough time, you’ll miss important decisions. And if you are not interested in finances, there is a risk that you will not continually adapt your investment to current requirements.
Choose your asset manager carefully. Just because your classmate works at Bank X or your sister is happy with wealth manager Y doesn’t mean it is the right provider for you. Enter your requirements here at FinGuide and let us help you find the best provider for your individual needs free of charge.