Article update in July 2024.
At what level of wealth is it worth splitting your assets between two or more wealth managers? I am asked this question time and again. As is almost always the case in finance, there is no simple answer to this question that is right for everyone. But there are concrete considerations you should make in this context. In this article, we want to highlight the relevant considerations and help you to find the answer for yourself.
Current Situation
According to the LGT Private Banking Report 2020 (unfortunately no more recent reports available), millionaires in Switzerland have an average of 2.3 banking relationships with which they have invested money. A third of Swiss millionaires have concentrated their funds with just one bank. Another third spread their investments across two banks and the remaining third across three or more. It can be assumed that clients with higher assets also have more banking relationships.
Satisfaction
Are you satisfied with your bank or independent wealth manager? Does your advisor understand your needs? Is the return commensurate with the agreed benchmark index and the competition? Does your wealth manager refrain from selling you their own products? If you can answer all these questions with a “yes”, there is hardly any reason to split your assets. You have made a good choice with your wealth manager.
However, if you are dissatisfied with one of the above points or any other aspect of the services, it is worth challenging your wealth manager by reallocating a substantial portion of your assets. This will send a signal that you are not fully satisfied with the services, and you will see that your wealth manager will suddenly try to look after you as if you were a new client.
Costs
The more money you invest with a particular wealth manager, the more leverage you have when negotiating costs. If you place five million instead of one million, both the wealth management fee and the processing costs (transactions and custody fee) are significantly reduced. Of course, at first glance this may seem to argue against splitting your assets between two or more providers.
However, many banks and independent wealth managers achieve poor returns year after year. This can easily be 2% or more per year, which is lost compared to the average performance of market participants. So, if you pay a little more by splitting your assets with the “new” wealth manager, but he achieves a significantly higher return for you, the split is well worth it. The previous wealth manager, who knows that he is now in competition, will normally be wary of charging you higher fees, as he would lose the remaining goodwill.
Investment Amount
FinGuide generally recommends not investing less than CHF 500,000 with one provider. Below this amount, it is difficult to ensure good diversification without switching to investment funds. However, these increase the costs and therefore you should avoid these if possible. You should therefore only consider splitting your assets if you have a total investment amount of substantially more than one million francs. If your assets are less than this, there is only one solution if you are dissatisfied: change bank or independent wealth manager.
Does it make sense to divide your assets anyway once you reach a certain amount? Our answer is: yes. Where this amount lies is a matter of opinion. FinGuide recommends that from an investment amount of around CHF 5 to 10 million, you should always consider splitting your assets. The difference in costs is no longer substantial and if the providers know that they are in competition, experience has shown that they simply make more effort to satisfy you.
Holistic Advice
Customers rightly expect holistic advice from their bank or independent wealth manager. However, this is only possible if – in the case of divided assets – both providers know exactly what amount is invested with which strategy with the other provider. Secrecy is useless here and makes the advisors’ work more difficult. So disclose how you have invested your assets overall. There are various providers who can provide you with a consolidated overview of your investments with “competitors” and thus clearly show you your overall situation. The compilation of a consolidated view requires some effort which will be charged separately.
Security
The issue of security is generally only relevant for cash assets, as these are held on a bank’s balance sheet and are jeopardized in the event of bankruptcy. Deposit protection guarantees CHF100,000 per customer and bank. Custody assets, on the other hand, are independent of the bank balance sheet. Therefore, you do not increase the security of your assets by spreading them across two or more providers. Unless you permanently keep cash deposits of CHF 100,000, which we would not recommend.
Conclusion
Two thirds of Swiss private banking clients are already taking the opportunity to split their assets between two or more providers. This increases competition between providers, which in turn benefits customers. As an investor, you gain experience by splitting your assets and can better compare services. This also helps investors to identify “creative” explanations for poor performance. Asset allocation is also a way of finding a better provider and then concentrating your assets with them again if service and performance is right.
Can we support you in choosing the right wealth manager with our free advisory process? You can find more information on our homepage.
