Separation of Legal Structures in Swiss Asset Managers

Increasingly, Swiss Asset Managers are opting for standalone legal structures, separating their activities from their parent companies’ Private Banking activities. Here we explore the drivers behind this trend, the rationale for doing so, and its benefits and limitations.

The Ultimate Shareholder

To avoid legal and reputational risk contagion between Private Banking and Asset Management, and ultimately protect both entities’ funds, shareholders find comfort in separating their activities. This can also be an opportunity for a group to monetise the particular assets of an activity

In addition, increased simplicity and transparency give a clearer view on the profitability of each business area. Each entity can be more focused on its own activity when a clear legal and functional structure is enforced.

Some of the key reasons for shareholders include:

  • Avoiding legal contagion risk between Private Banking and Asset Management
  • Monetising the assets of an activity
  • Increasing transparency and simplicity, giving a better view on profitability
  • Removing distractions from other parts of the business

The Private Bank

Such separation can be difficult for a Private Banking entity if it does not understand the respective needs of its Asset Management entity.

However, Private Banks can benefit from simplifying their structure and operating model. As a result, the monitoring of activity is improved and no longer disturbed by the Asset Manager’s drive for flexibility, responsiveness and dynamism.

In summary, benefits for a Private Bank include:

  • Reducing complexity of its management structure
  • Reducing complexity of its operating model
  • Improving its monitoring and decision-making process

The Asset Manager

As a separate entity, Asset Managers can have their own operating model, management structure and business development strategy.

This will allow Swiss Asset Managers to prepare themselves for the fundamental shifts that will shape the industry’s future. Private Banks’ security policy constraints are becoming challenging for Asset Managers. We believe that this separation will allow Swiss Asset Managers to (re-)gain competitiveness, especially with respect to:

Corporate Strategy Development

By designing their own corporate strategy, Swiss Asset Managers will be able to more easily:

  • Adopt their own strategic approaches to regulatory compliance
  • Develop new distribution channels (e.g. open new sales representative offices)
  • Strengthen their brand image
  • Develop new business lines (e.g. Private Equity, Alternative, Passive Strategy)
  • Launch new products
  • Attract new talent

Operating Model Enhancements

Independence can allow Swiss Asset Managers to re-define their operating model and embrace new technology opportunities outside the constraints of the bank’s security policies.

Leveraging the right operating model will help them manage costs more effectively, improving operational efficiency whilst reducing IT infrastructure costs and time-consuming releases. This could include the replacement of legacy, custom-built front-to-middle office applications or CRM solutions, often developed internally, with more flexible vendors with matured cloud-based technologies and software as a service (SaaS) solutions. Examples include like BlackRock Aladdin, Bloomberg AIM, SimCorp Dimension, PolarLake, Vermilion, Microsoft Dynamics, and Salesforce.

IT resources can then be re-directed to support distribution, enhancing the client journey experience and brand management to further drive growth. Moving towards cloud infrastructure solutions will allow them to better manage their IT investment strategy, fully embrace a digital strategy (from client touchpoints throughout the organization) and benefit from the latest social collaboration solutions (Azendoo, Bitrix24, eXo Platform, Fleep and Slack).

Swiss Asset Managers will be able to define their own data management governance, streamline and automate their processes without the bank’s restrictive environment (e.g. through RPA), define and measure data quality and create a more flexible system infrastructure.

By embracing these developments, Swiss Asset Managers will not only be able to avoid future penalty payments; they will also be able to increase their flexibility and responsiveness, enabling them to provide higher quality services which fit the specific requirements of their clients. It will also allow them to improve their data management and collect more information about their investors, enhancing the investor’s journey at all touchpoints.

Across the value chain of outsourced services, new technologies may challenge the assumption that outsourcing provides a cheaper long-term operating model. Robotic process automation could prove more cost efficient whilst bringing greater control and operational quality. In future, more advanced systems might streamline processes even before they are considered for outsourcing.

Overall, Swiss Asset Managers will be able to operate with greater flexibility, responsiveness and dynamism. This will increase their competitiveness and allow them to re-evaluate their global strategy and operating model to incorporate new technologies. This in turn will increase their service offering, allowing them to play a more active role in their investment processes, including pursuing opportunities for disintermediation that can lower costs and improve net returns.

The separation of activities described here is no quick fix, but efforts may prove highly beneficial in the mid to long term, not only through economic rewards, but also by increasing firms’ ability to react quickly to new opportunities and challenges.

 

Written by Nicolas Cherbuin, Switzerland CEO

Contributing writers: Paul Guadagnin (Senior Manager), Patrice Binet, (Manager) and Christian Wortmann (Consultant)

 

The separation of activities described here is no quick fix, but efforts may prove highly beneficial in the mid to long term, not only through economic rewards, but also by increasing firms’ ability to react quickly to new opportunities and challenges.

Nicolas Cherbuin, Switzerland CEO