How to Choose an Independent Asset Manager

More than 2000 independent asset managers operate in Switzerland, but the costs and quality of services vary broadly. Following these tips will help you get started on the road to choosing the right asset management service.

1. Focus on core services rather than appearances

Well-dressed consultants and elegant offices add a nice touch, but do not let these superficialities influence your decision. Focus on the core factors which impact your wealth.

2. Ask difficult questions

Make it a point to have your prospective wealth manager explain complex products and break down facts and figures. If they only give you vague or general answers, keep digging for clear answers until you are satisfied. Have the wealth manager clarify legal and financial jargon in understandable terms.

Wealth management has become quite complex, but that should not stop you from understanding how your money will be invested.

3. Transparency is key

An independent asset manager should be completely transparent about their company and their overall previous performance. Just citing a single, high-performance case, for example, does not provide a true picture of overall performance.

The wealth manger should clearly break down their business model (including possible commissions or incentives) and the fees they charge. A broad range of business models exist, ranging from commission-only models to flat fee models to consultation-fee-only models. Most wealth managers use a combination of these. The important factor is their transparency in explaining their business model.

4. Stay away from overpriced wealth managers

There is no real way to justify wealth management flat fees above 1.5% per year. Take time to compare the costs of wealth management services from Swiss banks to get a reference point for average wealth management costs.

5. Watch out for bad players

Be critical. There are many dubious asset managers. After all, there is a minimum criterion that you should pay attention to: The asset manager needs a license from FINMA (Swiss financial supervisory authority).

6. Consider alternatives

Independent asset managers are not the only wealth management option. Numerous Swiss banks also offer wealth management services. Independent wealth managers are not necessarily the most favorable option. Many independent asset managers are expensive. Another thing to consider is that when you use independent asset managers as opposed to banks is that you run the risk of entrusting your wealth to a bad player.

Robo advisors are another alternative to independent asset managers. These wealth management services are largely automated and primarily invest in low-cost exchange traded funds (ETFs). Their fees are generally much lower than those charged by independent asset managers.

An even more affordable option, if you have the know-how, is investing your wealth yourself using affordable online stock brokers.

7. Question investment strategies

Wealth managers should clearly break down their investment strategies, the investment vehicles used, and the risks involved. If you do not fully understand an investment strategy or vehicle, ask the wealth manager to explain it to you. A good wealth manager should take time to patiently answer your questions in detail.

8. Review contracts carefully

A good wealth manager will present you with a clean asset management agreement. The contract should include the agreed-on investment strategy and risk profile. Ideally, have an independent third-party expert review the contract before you sign it.

9. Expect to be well informed

A good wealth manager should provide you with clear informative material and brochures covering their history as an asset manager, all possible costs, their services and their investment strategy in detail. Ideally, this information should all be transparently published on a website.

10. Pay attention to investment vehicle costs

Wealth management fees are just one part of the equation. The costs of investment vehicles are also important because these are not normally covered by wealth management fees. Avoid using wealth managers which only offer expensive or untransparent investment products.

Example: ETFs are generally more affordable than expensive actively-managed funds. Be leery of asset managers which include a lot of structured products and expensive hedge funds in investment portfolios.

11. Beware of conflicting interests

Avoid wealth managers which frequently reallocate capital, as this can indicate churning. If a wealth manager’s track record shows frequent reallocations, ask them to explain the purpose of the reallocations. If they are unable to provide solid reasons for the reallocations, consider moving on to a different asset manager.

More on this topic:
Interactive asset management comparison