Wealth Management: Costs to Consider

A number of possible fees and charges may be levied during the move to an independent wealth management or private banking service. Fee structures apply both to discretionary asset management and to investment advisories. The following list can act as a guideline for choosing between multiple wealth management or banking services.

Typically, up to seven different types of fees and charges may be levied: administrative fees, consultation fees, performance-based fees, bank fees, product fees, indirect costs and fiscal charges.

1. Administrative fees

• The basic administrative fee for wealth management services commonly comes to between 0 and 1.5 percent of your managed assets.
• Start-up fee: This one-time entry fee is rarely levied, but when it is, it typically amounts to between 0 and 5 percent of your initial investment.

2. Consultation fees

• Wealth managers and consultants may charge consultation fees in exchange for services rendered. In strict consultation-fee-based consulting, service providers do not charge performance-based fees or administrative fees, but rely on consultation fees alone.

3. Perfomance-based fees

• Also known as profit distributions, performance-based fees typically chip between 5 and 20 percent off annual profits. However, not all wealth managers charge these fees.

4. Bank fees

• A number of different bank fees may apply, depending on the bank and the specific services used. Here are the five main bank fees to look out for:
  • Annual custody fees: Normally equal to between 0.1 and 0.5 percent of the deposits in custody.
  • Administrative fees: Commonly equal to 0.1 to 0.2 percent of deposited assets every year. These costs are not always charged.
  • Annual account fees: These normally range between 0 and 100 CHF per year. These costs are not always charged.
  • Brokerage fees: These apply when you buy and sell securities, and vary depending on the type of securities being traded. Brokerage fees of 0.2% to 2% of the amount transacted are typical. The online trading comparison provides a good reference point for judging brokerage fees.
  • Foreign currency conversion fees: If your transactions involve purchase and sales of assets in foreign currencies, you will usually pay foreign transaction fees amounting to between 0.05% and 1% of foreign currency transactions.

5. Investment product fees

• Depending on the investment vehicles used – such as investment funds or hedge funds – you may pay additional fees for these services. Individual investments, such as shares or bonds, are not normally effected (although brokerage fees may apply).
  • Purchase fees: Normally equal to anywhere from 0 to 5 percent of the assets invested through an investment vehicle.
  • Sales fees: Usually equal to 0 to 3 percent of the wealth invested through an investment vehicle.
  • Product administration fees (TER): Normally 0.1 to 2.5 percent of the amount invested through an investment vehicle.

6. Retrocession fees and other indirect costs

• Retrocession fees (also called kickbacks when used illegitimately) are not costs in the basic sense of the word, but they are classified as indirect costs by some bank critics. The argument: Because retrocession fees legally belong to the customer, retrocession fees can qualify as indirect fees or costs if they are appropriated by wealth managers. Retrocession fees are also criticized because they can potentially lead to conflicts of interest between wealth managers and clients. In the worst case, conflicts of interests may result in poor performance or high costs for clients. The amount of retrocession fees paid out varies considerably between investments and banks. An increasing number of banks do not accept retrocession fees at all, but charge higher administrative fees to compensate.

7. Fiscal charges

• Various additional charges apply, including stamp duties (in the case of transactions) and value added tax (in the case of custody fees).
• Each wealth manager and bank applies their own specific fee schedule to the services they offer, so running a wealth management comparison is worth it.
• More and more, Swiss banks are moving away from charging individual fees in favor of flat-rate fees. However, even the flat-rate fees rarely cover all possible costs so comparing all costs in a comparison of wealth management fees and charges can help you understand what you are getting.

More on this topic:
Private banking comparison
Online broker comparison