Not only are the days of old-style bank secrecy numbered,
but Swiss banks and wealth firms can no longer delay major changes to business
models if their firms are to remain competitive, KPMG and the University of St
Gallen say in a new research report that sets out 13 recommendations.

In a study based on interviews and surveys of 39 banks and
10 independent asset managers, it said it expects industry consolidation – already
under way – will accelerate by 2012, while firms will increasingly look to
technology-driven partnerships in the finance industry to find new ways to get
a market position.

The study is called Success
through innovation – achieving sustainability and client-centricity in Swiss
Private Banking.

For some banks, the study said, they will need to achieve
critical mass to win the economies of scale; the survey found that around
two-thirds of banks believe that future survival will require an average
two-fold increase in assets under management – firstly, because client
requirements are becoming more complex and diverse and are necessitating heavy
investment and, secondly, because growing regulatory requirements are favouring
larger competitors.

When the following statement was put, “Swiss private banking
industry value chain will have become disintegrated by 2022. Most banks will have
become specialised at some stages of the industry value chain,” more than 60
per cent of respondents said they agreed; about 35 per cent had no answer
either way, and 10 per cent disagreed.

13 areas

To stay competitive, the report identified 13 areas:

1. Innovation
is a must;

2. Focus
on growth markets and legal compliance;

3. Expansion
of the Swiss client base: The analysis of the onshore market shows that
around 60 per cent of interviewees wish to increase their Swiss client
base in relative terms by 2022;

4. Information
will be exchanged automatically: In an international context, there was no
chance of Swiss banking secrecy surviving. However, private banks consider it
important to continue to protect privacy in Switzerland without offering a
platform for undeclared assets. The survey shows that Swiss private banks
expect the automatic exchange of information to be in effect in three years;

5. Private
banks believe that greater transparency and highly developed, comprehensive
client service are key to a successful future. Particular attention needs to be
devoted to capturing client data;

6. Growth through
cooperation with independent asset managers (IAMs): Two-thirds of the private
banks surveyed see IAMs as a strategic option for further growth in their area
of business. By pursuing this option, the institutions hope to reach new
clients and achieve economies of scale. To reduce emerging compliance risks,
however, rigorous due diligence must be performed on both existing and new
IAMs;

7. Open product
architecture: In future, private banks will increasingly offer their in-house
products and services in an open architecture, that is to say make them
available to other providers. Of the banks surveyed, 84 per cent wish to
improve their independent advice and their services by 2022;

8. Increase in digital communications: The distribution of
products through electronic and mobile channels will also change markedly. Many
clients, particularly the younger generations, are keen to use digital channels
more and more. Interviewees expect mobile and internet-based solutions to be a
greater differentiator among the individual banks in 2022;

9. Flat fees and fee-based advisory models: Future price
models are currently the subject of intense discussion. Banks believe that
price models need to be very open and transparent. Developments with regard to
the reimbursement of trailer fees also indicate this to be the case. One
possible trend in pricing could be toward flat fees;

10. Growth through new business models and minimum level of
assets under management: Private banks agree that cost reductions alone bring
only short-term success. Rather, the institutions need to concentrate on
fundamentally rethinking their future business models. Besides costs, client
advisors will also have to give increasing thought to the bank’s gradual
transition to new, viable market positions. Interviewees agree that this also
requires the bank to be of a certain size. According to the survey, the private
bank of the future should, at a minimum, have assets under management of around
SFr10 billion;

11. Examining the possibility of outsourcing: Private banks
see huge potential to cut costs in outsourcing certain activities such as IT
processes, capital market research, product development and legal affairs;

12. Drops in salaries: According to the survey, most private
banks expect a downward shift in employee compensation in the coming years,
with drops of between 15 and 25 per cent. Only 15 per cent of interviewees
believe that employee remuneration in 2022 will be either higher than it is today
or unchanged;

13. New regulation both a challenge and a competitive
advantage: Cross-border and regulatory requirements such as Basel III or the
Swiss Financial Services Act (FSA) currently under discussion pose considerable
challenges when it comes to implementing new strategies. Some interviewees
consider the new rules to be harmful or even a threat to the existence of
smaller banks. However, the new regulations could become a competitive
advantage in their efforts to differentiate themselves from banks under foreign
control.