More than a decade spent living and working in Geneva has seen Christopher Marriott, the director and founder of Swiss-based IFA firm Blackden Financial, immerse himself in the local expat lifestyle.
Summers spent walking in the mountains give way to snowshoeing and skiing in the winter. But despite the idyllic location – Geneva sits on the banks of one of Europe’s largest lake with the French Alps lying to the east – Marriott’s time in the country has given him food for thought on the challenges of running a UK-style advice firm in Switzerland.
Blackden was set up in the aftermath of the second Gulf War, which saw his employer at the time – Australia Mutual Provident – shut down all of its European operations amid fears of a market meltdown.
“One of the biggest challenges is the strong Swiss franc. If you look back at the history of the Swiss currency versus the sterling, it has only gone in one direction: up,” says the Brit.
“Our aim is to strip as much necessary cost as we can out of the product providing structure."
Franc exchange
As the firm’s revenue comes from the commission it charges on the value of a client’s assets, a strengthening Swiss franc has, over the years, hit the firm’s profit margins.
When Marriott first arrived in the country in 2001, as a financial adviser with Towry Law, the exchange rate was at CHF2.4 to the pound. After peaking at CHF2.5 in 2007, the economic crisis saw it plunge to CHF1.5 in December 2008, reaching a rock bottom CHF1.23 in 2011.
In January 2015, the Swiss central bank shocked the global market when it decided to scrap its long-standing exchange rate control against the euro, slashing interest rates to -0.75% in the process.
The move sent the Swiss franc soaring against the single currency by almost 30%. Today (17 June), the exchange rate sits at CHF1.36 against the pound and CHF1.08 to the euro.
“As a business, we have almost all of our expenditure in Swiss francs. If our client’s assets are in one third sterling, one third euro and one third Swiss franc, and the value of the sterling and the euro falls by one third against the Swiss franc, then the revenue you receive in terms of Swiss franc is significantly less,” he says.
In the face of these challenges, Marriott and his five colleagues, two of whom hold dual British and Swiss nationality, have prospered and worked hard to build a business with a “good reputation” through what he describes as a “very difficult” seven years.
“That is an achievement in its own right,” he says.
Growing success
Over the past year alone, Blackden has seen its assets under management rise by 20%, from CHF45m to CHF54m – which is no mean feat in the country’s increasingly polarised financial advisory market.
Describing Switzerland as “chocolate box country”, Marriott, who began his career at Prudential’s private planning arm in the early ’90s, reveals there is no “real concept of an independent financial adviser here”.
Earlier in June, Boston Consulting Group named Switzerland as still the top destination for ultra-rich individuals to stash their offshore wealth – a group that has been traditionally catered for by the country’s vast network of banks and external asset managers.
“The banks are often used as platforms to hold assets for their clients and they advise on that basis. It will be pure asset management. What they do not provide is financial planning services.
“It will literally be, ‘you are our client with X amount of capital that you wish to invest’. They [banks] won’t be looking at portfolio bonds that might be beneficial to you if you were moving to the UK. They will not necessarily be advising you on pension structures such as Qrops or Qnups,” he warns.
In contrast, Blackden acts as an agent for all its clients, who, despite having investible assets of between CHF250,000 and CHF750,000, often fall outside the remit of the Switzerland’s private banks.
Blackden has traditionally done most of its business through life offices and banks, such as Julius Baer and Banque SYZ, although Marriott is keen to point out his business has “no ties” to any particular product provider.
However, he did confirm that it is now increasingly selecting its products via Luxembourg-based platform Moventum.
“We believe platforms offer the best value and have found that Moventum works very well because of transparency, cost, service and flexibility,” says Marriott.
Following similar trends in the rest of the region, Marriot reveals that in the past 13 years, he has seen advisers gradually move away from using life offices and towards platforms.
Changing dynamics
“Growth will come from the platforms,” he says, adding that the shift maybe as a result of successive economic disasters. A consequence of [financial crises] is that clients are far more selective than they were before. They are more focused on costs and our job as independent financial advisers is to provide what is right for our clients.
“Our aim is to strip as much unnecessary cost as we can out of the product providing structure,” says Marriott.
Despite the changing dynamics, the financial planner believes there is still a place for life office products, especially for clients whose “main concern is asset management rather than tax planning”, he says.
A recurrent theme across many parts of Europe is whether or not to scrap commission in favour of a retail distribution review-style (RDR) model that has been operating in the UK since 2013.
The Market in Financial Instruments Directive II (MiFid II), set to be introduced in January 2018, aims to improve transparency around the commissions charged by European advisers.
Although the legislation does not apply to Switzerland, Marriott confirms the country’s regulator the Swiss Financial Market Supervisory Authority (Finma), is seeking to “mirror” the EU model.
Under the current system, Swiss banks charge a custody fee for hosting assets, they then levy a separate fee to buy and sell a fund.
As for commissions, for Marriott, a founding member of the Federation of European Independent Financial Adviser (Feifa), there are two industries – insurance and asset management.
“If you advise on these products then you are receiving commission. The regulator is very aware there may be an incentive to turn that portfolio over and increase fees.
“I would be surprised if [Finma] decided to pull commission altogether. It is more likely that they will say ‘look if you want to have commission that is absolutely fine but you need to disclose it’,” he says.
A knock-on effect, says Marriott, will be an increasing pressure on fees. As for the UK model, he believes that while a move towards fees is a “good thing”, as long as there is “full disclosure” of what the client is paying, there should not be much of a difference.
“Fees and commissions are not enormously different. The main thing is transparency,” he says. “There is an argument that pulling commissions entirely disenfranchises a large number of potential clients, who cannot afford the upper end of advice. But there should be disclosure and I suspect that is how it is going to go.”
