How to Ensure Profitability When EAM Fees Are Shrinking

June 26, 2021
Wealth management

Switzerland is the world leader in private wealth management. Despite fierce competition from financial hubs such as Singapore and Hongkong, Switzerland has been defending its pole position successfully since years.

Although the AuM is expected to keep growing until 2025, the revenue generated from it is expected to decrease. Due to the fundamental changes in the Swiss Wealth Management industry (regulatory changes, consolidation, changing investor expectations, etc.), EAM margins are going to be under more and more pressure.

EAM Fees under Investigation

WealthArc is at the forefront of innovation and change in the Swiss wealth management industry. We strive to provide intelligence and thought leadership to Swiss EAMs. In our latest report Wealth Management Fees Under Pressure, we shed light on the different fee levels applied by EAMs, a topic that has received little to no attention in the past years. We then draft different strategies for overcomin the margin squeeze expected to be a major challenge for wealth management professionals.

Our report answers the questions commonly asked in the wealth management environment:

  • How can EAMs know whether their fee model is in line with the market?
  • What is a standard fee rate charged by Swiss EAMs?
  • How can EAMs ensure profitability in the future?

Data-Driven Intelligence

Our analysis of Swiss EAMs reveals the following trends in the Swiss EAM industry:  

  • Wealth management professionals are inclined towards management fees. 
85% of them charge management fees only and 15% combine management 
and performance fees.
  • Management fees drop for bigger clients. While the average fee for < 1M USD mandates reaches 0.76%, those for > 10M CHF decrease to 0.51%.
  • Dynamic strategies bring the biggest profit. Wealth management professionals applying them charge management fees of 0.87% on average.  
  • When combined with performance fees, management fees drop. Wealth management professionals using both of them charge 0.12% on average.

Ensuring Profitability

Swiss wealth management professionals build on expertise and trust in the advisory process. But with the increasing investor and regulatory scrutiny, advisors are forced to find ways to innovate their operating model.  

How can EAMs justify their fee level or even increase it?

Transformation through Technology

The hybrid advisory revolution is already happening in the wealth management industry. Technology-enabled advisors automate many time-consuming and cumbersome tasks through digital platforms such as WealthArc. This allows advisors to fully dedicate their time to what matters most, namely building relationships with their clients and the markets.  

Having quick access to all financial and sensitive client information within a single platform not only improves efficiency but also team satisfaction.  

Investor Experience  

The pandemic has accelerated the shift towards digital channels. Those wealth management professionals who already communicate seamlessly through online channels provide better investor experience. As Refinitiv (LSEG) has recently said, we can observe a “race for digital differentiation”.

With the fees they pay, investors expect premium experience. 80% of them would like to see dynamic content integrated into their digital experience with wealth management advisors.

Fee Transparency

Trust is the most important currency in the investor-advisor relationship. But the majority of investors have low awareness and understanding of the wealth management fees that they pay. Therefore, EAMs should develop transparent pricing models: understandable and fair for their clients.  

Some of the advisors we interviewed admitted that they openly tell their investors about their fee structure, operating cost and advisor compensation.

To ensure profitability and face the new reality of sustained fee pressure and regulatory scrutiny, many wealth management professionals have initiated the transformation of their operating model by integrating a single technology platform such as WealthArc.  

More Insights on Wealth Management Fees

To discover all the insights from our wealth management fees study, download the full report: