Private banking in Switzerland

a talent market analysis


Private banking in Switzerland

about spencer stuart

Spencer Stuart is one of the world’s leading executive search consulting
firms. Privately held since 1956, Spencer Stuart applies its extensive
knowledge of industries, functions and talent to advise select clients
— ranging from major multinationals to emerging companies to
nonprofit organizations ­— and address their leadership requirements.
Through 51 offices in 27 countries and a broad range of practice groups,
Spencer Stuart consultants focus on senior-level executive search,
board director appointments, succession planning and in-depth senior
executive management assessments. For more information on Spencer
Stuart, please visit www.spencerstuart.com.

about the author

J. Maurice Zufferey leads Spencer Stuart’s global Private Wealth
Management Practice. He is also head of the Financial Services Practice
in Switzerland.

Since joining Spencer Stuart in 2001, he has conducted numerous

domestic and international searches for all banking segments, with a
focus on private banking, institutional asset management, consumer
finance, distribution, credit and risk management as well as operations.
Assignments have included finding board members, executive and senior
line and functional management officers as well as qualified product
or sector specialists. Moreover, Maurice has experience in assessment
services and benchmark studies and recruits senior positions for clients
of the Financial Officer and Professional Services practices.

Previously, Maurice spent much of his career with UBS, first as a

corporate finance specialist in Zurich, then as an investment banker in
London. In 1991, he served as head of the investment banking division
in Frankfurt. In 1994, he served as chief of staff, reporting directly to the
group executive board, in charge of all management processes related to
the bank’s human, financial, strategic, legal, technological and material
resources. In 1998, Maurice became chief executive officer of Ecole
Hôtelière de Lausanne, a top international hotel management school.


Observers of private banking in Switzerland agree that the
market is presently going through an extremely positive
phase, characterized by sustainable growth, historically
high revenues and an extremely attractive profit/risk ratio.

The following phenomena are currently at work in the private banking market:

Continuous, even accelerating growth: This is happening on a global scale, particularly

in the United States and Asia and, to a lesser degree, in Europe; underlying all this is
a sustained creation of new private wealth, due to the beneficial economic effects of
globalization as well as the current strength of the financial markets. Moreover, Latin
America, the Middle East and Eastern Europe are also experiencing an increasing growth in
wealth development.

New money: In Europe, the various collective savings systems, whether mandatory or
optional, continue to channel significant amounts of new money in the direction of wealth
management.

Retirees withdraw their capital: The older segment of the baby boomer generation is
beginning to retire, having accumulated wealth over several decades. An increasing
number of mainly well-off retirees prefer to withdraw their capital rather than opt for
an annuity. This group requires the services that private wealth management is able to
offer. In addition, this generation is making more and more use of financial services that
offer succession planning and a holistic approach to wealth management, which includes
lifestyle balance and enjoying their accumulated wealth.

CONTENTS
Trends in the private banking market 3
The private banking talent market 4
Our recent experience in the search for client relationship managers 6
Ideal conditions for recruitment 7
Important elements of attracting talent 8
Expectations, performance and remuneration 9
Conclusion 11

About the Private Wealth Management Practice 12

Private banking in Switzerland

New financial environment: Financial markets are currently flooded by liquidity in search
(often desperately) of appropriate investment targets. On the other hand, globalization and
the emergence of new economic powers create immense financial requirements which
private savings play an important role in meeting.

Competition between international financial marketplaces: This has intensified over the past
few years. London has affirmed its global leadership position. Switzerland, however, has
consolidated and even strengthened its place as a global leader in private offshore wealth
management, as well as in the services quality and investment performance it provides to
individual wealthy customers.

Financial engineering: The banking industry is boosting its financial engineering sector,
with products and solutions that are increasingly sophisticated and diversified. For many
wealthy individuals and families the revenue from private assets has sometimes supplanted,
at least partially, those from industrial or commercial interests.

Client sophistication: At the same time, private wealth management clients have also
become more sophisticated in terms of their requirements and financial know-how. Clients
now require great flexibility from their bankers, a wide selection of products, the ability to
adapt to the changes and trends of the markets as well as an increased level of investment
performance (expressed in minimum or absolute return).

On the behavioural side, the shock following the 2000–2002 stock market crash has been
largely forgotten, or at least relegated to the collective subconscious.


trends in the private banking market
Private wealth management in Switzerland is therefore in excellent shape. Financial players
(banks, financial companies, independent asset managers, etc.) are intensifying their efforts
to maintain or improve their competitive positions. Given the circumstances described
above, we observe a number of trends:

Increased recruiting activity: All banks, without exception, are currently in a sometimes
frantic growth phase and are vigorously recruiting portfolio managers and client
relationship managers (CRMs), financial engineers and business developers (actively
seeking out new business and clients).

Consolidation: In Switzerland and abroad, mergers and acquisitions in the private banking
area have undoubtedly contributed to a certain consolidation in the banking industry.
However, the creation of a significant number of new boutique institutions, independent
asset managers and specialised market players has offset this consolidation by widening
— and splitting — the wealth management offer. We observe that these newcomers are so
far doing all right and, in general, are successful.

Global banks offer flexible solutions: During the current economic and financial cycle even
global banks have greatly streamlined their organisational matrices so as to be flexible
for their clients in the products and solutions they offer. Their solutions are appropriately
focused on the real needs of clients and are sometimes extremely creative as well. These
institutions try to maximize their “one-stop shop” advantage for the benefit of affluent, high
net worth and ultra high net worth individuals.

Smaller banks specialising: Medium-sized or even smaller financial institutions are playing
their advantages to the full. These are mainly personalized services for clients; a product
architecture that is truly open; often credible specialisation in a particular investment style;
and sometimes a high degree of sophistication in wealth management, particularly for ultra
high net worth individuals.

Signs of overheating: Generally speaking, the private banking market is showing clear signs
of overheating that are typical of a bullish cycle or of the peak of a long growth phase. The
constantly increasing recruitment campaigns, high remuneration levels and audacious risk
taking are evidence of this.


Private banking in Switzerland

The private banking talent market

The changes described above affect recruitment, retention and talent development in two
important ways:

1. Growing talent shortage. Switzerland is increasingly losing its ability to provide the
private banking industry with sufficient talent, whether junior or senior, on account
of the country’s demographics over the past twenty years. It is commonly accepted
that a growing gap is developing between the demand for, and supply of, Swiss
professionals on the market. This gap will continue to grow in the future.

2. Complex regulatory environment. The Bilateral Agreements II with the European

Union have slightly improved the situation, particularly when it comes to importing
talent with the required professional qualifications, linguistic skills, cultural experiences
and personal qualities. However, these agreements can only marginally improve the
number of talented people able to master the regulatory environment of Swiss banking.
The Swiss regulatory environment is unique and extremely sophisticated, and can only
be reliably navigated by individuals after a few years of working in Switzerland. This gap
between the requirement for knowledge of regulations and the available foreign talent is
further widened by the continued reinforcement of the regulatory framework for private
banking in Switzerland which differs from the regulatory frameworks of countries such
as Germany, France, Italy, Spain, the United Kingdom and the United States.

We observe that for both portfolio management and institutional asset management, the
quantity of banking talent available in Switzerland is still acceptable because it can be
covered relatively easily by foreign professionals, mainly from France, the United Kingdom
and Germany. The same holds true for product development and management.

Conversely, there is a genuine crisis in the sector of CRMs, where there is a huge gap
between demand and supply. We estimate that the market for CRMs could probably absorb
20–30% more people if they existed.

The Swiss market for CRMs has been further drained because the country’s banks, having
discovered in the recent years the extraordinary upward potential of private banking in
Asia Pacific and the Middle East, tend to export some of their most talented people to these
regions in order to build up or reinforce their private banking structural backbone there.
This has created a not insignificant number of expatriates.

Furthermore, the private banking business model does not feature a leverage effect.
The personal interaction between a given CRM and his or her clients is fundamental for


acquiring, retaining, and creating loyalty with, clients; a CRM can only carry out a limited
number of daily interactions. This means that an increase in client business can only be
realized through an increase in the number of CRMs.

Other factors characterise the market for private banking CRMs:

> A credible strategy: Following the 2000–2002 crash, CRMs approached for an open
position have been mindful of the strategic considerations surrounding their potential
future employer. In markets that are still on the upswing, or at least stable, the
credibility of a strategy is an important motivating factor — all the more so given that
between 2000 and 2003 numerous banks either greatly modified or gave up their
strategic beliefs according to short-term circumstances.

> Employer differentiation: With the sustained boom in the markets and the general success
of private banking institutions it has become difficult for employers to differentiate
themselves in the eyes of their candidates. Numerous CRMs no longer trust the claims
of employers regarding the unique aspects of the service they provide to clients, the flat
hierarchies that facilitate decision making, or their competitive positioning in the market.

> Independent asset managers: This segment has been very successful over the past few
years, whether it be established third-party asset managers acquiring and retaining
clients, or newcomers opening asset management boutiques. For the time being, the
latter seem to be holding up well. Independent asset managers create real competition
for banks when it comes to attracting talent, as they are often able to offer an interesting
combination of lifestyle and professional revenues.

It seems characteristic of the current state of the private banking industry that even small
financial institutions (i.e, those employing less than eighty persons) are just as active on
the talent market. Some small banks and financial institutions are now taking up private
banking activities in markets (in particular the Middle East, Latin America and Eastern
Europe) that they have never targeted before.

In the eyes of many CRMs, numerous private banks seem to lack convincing arguments
in their attempts to attract CRM candidates. What they describe as their “unique selling
proposition” in making CRM positions particularly attractive is in fact often limited to flat
hierarchies, quick decision making, open product architecture, the freedom to travel for
business purposes, an entrepreneurial corporate culture, modern information systems, or
a good track record of investment performance. Each of these arguments (or sometimes all
of them) may be true for any given bank. However, they often fail to truly influence CRM
candidates looking for a career move.


Private banking in Switzerland

Our recent experience in the search for

client relationship managers
Since the beginning of 2005, Spencer Stuart has worked on numerous search assignments in
Switzerland aiming to recruit CRMs or heads of private banking teams. Our experience seems
to be representative of what is going on currently in this segment of banking professionals.

An analysis of our assignments in private banking reveals the following:

> The average duration of our executive search assignments for CRMs has been well over
twice the average duration of any other type of executive search assignment, for a series
of reasons which are outlined below.

> For CRM searches, the average number of candidates identified and directly contacted
has been well over 100.

> The average number of CRM candidates who could be presented to clients (after
identification, informal validation and development of candidate motivation) has been by far
less than 50% of corresponding numbers for other types of executive search assignments.

> When initially contacted by us, most of the candidates presented to clients were
experiencing significant structural changes at their current employer, or were in a
seriously demotivated state, due to lack of responsibility or freedom of action. The timing
of our contact has always played a determining role in our success.

> In recent years, demands over remuneration have proven increasingly aggressive. Only
on rare occasions have we had to deal with candidates for whom remuneration was not a
key issue in considering whether to change employer.

> It is very difficult to transfer French-speaking CRMs from Geneva to Zurich, or German-
speaking CRMs from Zurich to Geneva. Generally speaking, private banking CRMs are
extremely attached to the financial centre they work in, mainly due to the attachment of
their clients to the booking centre site of their bank.


Ideal conditions for recruitment
According to our experience in search assignments as well as our observation of the
market, being successful in recruiting CRMs or heads of private banking teams requires the
following conditions:

Patience in searching, bearing in mind the extent of the general demand for CRMs as well as
the delicacy inherent in every search process in this talent segment.

A stable strategic and operational context at the prospective employer that creates
confidence in the future.

A credible commitment on the part of the future employer towards its private banking
strategy, its organization and the open position.

The quality of the future employer’s name and brand, with a good positioning and a
proven reputation of the open position in target client markets. To this should be added,
if applicable, a smooth relationship between the prospective employer and its majority
shareholder.

A transparent and clearly articulated business and investment plan, especially regarding the
personal and financial resources available.

Added value in portfolio management (on the part of the prospective employer). This
generally covers a well defined investment policy, well structured investment processes and a
good track record in investment performance, at least consistent with market benchmarks.

A highly professional compliance service, ensuring not only full regulatory environment
compliance, but also speed and flexibility in handling special cases, client profile analysis
and account opening.

Reasonable performance expectations set for potential CRMs. A certain number of

employers require their final candidate to produce a plan for the transfer and development
of clients and assets for the first two to three years of employment; this is not always well
accepted by CRM candidates.


Private banking in Switzerland

Good quality of support service, in particular regarding personnel (assistants, portfolio

managers, investment consultants, etc.); operational support (budget for costs, expenses,
disbursements, travel, etc.), technological support (computer platforms and systems
for account opening, client management, client reporting, asset booking, middle-office
execution and risk management); and financial products and services (teller service, foreign
exchange, mortgage and lombard credits, credit cards and other types of lending).

The personal chemistry between the candidate and the future employer’s closest and/or
most important representatives is also important.

Important elements of attracting talent

Beyond the items mentioned above, the ability of private banking institutions to successfully
attract CRM candidates or team leaders through search are mainly dependant on :

> the quality of CRMs already in place in, or near, the target client markets of the open
position;

> the availability of portfolio managers to actively support CRMs in their work with clients;

> the density of information exchange internally;

> the geographic proximity of the client asset booking centre as well as of portfolio
management

> the flexibility of information tools in the workplace and on business trips

> administrative and hierarchical structures; CRMs greatly appreciate having the
most direct possible reporting line to a member of general management, or to their
employer’s highest divisional head — or in any case just having access without being
required to follow a tedious hierarchical route.

Moreover, CRMs are keenly aware of whether they are welcome in a given financial
institution. The term “welcome” covers emotional and other somewhat vague factors
relating to personal well-being, the recognition of a job well done, the atmosphere of
collegiality, the sense of a community linking different levels of hierarchy, the feeling of


working for an employer of reputation or quality that one may be proud of, and the sense of
freedom in structuring one’s daily work.

It can happen that a newly recruited CRM is disappointed by his or her employer during
the first year of employment Most of the time, the reason for such disappointment arises
from inflexible portfolio management constraints, a particularly restrictive compliance
department, or the employer’s inability to serve industrial or commercial interests of its
clients, in addition to their wealth management interests.

Expectations, performance
and remuneration
It goes without saying that the remuneration packages of CRMs are closely related to the
performance expected of them. An empirical and systematic analysis of our observations in
this field suggests the following:

Generation of net new assets (NNA): expectations amounting to CHF 30–50 million for a
first year of employment, and similar amounts for the second year, are rarely disappointed.
Targets of CHF 50–100 million per annum are achieved in approximately 50–60% of
recruitment cases. Targets of over CHF 100 million per annum are seldom realised, and if
they are, this only occurs in very special cases.

Annual fixed salary: For a CRM with a profile of 5–10 years’ experience in private wealth
management in Switzerland, with the benefit of good training and a relatively smooth
career development, the annual fixed salary proposed by large banks and other market
leaders is in the CHF 180–230,000 bracket for 2006–2007. Most banks and financial
institutions (including independent asset managers) can, however, offer as much as
CHF 200–280,000 for this type of profile.

Bonuses: these obviously depend on performance and are often measured on NNA or return
on client assets (RoA). For generating NNA amounting to CHF 30–50 million in the first year
of employment, bonuses are often fixed within a range of CHF 80–140,000, and are always
guaranteed in the first year. For a similar performance in the second year, they tend to rise
to CHF 100–160,000.


Private banking in Switzerland

Methods for calculating bonuses are varied: Most bonuses are now paid out on a
discretionary basis, even if they have been discussed beforehand in the context of individual
annual objectives. We nevertheless observe an increased practice of bonuses being
calculated using a mathematical formula, for example from 1.5 to 3 per thousand of NNA
within a given year. We also see calculations based on the RoA, where bonuses represent
20 to 30 basis points of RoA. Certain institutions calculate and allocate their bonuses on
the basis of a coverage ratio, i.e. on gross revenue generated by the CRMs during a year,
less direct costs related to their activities and those of their team. Some banks would even
allocate recurring bonuses, i.e. amounts based on the RoA of a given year repeatedly paid
out over up to three years, however in reduced amounts.

For truly senior CRMs, annual salaries may reach up to CHF 300,000, while bonuses may be
at a level of CHF 200–400,000.

Top performers are always special cases. In light of their achievement record, they are able
to demand important bonus guarantees for the first one or two years, as well as a bonus
calculation formula fixed in advance, often tailored to the nature and specificity of their
client base.

10
Conclusion
The private banking industry in Switzerland has been doing extremely well since 2003.
All banks, without exception, are currently in a sometimes frantic growth phase and are
vigorously recruiting. In general, it can be said that the private banking market is now
showing signs of overheating that are typical of a bullish cycle or of the peak of a long
growth phase. The constantly increasing recruitment campaigns, high remuneration levels
and audacious risk taking are evidence of this.

Switzerland is increasingly losing its ability to provide the private banking industry with
sufficient talent, whether junior or senior, on account of the country’s demographics over
the past twenty years. It is commonly accepted that a growing gap is developing between
the demand for, and supply of, Swiss professionals on the market. This gap will continue to
grow in the future.

There is even a genuine crisis in the sector of CRMs, where there is a huge gap between
demand and supply. We estimate that the market for CRMs could probably absorb 20–30%
more people if they existed.

This is reflected in search assignments. At Spencer Stuart, the average duration of our
executive search assignments for CRMs has been well over twice the average duration of any
other type of executive search assignment, whereas the average number of CRM candidates
who could be presented to clients (after identification, informal validation and development
of candidate motivation) has been by far less than 50% of corresponding numbers for other
types of executive search assignments. In almost all cases, the timing of our contact with
candidates has always been a determining factor in the success of a search.

Remuneration packages for CRMs and team heads have gone up markedly since 2003 to
levels which can now be considered high. While good performers continue to deliver on
expectations and thus justify their demand for compensation, the recruitment market is not
immune to disappointing performance from quite a number of CRM candidates regarding
their capacity to generate NNA.

In general, searching for CRM talent requires patience, bearing in mind the extent of the
overall demand for CRMs as well as the delicacy inherent in every search process in this
talent segment. At Spencer Stuart, we strongly advise our clients to think thoroughly about
their search strategy and agree on a timetable that fully allows for hard search and validation
work, but that is not overambitious regarding the speed of assignment completion.

11
Private banking in Switzerland

THE PRIVATE WEALTH MANAGEMENT PRACTICE

As a part of our Financial Services Practice, comprising 22 percent of Spencer Stuart’s
worldwide client base, the global Private Wealth Management Practice is guided by
a dedicated team of 15 core practice members. They conduct searches for senior-level
managers for a range of organizations including, but not limited to, private banks, wealth
management firms, private banking units of financial institutions, independent financial
advisers, family offices, as well as endowments and foundations. Our consultants have
access to more than 88,000 senior finance executives and specialists through personal
contacts and a global network that provides up-to-the-minute intelligence.

The core members of the global Private Wealth Management Practice are:

asia
Fabrice Desmarescaux — Singapore Andrea Pecchio — Rome
fdesmarescaux@spencerstuart.com apecchio@spencerstuart.com

Hypatia Kingsley — Hong Kong Dominique Potiron — Paris

hkingsley@spencerstuart.com dpotiron@spencerstuart.com

Tsuji Jun-Ichiro — Tokyo Nico Schrijen — Amsterdam

jtsuji@spencerstuart.com nschrijen@spencerstuart.com

Malini Vaidya — Singapore J. Maurice Zufferey — Zurich

mvaidya@spencerstuart.com mzufferey@spencerstuart.com

europe Latin America

Yvonne Beiertz — Frankfurt Pablo Taussig — Buenos Aires
ybeiertz@spencerstuart.com ptaussig@spencerstuart.com

Marcus Hanbury — London

mhanbury@spencerstuart.com north america
Sarah Burley — New York
Susana MacEachen — Rome
sburley@spencerstuart.com
smaceachen@spencerstuart.com
Liz Fisher — San Francisco
Ignacio Maza — Madrid
efisher@spencerstuart.com
imaza@spencerstuart.com

12
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