Wealth Management Business

Hi all

I frequently get asked by friends, family members, mother-in-law, other relatives etc. if I could help them with investing some of their money because they say they have absolutely no idea and also couldn’t care less to get an idea because they think the thematic is dry and boring. Even choosing one or a few ETFs for them is too much.

I never thought about doing this in reality however, but because the demand seems to be sustainable and even increasing, I asked myself whether I should go and start a small wealth management business as a side hustle for friends & family with the option to expand later on. As a first step I could easily get around 1m CHF assets under management without doing a lot of acquisition.

Most wealth managers ask for a fixed mandate fee (e.g. 0.7%) and a performance fee. Some banks ask for 1.5% or even more but then custody etc. is included. So I guess I will have to compete on costs and be cheaper than the banks, and big wealth management firms (which isn’t really that difficult). Furthermore, most banks and wealth managers are interested only in HNWI, I would consider also lower amounts such as 100’000 CHF or maybe 50’000 CHF as a minimum, maybe even less but I don’t think it’s worth the effort for much less than that. Maybe I could have tiered pricing.

There seem to be many people who don’t mind paying 1.7% for an ETF so I guess if it’s possible to offer a managed portfolio for something at around 0.6-0.9% those people could be sold on it too. Even if I took only 0.4%. This would be already 4000 CHF a year at 1m CHF AuM and if I can manage to get at 10m CHF AuM (which is quite realistic I guess as I a have a good network) already 40’000 CHF which would be already quite a good number to make it worth I guess.

I’ll be starting to research the requirements for that e.g. if here are any FINMA or other requirements or licenses needed etc. I guess if contractual partners are less than 20, and gross earnings are less than 50’000 CHF per year and AuM is less than 5m CHF, there is no FINMA license required, after than I guess there is a need for a FINMA license for portfolio managers. So I guess the friends & family scenario is well covered without FINMA license as it seems. Any experiences on that?

I saw IBKR offers a great solution for that purpose for investment advisors who want to manage accounts of their customers with automated administration fees etc. that’s really great and they have also a friends & family version of that, however I don’t know if there is some billing possible. Will have to check that. Is anyone using that IBKR solution?

Does anyone know of a Swiss bank that offers something similar? I don’t want to do some manual charging etc. I know that the large banks offer solutions for external asset managers but they’re quite expensive and require large amounts of assets so not really suitable for a small side business. But it would be great to have also a Swiss custody bank on offer for those we see this as important.

Is anyone doing or has done the same or something similar and can share their experience, hints, tricks, tipps, etc.?

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I often thought about this, so am interested in the replies

I think to actually manage people’s money or give advice you need / ought to be qualified and have good insurance

Charging 0.4% of assets: there are already online services charging around this eg investart who already have back offices etc. From a principle point of view I would struggle to tell my friends to use me rather than to go directly to them. I think you would need to invest some startup costs to get to a similar situation as them

The other model could be to charge an hourly rate or a fixed fee

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Yes of course.

Why is that? When people come to you it means they trust you and that business has a lot to do with trust. I know some people who work for private banks and when they change their jobs, many customers follow them because they don’t care about the bank they care what person is managing their portfolio and if you established a relationship with a client for several years they’re unlikely to just accept any other random guy who takes over the job.

So just because there is someone else who offers something for the same price doesn’t mean you have you to send your prospects to them, does it? If you want to break out of the friends and family operations then of course you would have to establish some key differentiators but there is time for that.

Not sure if I would need an app in the beginning because I don’t plan on providing a solution where people can choose their own investment stuff. I would meet with the customer personally and look at his financial situation, his requirements, risk capacity / tolerance and wishes etc. and based on that create a portfolio and regularly re-evaluate those factors with them. Other than that they don’t have to do anything.

The people I’m talking about wouldn’t want to install an app and click around and choose some stuff. E.g. it takes me around 3-4 months to get my wife to install a new app and open an account because she really couldn’t care less. So those people just want that everything is handled for them. And if they want they can still install the app of the custody bank or IBKR (if I would use their investment advisor solution).

I also thought some time ago about creating my own robo advisor but I don’t think that’s what those people want. They don’t want to install some apps and choose and click some stuff, they prefer not to engage with it at all and just get yearly reports of what happened or if they feel the need that they can login to some app or website and check the status (which would be possible with the IBKR solution).

Yes that would be an option too. Just with the integrated IBKR solution for example the administration fee can be billed automatically so the process is more automated and you don’t have to create bills manually. I also thought about offering some tax service because sometimes I get asked that too, e.g. for people who don’t want to manage their own tax declaration and are willing to pay 100-200 CHF for it as a fixed price. I would do only easy cases here because I’m not really a tax expert and I would also have to check if there are some requirements. But that one is not really a priority yet. Yes there are many people who offer that already but still, why give it to someone you don’t know at all if you can give it to a friend or someone in your circle or network? But not sure if that’s really worth the effort.

I considered a similar setup a couple years ago (prior to the change in regulations) but didn’t follow through. I realized that retail investors are problematic, and friends and family retail investors are absolutely a nightmare. They frequently don’t understand or take seriously anything you explain, completely miss-judge themselves, and will be pissed as soon as they loose even the tiniest amount of money no matter how risky their chosen strategy was.

What I opted instead is to explicitly offer general financial advice, instead of avoiding doing it for free. This does not require any license, even for tax advice. I charge at least 100 CHF for anything (simple tax declaration, review of insurances, mortgage advice) up to couple hundreds of CHF (full review of financials, including potentially creating an individual investment strategy). And customers are happy, because they see what they get for the money, and if an investment strategy is part of it, they have to follow-it themselves (I only support in setting everything up).

In terms of current regulation, I believe you are correct:

  • Above 50k CHF income or 20 clients or 5 Million assets you need a FINMA license, which requires a proper business & equity (literally impossible as a single person)
  • Below those thresholds, you may do as you please, but you cannot call yourself Vermögensverwalter / wealth manager
  • Exception beyond those thresholds is if you only manage your family’s money (but no friends, unless you are somehow economically connected)

On your pricing: I think 0.25% to 0.5% is reasonable in your setup. I’d argue against a performance component (also creates a conflict of interest) and would advise you to discuss the fee with potential clients first. By my experience, financially illiterate friends and family will not necessarily understand why they should pay you anything in the first place, much less 0.4% on an ongoing basis.

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Hi,

Thank you for this interesting topic.

One aspect to consider is that doing business with friends is complicated. Some relationships might get broken, whether it is your fault or not. I would be especially fearful with a financial business where people easily get upset when the markets go down, and their account with it.

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I strongly believe that for most people it makes sense to buy tracker funds and keep costs to a minimum. If I was charging 0.4% my advice to my client would be to ditch me as soon as possible

If people want the admin of placing orders to be taken care of for them, Investart charges 0.3%. I am sure there are other providers and that there will be downwards pressure on fees over time

I would feel comfortable charging an hourly rate to give people advice and get started. As has been said the challenge is that most people would struggle to understand why they should pay a high enough rate to make it worthwhile. Perhaps people’s understanding about that would change if CH bans sales commissions on financial products one day like in the UK and people understand how much they have been paying intermediaries in fees

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To add to 1742s’ list: if you create an entity, you have to fill out A LOT of documents. When it comes to financial entities, Swiss banks can get quite complicated. Even if you only invest your own money using a company setup, it’s not straightforward. You have to fill out declarations for AIA/FATCA when opening a bank account. If you invest money on behalf of other people, it gets way more complicated in terms of compliance. This is (not only) due to money laundering laws. You as the business owner has to ensure that the money from your family / friends is money which is properly earned / taxed. Please note that I’m speaking only about the creation of the business bank account in this paragraph.

Next problem will come when you register your company with IB. Again, a lot of paperwork. FATCA again, and IB is even more pesky than Swiss banks when it comes to this topic. It took me several days to figure out the correct setup for my business. Same for accounts at other broker companies.

Additionally, please consider that rules get even harder if you have someone with US citizenship as one of your potential clients.

I think it’s a lot of hassle to set up the company initially. If you are up for the challenge, then by all means go for it. Just prepare yourself mentally for some good amount of work. And don’t forget the compliance topics - those can really mess you up.

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very interesting topic.
I also thought about this, after my period of extensive research few years back.
Back then I concluded that it would be against my financial philosophy to charge money for advice (“reduce fees!”). I ended up advising several persons from my social surroundings free of chage.

maybe it would be interesting to re-think this? hmm… interesting thoughts here!

However I am well aware of the adverse effects of moneystuff on relationships. In german you say “Beim Geld hört die Freundschaft auf!”, something like “Money ends friendships”.

hmmmm… :face_with_monocle: :thinking:

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Good points so far. Yes, I also thought about this that people might find it strange having to pay for this service. But I would explain that:

  • I want to do all of this in a professional and legal way and this requires a lot of research and effort. Furthermore I may have to establish a company for that and create processes for that company. I will have to work together with a custody bank, and as others have mentioned I will have to fill out a lot of documents etc.
  • Every customer gets their personal account so they can access their portfolio whenever they want through the web interface and app, and there will be yearly reports etc.
  • Every customer will get an individual solution, meaning that I will not just sell the same 3 ETFs to everyone but there will be an initial evaluation of every customers financial situation, investment objectives, risk capability and tolerance, personal wishes regarding sustainability etc., plans on whether they need part of the money in the near future for a house etc. and compile documentation for that for every customer and create an individual strategic asset allocation.
  • Every customers portfolio will be monitored, rebalanced and there will be regular reviews if the initial situation may have changed. So it’s like a full package where they have to do nothing but answer a few questions and wire money to some account.
  • All of this requires work I do in my free time. Of course, I may create some Excel sheets which I can re-use for other customers but still it is some work.

I don’t aim to become a billionaire with this I just don’t want to do a lot of work without compensation. I think most will understand that. If I go to a dentist friend I also pay him in full and don’t ask him to treat me for free. Or if I ask a friend to repair my car I also don’t ask him to do it for free if they have to spend half a day for it or so.

But I also share a bit the worries about people then complaining when markets go down. Maybe they get angry and say that strategy sucks and they should never have trusted me with their money and they want to exit now, etc. :S

You can call yourself “Unabhängiger Vermögensverwalter” or “Independent Wealth Manager” which seems to be unprotected according to the following FINMA document https://www.finma.ch/de/~/media/finma/dokumente/dokumentencenter/anhoerungen/abgeschlossene-anhoerungen/20-regulierung-von-produktion-und-vertrieb-von-finanzprodukten-an-privatkunden/diskussionspapier-vertriebsregeln-20101110-d.pdf?la=de (p. 26)

and other resources such as

https://www.auftrag.ch/erlaeuterung-einzelner-auftraege/vermoegensverwaltungsvertrag/vermoegensverwalter

Add a nice certification at the end and your other titles you may have and it looks very professional :slight_smile:

So it looks like the < 50k CHF income AND < 20 clients AND < 5m CHF AuM scenario would be quite realistic to do without a lot of formalities. The only problem I see here is that with only 5m CHF AuM you can’t create a sustainable business and I’m not sure if it’s worth doing all the initial effort just for that. The max. revenue would then be 20’000 CHF a year at 0.4%. Also not sure with max. 20 clients if I would get to 5m CHF AuM, then everyone would have to bring 250’000 CHF which probably wouldn’t be the case. So revenue is probably even lower. It doesn’t scale really good with those constraints.

To lift those constraints a FINMA license would be required. So far I found out the following:

  • Capital requirement is 100’000 CHF fully paid in cash.
  • Professional liability insurance required that covers gross negligence.
  • Own capital that covers at least 25% of fixed costs
  • Membership of professional organisation required (ca. 2-3k CHF per year)
  • Choose and affiliate with an organisation (around 3-5 orgs to choose from in CH) which acts as a supervisory authority on behalf of FINMA, e.g. FINcontrol (initially 3k CHF + yearly 1k CHF or more depending on AuM).
  • At least 2 managing directors with professional experience (in exceptional cases 1 is possible if evidence can be provided that business continuity is guaranteed [in case that 1 person becomes unable to act])
  • Professional education in wealth management for managing directors of 40 hours required. That seems to be peanuts. In the worst case you could do just any 1 week course and that seems to fulfil the requirement already. Maybe something I have already done would already qualify I would need to check that. But that’s an easy issue I guess.
  • Mandatory continuous professional education. Yeah … that’s a requirement everywhere I guess.
  • Now the biggest hurdle: 5 years experience in wealth management … OOOPS. Does 5 years doing wealth management with less than 20 clients before getting a FINMA license count? :wink: Big question mask.

FinControl has some good documents about it under Tools & Downloads for those who are interested in more details: https://www.fincontrol.ch/en#guidances&tools

So, all in all, it seems possible and realistic. It would need to be a side project with restrictions that prevent the business from becoming really profitable, at least if you want to do it right. If you just want to really do this for a handful of friends & family then it looks like you don’t need much fuss around it and keep it simple. However, if growth is the plan then the constraints are really painful and it would need at least a second business partner and some more serious setup with way more customers because then, only with around 10m CHF AuM it’s probably not profitable either because operating costs for all the admin and regulatory stuff are too high.

So it looks like there is either keep it small and simple within your family, or get big as fast as possible, without a smooth transition path in between. Hmm …

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Not anymore (those links and documents are outdated). Art 13 FINIG protects the term, and the commercial registry will not accept using it without a FINMA license. As far as I understand you could still have a sole proprietorship and call yourself Vermögensverwalter in the protected meaning of the law below the mentioned thresholds, but I hope you don’t intend to dive into this without at least a GmbH.

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Oh I see. Good to know. Thank you for the correction.

That’s a bit of an annoyance then, because I would have called the company something like {MyName} Vermögensverwaltungen AG or something like that. Looks like I would have to resort to something more fancy. :slight_smile:

You can only call it an AG if you are creating a proper company. iirc AG’s also have a 100k CHF cash requirement (which probably can be counted towards the 100k CHF cash requirement for the FINMA license).

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Yes, I know. It wouldn’t make sense to form a sole propiertorship or GmbH if the cash requirement anyways is 100k+ CHF, then you can straight go and form an AG and profit from better reputation, and shareholder anonymity :slight_smile: It doesn’t cost you more because you need to bring that cash anyways.

It’s 100’000 CHF. Of which at least 20% or 50’000 CHF need to be paid in. But because the FINMA requirement is 100’000 CHF you can bring the full 100’000 CHF anyways.

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100k initial capital, out of which 50k have to be deposited when creating the company

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I thought about something similar some time ago, although I wanted to set up more of an automated roboadvisor for a few family members. Like @Barto and @nugget, I couldn’t ethically recommend to my family something I wouldn’t want for myself (like 0.4% yearly cost or “custom” investment strategies). My idea was to simply set up something automated that would take whatever money they transferred to their account, buy VT or VTI+VEA+VWO and rebalance as needed, for free (or a tiny fee if there were some extra costs).

I pretty much dropped the idea when I saw how clunky IB’s model manager tool is. In my tests, it didn’t work well at all, it couldn’t deal correctly with currency conversions. I opened multiple support requests about it for over a year and nothing changed. Their API is also kind of annoying to use unless you disable 2FA, which is a huge no-no. Between that and all the potential legal and relationship issues, it just didn’t make sense to move forward, but I still dream about it sometimes.

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