Over the holidays, I got to talk with someone from my extended family who told me he received a windfall about two years ago (around 250k) and invested it with one of the big Swiss banks with a wealth management mandate. He’s already 71, doesn’t need that money and wants to pass it on to his two children when he’s passed away.
A few months ago he started realizing how expensive that solution is (1.25% per year, excluding TER). So he wants to do something about it.
He has no knowledge about investing or what actively and passively managed funds are. So asking him to open a Swissquote account and buy index funds would not be something he’d feel comfortable doing. He wants things taken care of and isn’t interested getting to know the world of investing.
What would be the “least shitty option” here? A robo-advisor like TrueWealth? You simply open an account, answer a few questions about situation and goals, transfer all the money to a Swiss bank account, and you’re done. It would basically be the same thing he has today, just with massively lower fees.
If I had a friend in this situation, I would recommend them to stick with a wealth management mandate. There is an extra cost, but this is appropriate for people who want a hands-off approach without knowing much about finance.
The advantage is that there are customer advisors who will also explain and prevent bad decision to keep them invested in difficult market times. A robo-advisor is cheap, but nobody will be there to support them if they panic in a market crash.
They are always option even in the same bank. Some banks are offerings indexed funds with lower cost.
He could also buy an ETF on the market through the bank. He could simply remove the mandate and keep the fund.
Maybe when next talking to the bank client advisor, complain a bit about the high fees and ask to be moved to lower fee products. Withstand the bank’s almost certain to be expected talking points about those higher fee products generating higher returns.
If the person wants to put in a little extra effort: get offers from competing institutions with the explicit ask to want to lower fees. The person can still go back to the original bank and show them the competing offers and ask for something more reasonable at the original bank.
I’m not up to date but I would search among the likes of Selma or Truewealth. VIAC and Finpension are developping solutions for taxable investments so they might become an option in the future (VIAC apparently in 2024).
Perhaps you could clarify that you are not interested in higher returns than the market, but see the added value in supporting this client in the long-term? If they are professional, they should take this into account in the mandate and respect their fiduciary duty to the customer, by using index products.
5 out of 6 stock funds invest in more or less the same Swiss companies, Nestlé alone is about 10% of total portfolio value, Roche and Novartis surely take up not much less than 10% each as well
The biggest problem I see is lack of diversification in international stocks.
It is possible to invest everything in just one fund from the same Raiffeisen, if he prefers. After that, no intervention is needed if his goal is just to keep these money growing for a foreseeable future.
Any big Swiss bank will be happy to sell him their shitty funds.
The problem seem to be rather to convince him to have a more diversified holdings.
Furthermore, it should be possible to deal with e.g. Swissquote like with a traditional bank. For example, they have an option of placing orders by telephone calls, with completely non-mustachian fees.
P.S. I will add Vermögenszentrum as a potential financial advisor. Should work for him.
I think the Klumpenrisiko with the three top stocks is problematic, and that even with Swiss focus portfolios, some international exposure is needed. It is risky to be focused on only one country over a long horizon (think for example what could have happened last March with the banking crisis).
So I agree the biggest problem is lack of diversification.
A lot of people seem focused on risk as fluctuations, but in finance return distributions have fat tails. Lack of diversification is not just about non optimal returns, it’s about the risk of completely losing important parts of the portfolio.
Why not consider the Rio investment solution from the same bank in this case? It’s a cost-effective digital robot, providing a more affordable alternative while maintaining the current banking relationship if satisfied.
Another question would also be to know the performance achieved during this period. While the fees may be high, if the results are positive, why replace someone who has their habits?
The greatest trick the bank(s) pulled: Convincing the customer that he should pay a percentage fee based on portfolio value each year. On what is basically a (CH-centric) run-of-the-mill portfolio.
1.25%/year * CHF 250’000 = CHF 3’125/year.
What do we get for that?
custody/deposit of securities cost? How much is that worth? Let’s say a CHF 125 a year. (example: CHF 108/year at TradeDirect, from a Swiss cantonal bank, or CHF 72/year at PostFinance)
trading costs? Not much, if any, trading is needed after the initial set-up, if you keep it invested in investment funds (including ETFs), is there? Let’s assume, for the sake of the argument, that he incurs CHF 500/year in trading costs (which would turn over the entire portfolio value once a year, if held in one position - or otherwise allow for any reinvestments or additional investments, even at generous Swiss prices)
…which would leave CHF 2’500/year on other costs.
Now, I don’t know what banking advisors’ (@Cortana’s?) calculated hourly rate would be. To pull a figure out of my a**, I’d say CHF 200/hour does not sound unreasonable, if we’re talking a portfolio that more of less follows the blueprint for a boring retail customer and his Swiss-centric portfolio. So 2’500 would pay 12 hours of consultation time - or one hour a month. Which poses the question:
Does the customer get his money’s worth of attention and attendance? Does he see and speak with his investment advisor bank salesperson an hour each month?
I’d argue that (above a certain portfolio value) such advice would better be purchased on-demand, at hourly rates. Not as percentage fees on portfolio value that are also charged for and when doing nothing.
I don’t think so. When I told him that I see this as a problem he reacted in a “oh ok, so let’s change that” way. As I said, he’s a total noob, so it was most likey just a inept bank client advisor who just asked “global or Switzerland” without explaining. Most people (with the same level of knowledge) would probably pick Switzerland in this situation.
This crossed my mind as well. I don’t know if he does the rest of his banking with Raiffeisen as well (likely, hence why he brought the windfall to them). If he doesn’t, why not switch to another bank/product entirely? Rio still has a 0.65% management fee, and their semi-passive index funds have a whopping 0.77% TER. Only marginally better than what he has now.
It appears that the fund management fees range between 0.2% and 0.3%. It is true that thematic funds have higher fees, around 0.6%, according to information from the bank’s website.
In this way, and with non-thematic funds, the fees are still 60% lower, which is an improvement over the current offer. However, there is room for further optimization by completely changing banks or by using digital solutions.
Then I must have looked up the wrong funds under “Anlagezielfonds”. But I can’t find in what funds Rio actually invests. Very intransparent. Why do they need to hide this?
My earlier estimate of CHF 200/hour and 12 hours/year actually seems a good reference or “anchor” price, when you look at fee-based advice. See for example vermoegenspartner.ch here: They offer portfolio analysis at CHF 180/hour (plus tax) and state that even quite complex portfolios should rarely exceed 12 hours.
I’m in no way affiliated with them, just googled for Honorarberatung and quickly found this article. Florian Schubiger, one of their founders has also appeared as an expert on SRF Kassensturz a couple of times.
In the case of the investor above, not only would he receive more independent and unbiased advice. But also certainly need less than 12 hours - and not every year (with a passive portfolio).
He would then be free to implement his portfolio with his bank of choice - maybe even the Raiffeisen Bank he’s already with and seems to trust (at 0.25% safekeeping fee per year).
Apparently, they seem to be using Vontobel funds based on online research. However, the exact details of these funds remain unknown.
I find this lack of transparency unfortunate and don’t understand why these pieces of information are being concealed from clients in this manner.
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Does the customer get his money’s worth of attention and attendance? Does he see and speak with his