How to flourish under FINMA with newfound independence
The recommended deadline for submitting a FINMA portfolio manager license application has come and gone, but it’s not too late to ensure you are compliant while safeguarding your independence and better serving your clients.
It’s safe to say that the Swiss financial industry is in the midst of a paradigm shift. The transition to life under the Federal Financial Services Act (FinSA) and the Federal Financial Institutions Act (FinIA) has been a bumpy one for some, and the past few months have been noticeably turbulent. Portfolio managers scrambled to submit their licence applications before 30 June – the date recommended by the Swiss Financial Market Supervisory Authority (FINMA). There have been many calls to “act now” along with warnings that failure to act could risk having to sell or shut down the business.
Unlicenced portfolio managers have reached a fork in the road
We recognized early on that a FINMA licence would give us a competitive advantage, which is why we applied early and received our portfolio manager licence in September 2021. We welcomed the new requirements, which reflect our organization and business model. We believe FINMA’s new licencing requirements will improve the already excellent reputation of the Swiss wealth management industry.
Navigating the new regulatory landscape
The application process is challenging and costly, which may be why some portfolio managers are giving up. The effort that it takes to obtain a license, not to mention the subsequent supervision that comes with it, is simply too much for many.
Broadly speaking, you need to demonstrate clearly that your organization is set up appropriately to manage third-party assets. And there are many questions to ask: Have you defined your target markets, and do you have qualified staff and resources to service them, such as language and cultural skills? Which custodian banks do you work with, and are they willing to serve your target markets? Do you have the financial means to run your business and a sufficient risk model and management framework in place with internal controls? Have you decided what functions should be outsourced, and do you have solid partners with whom to collaborate?
FINMA has made it clear that portfolio managers who do not comply with the new licencing requirement will suffer supervisory and criminal consequences. The Swiss financial watchdog has a duty to file criminal complaints, which means these cases will be reported to authorities.
A fork in the road for unlicenced portfolio managers
If you have little regulatory expertise and haven’t received your licence (or even started the application process), you have most certainly reached a crossroads. It’s no wonder that many portfolio managers are choosing to give up and end their asset management activities. The cost of compliance is just too high. But this fork in the road doesn’t have to lead to a dead end. There are other options. For example, you could join forces with a strong, licenced independent wealth management firm.
Whatever direction you decide to take at this point, you need to make a move now. It could take time to find a fitting partner.
Fear of lost independence plays a role
Safeguarding independence and serving clients better
Despite the risk of losing authorization to manage third-party assets as of 1 January 2023, it appears the threat of losing independence is playing a role in the current situation. However, what many asset managers seem to be missing is that they could remake themselves as relationship managers with a strong independent wealth management company.
The biggest advantage of joining an independent wealth manager is your ability to do what you do best: serving your own clients. Backed by a team of specialists and a network of partners, you can focus on developing a more intimate understanding of each of your client’s individual needs, family dynamics and long-term objectives. And you generally have the freedom to choose when and where you work to meet those needs. What’s more, the entrepreneurial environment fostered by this setup will drive you to excel, benefiting both you and your clients.
Getting clients on board
Before you make the move, you need to ensure your clients understand and will support it. Joining a wealth manager who operates transparently will help significantly. With their help, you can explain the three-party setup, each party’s role, and the costs and fees.
The independent wealth manager structure has many advantages. First, we can work with multiple banks and aren’t tied to specific products or services. We are free to choose the investment instruments we feel will best meet your clients’ needs. Our lean, agile organisation also allows us to partner with a variety of service providers to develop the best possible solutions. Plus, we can guarantee that your clients have only one point of contact – namely you!
Take the road less travelled
The end of the year may be around the corner but selling or shutting down are not the only options at this intersection. In fact, the right choice could lead to a whole new world of opportunity – a place where you can flourish in newfound independence, focus on what you do best, and safeguard your business for the future.
Contact us and let’s discuss the way forward together.