Future Business Models for Wealth Management in Germany and Switzerland
“An analysis of the status quo and developments in Germany and Switzerland”
This blog post is a summary of the study: Future Business Models for Wealth Management in Germany and Switzerland. “An analysis of the status quo and developments in Germany and Switzerland”, only in German language available under the following link.
In recent months, the BEI has analyzed the future business models of asset management companies in Germany and Switzerland and has published a study. In the process, interviews were conducted with asset managers and, as a result, recommendations for action and business models of the future were defined. The aim of this study was to understand and explain the current state of the art and potential developments.
In general, asset management plays an essential role in the financial market and is regarded as a central service in private banking, which aims to manage, optimize and plan assets for private and institutional clients. The services include strategic asset investments, client management and additional service offerings to ensure holistic client support.
In order to implement effective products and services of the future, it is crucial to consider several key aspects. These include:
- Market participant
- Business model
- End customer
- Market Influence factors.
Market participants
The market for asset management in Germany and Switzerland is characterized by a large number of market participants such as custodian banks, traditional banks, independent asset managers (AM) and specialized providers. These players offer different products and services to meet the diverse financial needs of their clients. The study emphasizes that market participants in traditional asset management must be aware of the changing market conditions and environment (e.g. digitalization or generational change) in order to find their way around. Figure 1 illustrates the relationship between these actors.
Figure 1: Roles and service relationships in the asset management market
Source: Based on Schaefer & Zerndt (2024)
The business model
Asset management comprises various business areas such as private client business or institutional asset management. For example, they focus on management and advice for traditional investment models such as equities and bonds via asset managers. In this regard, hybrid solutions that combine traditional advice with digital platforms are becoming increasingly important. Hybrid models aim to combine the convenience of digital tools with the personal touch of traditional advice in order to appeal to a broader customer group.
Therefore, designing effective business models in wealth management requires a deep understanding of the different dimensions of a business model (see fig. 2) from the value proposition and revenue model to the design of activities and their governance. The value proposition is the value that a product or service creates for the customer, while the revenue model describes how a company generates profits. The design and management of activities includes the planning, organization and management necessary to effectively implement the business model with the aim of creating the promised value and generating revenue using central resources, which can be physical, intellectual, human or financial (Müller-Stewens & Lechner, 2016). The study gives wealth management related examples.
Figure 2: Dimensions of a business model
Source: Based on Müller-Stewens & Lechner (2016)
To grow successfully in the wealth management market, the analysis of the study surveys has shown that three of the five growth strategies according to Lechner (2006) are taken into consideration by wealth managers. These are systematized using the 5×3 matrix along the dimension “Mechanisms of growth”. The strategies can be defined as follows:
- Growth of the core: This includes the expansion of core services through capacity expansion, multiplication (e.g., opening up new regions) or granulation (e.g., fine segmentation of existing business). For example, this could be achieved by expanding advisory capacities or introducing new asset classes.
- Growth adjacent to the core: This strategy involves the upstream or downstream integration of additional services and the development of new sales channels. In the course of generational change and increasing digitalization, omni-channel sales channels are gaining in importance. This can be addressed by developing our own digital platforms or through partnerships to address new target groups.
- Growth through skill-based diversification: This strategy aims to diversify the range of services by opening up completely new business areas. This can include, for example, expanding the offering in the area of technical infrastructure or software. Although this strategy is riskier, it offers the opportunity to tap into new markets and offer innovative services.
Figure 3: 5×3 matrix of growth strategies and classification as part of the analysis
Source: Based on Lechner (2006)
The end customer
The study considers only “wealthy” investors. Investors are diverse in terms of their risk affinity to investment strategies. A deep understanding of client demographics and needs is therefore essential for wealth managers. The market is experiencing a generational shift, with millennials and Generation X becoming increasingly important. These younger clients have different expectations of wealth management than older generations. They often prefer a mix of self-determination and personalized advice, which necessitates the introduction of data-driven and digital solutions.
Market Influence factors
Technological advances (e.g., cloud computing or artificial intelligence), regulatory changes (e.g., open banking) and demographic trends are driving developments in the asset management market. The integration of ESG criteria (environmental, social, governance) into investment strategies is becoming increasingly important and the spread of digital advisory solutions is growing. Market participants must continuously adapt their business models and services to successfully master these changes. The study emphasizes that both defensive and offensive strategies are necessary to secure a competitive advantage and meet changing market conditions. Defensive strategies include, for example, protecting customer data and offensive strategies include offering personalized products and services to increase customer satisfaction.
Recommendations for action and future business models
Based on the business model dimensions (see Fig. 2) and growth strategies, the study provides several recommendations for action to support market players in the development of future business models. These include:
- Hybrid wealth management: The combination of traditional advice and digital components should be given greater consideration to meet the needs of the new generation. Transparent pricing and the communication of added value are essential.
- Individual client advice and self-determination: Wealth managers should enable clients to make informed investment decisions through educational measures such as webinars and training courses and support client self-determination through the use of digital tools such as mobile apps and client portals.
- Affluent segment: The affluent segment , which is located between retail and private banking, offers great potential. Market participants should target this segment more strongly with special product offerings and omnichanneling.
- Cooperation with custodian banks: More intensive cooperation with custodian banks can help to reduce IT costs and facilitate access to specialized experts. These collaborations promote the development of innovative technologies and services.
- Product design: A clear and transparent product design is crucial to offer customers the best possible experience. Continuous adjustments based on customer feedback and transparent communication are necessary to increase customer satisfaction and loyalty.
Conclusion
The market for wealth management in Germany and Switzerland offers considerable growth opportunities, but also requires continuous monitoring of market developments and digital innovations. Integrating hybrid business models, focusing on the needs of new generations and collaborating with custodian banks are key strategies to succeed in this dynamic environment. By implementing the recommended measures, asset managers can strengthen their position and remain competitive in the long run.
References
C. Lechner (2006). Learning to manage growth. IO new management : Zeitschrift für Unternehmenswissenschaften und Führungspraxis, No. 4.
G. Müller-Stewen & C. Lechner, (2016). Strategisches Management. Wie strategische Initiativen zum Wandel führen. 5. Auflage. Schäffer-Poeschel Verlag, Stuttgart.
B. Schaefer & T. Zerndt, (2024). Geschäftsmodelle der Zukunft für die Vermögensverwaltung in Deutschland und der Schweiz. https://www.bei-sg.ch/_files/ugd/1ae519_be298464fcd247b5b385c9ebf8af5952.pdf