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    “A key indicator of success is when clients introduce their children to us” – an interview with Frédéric Rochat, our Managing Partner

    “A key indicator of success is when clients introduce their children to us” – an interview with Frédéric Rochat, our Managing Partner

    Article published in Handelszeitung, 04 September 2024.

    In this interview with Handelszeitung, Frédéric Rochat discusses Lombard Odier’s new office in Zug, the recruitment of new consultants, and the proposed Swiss inheritance initiative.

     

    The Canton of Zug is the most successful centre of business in Switzerland. This is where banks such as UBS, Zuger Kantonalbank, Raiffeisen and Lombard Odier tussle for the wealthy client base. What do you make of Zug?

    We are impressed by the entrepreneurial spirit we are finding in central Switzerland. For us, the launch in Zug is an opportunity to move closer to many of our clients in the region. A number of banks offer a variety of business models to compete for the wealthy client base here. We are confident that Lombard Odier can offer added value. The region around Zug and Lucerne is extremely interesting thanks to the dense network of SMEs (small and medium-sized enterprises). 

     

    You have sent a team of 13 specialists to the start line in Zug. Yet we have not really seen a positive effect in terms of new money inflows. Are you disappointed?

    We had been contemplating opening a branch office in Zug for many years. You can have a recognised name and a solid promise of performance, but in the end it all comes down to the quality of the people you can present to your clients. We had long been on the lookout for an opportunity to open an office in Zug, but were unable to find the right people.

    This changed when, in 2023, we discovered bankers with strong experience who share our mind-set: a keen sense of the long-term interests of clients, and the same values and culture as Lombard Odier. It was a natural meeting of minds, so we took the opportunity. When we open a new branch office, we always do so on the basis of a three-to five-year plan. 

    Read also: Lombard Odier opens its seventh Swiss office in Zug

     

    Were you able to acquire any net client assets at all during the first half of the year?

    We don’t normally report on NNM (Net New Money) by business line, but I can say that we noted solid inflows from new clients in the first half of 2024. This confirms our organic growth strategy.

    We do not hire a large number of new consultants only to let go of most of them after a short time. We are exacting. We seek out people who embody quality and consistency and who share our values

    The competition is doing better. EFG recruited new Credit Suisse consultants as you did, but it is growing at a faster pace. Does this concern you?

    We have a different business model to our competitors. We are a privately held bank, we rely on organic growth, and we hand-pick new consultants to support our growth – which takes time. We do not hire a large number of new consultants only to let go of most of them after a short time. We are exacting. We seek out people who embody quality and consistency and who share our values. There are competitors out there who have hired three to four times as many client advisors, but that’s not something we do. 

     

    What do you do instead?

    Our objective is long-term top-quality growth. In other words, we also want to grow at Lombard Odier. This includes hiring new consultants, but because of our more selective approach, the fluctuations may be less noticeable at the beginning than with some competitors. 

    The opening of our new branch in Zug is generating great interest from clients and potential prospects

    Does this approach also apply to the new office in Zug?

    The opening of our new branch in Zug is generating great interest from clients and potential prospects. We decided six years ago that we wanted to expand our business with Swiss clients who live in the country. And so we have wanted a presence in Zug for a long time, to complement our presence in Geneva, Zurich, Lausanne, Fribourg and Vevey.

    But it wasn’t until last year that the opportunity to do this with the right people came about. It’s not about putting a flag on a map. The team we hired in Zug has precisely the entrepreneurial spirit we were looking for. When we open an office, the business case is to achieve a return on the investment within three to five years. This also applies to Zug. 

     

    Zuger Kantonalbank is picking up speed, constantly hiring new people – and bringing in new clients and new assets. Managed assets grew by over six percent at the state bank in the first half of the year. They don’t provide any figures. What do you make of the competition?

    We operate in a highly competitive market and our clients are demanding and well-informed. This enables them to choose the bank that best suits their needs. Each bank has its own business model and its own strengths. Some clients will opt for one bank or several banks depending on what they are looking for. We believe there is enough room for all banks to be successful, provided they are excellent in their respective areas.

    Cantonal banks can rely on their geographical proximity, their balance sheets, and on the expansion of their offer. We are a pure investment house for clients looking for a banking partner who will support them and their families for the long term. This can be a valuable addition to the cantonal banks.

    Of course, the fact that we have a long-term strategy does not mean that we are a non-profit organisation. The numbers need to add up, we always strive to be profitable in all areas of our organisation. For us, profitability is the key to long-term independence. 

    Are you achieving that? Your profits dropped in the first half of 2024.

    When you look at our numbers, as you would for any asset manager, you need to make a distinction between the underlying profit of our asset management organisation and the cyclical nature of net interest income. The former is developing in line with our plans. The latter is suffering due to the industry-wide decline in net interest income, which is currently affecting the entire sector.

    The organic growth of the business and our strong capitalisation allow us to invest… We invest in the expansion of our client support operations, further development of our investment expertise, and in the improvement of our IT systems

    Are costs currently growing faster than revenue at Lombard Odier?

    The organic growth of the business and our strong capitalisation allow us to invest. A major part of our annual profit is always reinvested in the further development of our activities. We invest in the expansion of our client support operations, further development of our investment expertise, and in the improvement of our IT systems. IT is becoming a key differentiating factor in our sector. Without the right technology, a bank is unable to offer a contemporary client experience while meeting all regulatory obligations.

    We are also currently investing in the construction of our new headquarters in Geneva. We look forward to inviting our clients to our new home starting next year.

     

    Lombard Odier takes a long-term approach and thinks in cycles of five to ten years. Yet asset management is global, highly competitive and dynamic. Singapore, Abu Dhabi and New York also want a piece of the pie. Can your approach be successful in today’s world?

    This is where our model differs. Many competitors are listed on the stock exchange and have to deliver ever-higher results every quarter. This can lead to tension between the short-term interests of shareholders and the long-term interests of clients.

    We are privileged to be privately owned. This allows us to think longer term and focus on doing the right thing for our clients – an attractive position that enables a close alignment of interests between clients and the bank. Our clients appreciate this.

    For Lombard Odier, the best indicator of success is when clients introduce their children to us. This means we were able to build a real relationship based on trust

    Your clients also want returns first and foremost. What draws them to Lombard Odier?

    Yes, of course our clients want returns. They strive for capital preservation and solid investment results throughout the cycle. But they also look at the long-term perspective and are seeking a banking partner who will stand by their side, and will also support their partner and children. We strive to be the long-term asset manager of choice for entrepreneurs and their families. For Lombard Odier, the best indicator of success is when clients introduce their children to us. This means we were able to build a real relationship based on trust.

     

    You have hired a lot of people from the former Credit Suisse. UBS passed these people through a “cultural filter” to weed out those individuals who were only motivated by bonuses. What approach have you taken?

    We are committed to organic growth – we do not grow through acquisitions. When we want to hire additional employees, regardless of where they come from, we take our time during interviews and consider them very carefully.

     

    Can you provide specifics?

    We typically conduct eight to twelve pre-hire interviews, not just for client-facing bankers or investment managers, but for the vast majority of positions within the organisation. We assess whether people are entrepreneurial, hard-working, and competent, but also whether they are a match for our approach, our values and our culture. For both sides, it is a real journey of discovery that is less about metrics or a formal filter and more about assessing character and the ability to fit into an organisation that is very human.

     

    The inheritance initiative by the Young Socialists (Juso) party is aimed at entrepreneurs and company owners in Switzerland. These people are your client base. Does the initiative worry you?

    Naturally, we are very concerned about this initiative. We greatly value direct democracy in Switzerland, but this is an unfortunate case of misuse of the instrument of direct democracy. One can always discuss and argue over tax models. The opportunity to rethink any framework is always there. But we should be careful not to give in to populism, as is the case in too many countries around us. This is not what Switzerland should be.

     

    The initiative proposes an inheritance tax of 50 percent with retroactive effect – from the day of the vote – for assets exceeding 50 million francs. It also looks at the introduction of an exit tax for those tempted to leave the country. What are your biggest concerns?

    The element of retroactive effect and the exit tax create uncertainty for many clients and entrepreneurs across the country. And this means that people who are potentially within the scope of the initiative are already considering their options.

    The initiative runs the risk of completely backfiring. It’s not so much about whether we want to tax wealthy people more or not. The initiative strikes at the very heart of what has always been Switzerland’s recipe for success: a competitive and prosperous economy, coupled with a generous social welfare programme. A typically Swiss formula based on deep-rooted pragmatism has brought us high levels of employment and prosperity, especially compared to other countries in Europe. The initiative would destroy the delicate balance enshrined in this formula.

    Read also: Key questions on inheritance tax in Switzerland

     

    Don’t you feel you’re painting too grim a picture?

    No, we need to always keep in mind that the Swiss economy is not only based on large listed corporations and companies that are in the SMI index. What makes the Swiss economy so strong is its deep structure, consisting of hundreds of thousands of small and medium-sized companies. They include leading exporters of goods and services that are in demand around the world thanks to successful innovation and value creation strategies. Others are leaders in the domestic market.

    Most of these small and medium-sized companies are privately owned. Many of them are family businesses. Our most successful Swiss SMEs are all worth more than 50 million francs. They would all fall within the scope of the initiative. Their owners would have two options: leave the country – with the risk of relocation and job losses for the company – or stay and sell the company so their heirs can pay the inheritance tax upon succession. Do we really want to bring about an involuntary liquidation of what makes the Swiss economy so successful?

     

    What do you mean by involuntary liquidation in this context?

    We need to put aside the notion that these entrepreneurs have 50 million francs waiting in their bank account to pay the tax. Rather, these assets are usually invested in the companies. So if they have to hand over half of their assets to the state, this will force an aggressive sale of these companies to foreign buyers.

    Others would simply leave Switzerland. There is always the risk that when entrepreneurs move away, the company will follow them over time: first the headquarters, then part of the production and other capital assets would also gradually be relocated abroad. Many of our Swiss entrepreneurial clients are currently reviewing their options.

    Our Swiss model, based on common sense, moderation and balance, should be preserved

    The Swiss Federal Council has stated that the retroactive taxation clause should not apply. Does this give you hope?

    The Federal Council has provided helpful input, particularly with regard to the exit tax component. But now, it’s over to the National Council and the Council of States to take a position, and then the date of the vote will be determined. 

     

    A date in 2026 is being discussed… 

    All the actors involved should carefully consider whether this is an optimal time.

     

    What would be better?

    It might be beneficial to bring the matter to a vote as quickly as possible to eliminate the uncertainty as early as possible.

     

    The example from Norway shows us what can happen. Many entrepreneurs left the country following a sharp tax increase.

    Or look at the example of France. In the early 2010s, several French governments increased wealth tax, inheritance tax and income tax, and introduced an exit tax. As a result, some of the most successful entrepreneurs and investors had to leave France. Many of them moved to Belgium, Great Britain, Portugal, Italy or Switzerland. The economy and jobs in France have suffered enormously.

    And so I ask: Is France really the model we want to follow? It seems to me that our Swiss model, based on common sense, moderation and balance, should be preserved. Let us not be distracted by the populism that is seducing many of our neighbours, often with poor results.

    Important information

    This document is issued by Bank Lombard Odier & Co Ltd or an entity of the Group (hereinafter “Lombard Odier”). It is not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful, nor is it aimed at any person or entity to whom it would be unlawful to address such a document. This document was not prepared by the Financial Research Department of Lombard Odier.

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