Strategy bulletin  

23/02/2016

COMMITTED TO INDEPENDENT ASSET MANAGEMENT

Interview with Lombard Odier’s Denis Pittet and Yves Delaporte, as published in Point de Mire, January 2016.

Independent asset management (IAM) is becoming increasingly established as a burgeoning segment within the Swiss financial sector. Today there are some 3,000 entities, mostly structured as small limited companies – a figure that has changed little over the past five years. Indeed, whilst some companies in the segment have folded, and occasional mergers still take place, the industry is also seeing new business start-ups on a regular basis. Increasingly, it is young entrepreneurs – some of whom have only just graduated – who are going into independent asset management. So despite the regulatory restrictions being put in place, overall the independent asset management business seems to have lost none of its appeal. Of course, the segment is becoming increasingly professionalised: many independent asset managers are organised in the same way as medium-sized banks, though subject to more flexible regulations.

We spoke to a Swiss banking institution that has worked closely with IAMs over many years, and thus has proven expertise in this area.  The institution in question is Bank Lombard Odier & Co Ltd, the Geneva-based private bank. Founded in 1796, Lombard Odier is Geneva's oldest wealth manager. Managing Partner Bernard Droux previously emphasised that “the future of our financial centre will be determined by the extent to which the different players can negotiate the regulatory challenges they are beginning to face.”

Following the sudden loss of this illustrious banker at the beginning of 2015, his successor Denis Pittet agreed to be interviewed and answer our questions this time round. He was joined by Yves Delaporte, who is responsible for the independent asset management business within the department.

Interview
Point de Mire (PdM): Your Firm was one of the first to have opened its doors to independent asset managers (IAMs). This means that you benefit from several decades of experience in what is a highly competitive market. What are the main lessons that you have learned?
Denis Pittet (DP): Indeed, Lombard Odier set up a department dedicated to IAMs nearly 30 years ago. We were therefore among those that played a pioneering role in the development of this business. The longevity of our partnerships is mainly thanks to our ability to listen and to interact, along with the establishment of mutual trust. Sharing knowledge in this way enables us to regularly upgrade our service offering and forces us to continually reinvent ourselves so that we can meet the long-term needs of our partners.

PdM: The services offered to IAMs do not merely consist of custodian functions and financial services - you also clearly aim to support them in many other aspects of their business. What are the main factors differentiating your offering from that of your competitors?
DP: We can offer IAMs a tailored approach and a high-quality partnership. Specifically, we do this via the G2 IT platform, developed by our in-house teams over more than 30 years and considered by users to be the benchmark in the market. In addition, we have built an experienced team of 60 people dedicated solely to IAMs. They work each day to meet the many and varied requirements of IAMs and their end-clients. We also provide the legal and tax expertise that has become essential in a changing financial world.  For example, we have dialogue on changes to the tax frameworks in Switzerland and abroad.

PdM: As with private clients, relationships with IAMs are based on trust built up over a number of years. What are your key criteria for entering into new business relationships – and for cultivating those relationships over time?
Yves Delaporte (YD): For many years we have held a great respect for the IAM community. We believe they have a place and a role in the Swiss financial centre, and we take a constructive approach towards them. In addition, the partners at Lombard Odier make themselves available and actively listen to IAMs, regardless of whether the relationship is new or long-standing. In the case of new business relationships in particular, we look for solutions that are both pragmatic and flexible.

PdM: You both have a long track record of dealing with IAMs. In your view, what are their strong points and main weaknesses? How do you seek to make the most of these strengths and mitigate the weaknesses?
YD: IAMs possess great entrepreneurial spirit. They show remarkable adaptability, flexibility and resilience, and they are independent when it comes to selecting their business partners. It is up to us to provide them with reliable, robust tools so that they can dedicate themselves first and foremost to managing their clients' assets. However, they are also faced with a flood of regulation. The new requirements apply to the whole of the financial centre and generate significant costs for small companies. In view of these new paradigms, critical mass is an issue for some in the IAM community.

PdM: Given your track record and proven experience, your respective appointments in the independent asset management business clearly represent an important step. What guidelines have you and the Firm set?
DP: The allocation of roles between Yves Delaporte and myself is very clear. Yves - who has over 20 years’ experience in the Group, including six in the IAM department - has full operational responsibility. He now leads a multi-disciplinary team that is dedicated solely to the IAM business. As for me, I supervise the business and am involved in defining the strategy in this area. In my view, dialogue and regular visits to the financial intermediaries concerned are a vital part of this responsibility. That is why the first step that Yves Delaporte and I took on assuming our roles was to visit as many of our IAM partners as possible.

YD: As a partner in the Private Holding Company, and thanks to the many positions of responsibility he has held in legal and wealth planning over his 20-plus year career with the Group, Denis Pittet has a broad overview and in-depth knowledge of the bank. He has a keen understanding of issues in the financial centre, and this is a vital part of our dialogue with our IAM partners. His new responsibilities reaffirm the strategic importance of IAMs for the Lombard Odier Group.

DP: As regards the guidelines for this business, we have placed a particularly strong focus on internal control systems. We are also determined to win new market share, both in Switzerland and abroad. To meet this ambitious growth objective for our Group, we must draw on the solidity and reputation of our Firm, and on the quality of our service and our IT platform.

PdM: The new Federal Financial Services Act will introduce fresh requirements and restrictions for IAMs. How do you intend to help them adapt to the new environment? In particular, will you cover the training requirements arising from the new Act?
DP: Training remains a priority for us. Seminars have been held for IAMs on particular topics relating to regulatory change, such as the tax framework in certain countries and FACTA. In addition, we are working on producing training manuals that will meet the specific needs of our partners.

PdM: IAMs usually serve a niche client base. With this in mind, do you intend to expand your activities outside the Geneva financial centre, either elsewhere in Switzerland (especially Zurich) or abroad?
YD: Our team is active in Switzerland and internationally. Beyond our historical presence in French-speaking Switzerland, we have made significant investments in German-speaking Switzerland, which we view as a strategic area. The consolidation of the Swiss banking sector is an opportunity for a long-standing institution such as Lombard Odier. In Zurich, we have gone down the path of organic growth with a team of a dozen people with very close links to the local network. Internationally, we have a presence with dedicated IAM desks in Singapore, Nassau and Gibraltar, and we are considering expanding further in London and Luxembourg. The Lombard Odier banking platform in Europe goes back around 15 years. Access to the market – the European passport – is a crucial issue for the Swiss financial centre and of course for IAMs. We must address this issue as part of our efforts to respond to our partners' needs.

PdM: With E-MERGING, Lombard Odier has provided a very innovative solution. Why was it made an independent entity?
DP: E-MERGING has been an excellent showcase in the virtual, connected world, and we are proud to have played the role of incubator for the platform. However, we have realised that the future of E-MERGING - whose activities are not limited to IAMs alone - lies in its independence. We remain a favoured partner however.

PdM: The financial centre is often criticised for a lack of creativity. Could IAMs breathe new life into it?
YD: The entrepreneurial DNA and flexibility of IAMs are refreshing and undeniably a source of creativity. As such, they complement the custodian banks. We have noticed that a good many of our partners have adapted their business model to the paradigm shift within the Swiss financial centre. In the face of this new reality, critical mass, sufficient resources and an appropriate structure are essential. At a geographical level, we see that certain IAMs are already committed to significant expansion in Asia, Latin America, the Middle East and Europe. This resilience is a quality that IAMs have in common with Lombard Odier. We have the people, the means and the infrastructure to support them as they change.

PdM: What do you see as the main areas of expansion in independent asset management over the next few years? And what are the major problems the industry will face?
YD: There are many challenges. IAMs will have to respond to the increase in regulation and supervision. They will also have to retain their Swiss and international clients, and may also have to look for growth outside Switzerland. In this very fragmented industry, these developments are bound to have an impact. We are able to provide input into their ideas and help them realise their expansion plans.

DP: First of all, I would like to underline that we have full confidence in this business model, despite the structural changes that we have been seeing for a number of years. History has shown that the IAM community is extremely adaptable and aware that the key value added lies in client service. This optimistic message aside, we should not lose sight of the fact that a new world is emerging, one in which transparency is absolute. These unprecedented changes are a source of risks as well as opportunities, and will allow only the most agile and proactive IAMs to prosper.

Interview by Maurice Baudet, associate editor at Point de Mire, in conjunction with Jean-Pierre Michellod

 

IMPORTANT INFORMATION – GENERAL MARKETING
This is a marketing communication 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 marketing communication is provided for information purposes only. It does not constitute an offer or a recommendation to subscribe, to purchase, sell or hold any security or financial instrument. It contains the opinions of Lombard Odier, as at the date of issue. These opinions and the information herein contained do not take into account an individual’s specific circumstances, objectives, or needs. No representation is made that any investment or strategy is suitable or appropriate to individual circumstances or that any investment or strategy constitutes a personal recommendation to any investor. Tax treatment depends on the individual circumstances of each client and may be subject to change in the future. Lombard Odier does not provide tax advice. Therefore you must verify the above and all other information provided in the marketing communication or otherwise review it with your external tax advisors.

Investment are subject to a variety of risks. Before entering into any transaction, an investor should consult his/her investment advisor and, where necessary, obtain independent professional advice in respect of risks, as well as any legal, regulatory, credit, tax, and accounting consequences. The information and analysis contained herein are based on sources considered to be reliable. However, Lombard Odier does not guarantee the timeliness, accuracy, or completeness of the information contained in this document, nor does it accept any liability for any loss or damage resulting from its use. All information and opinions as well as the prices, market valuations and calculations indicated herein may change without notice.
Past performance is no guarantee of current or future returns, and the investor may receive back less than he invested. The value of any investment in a currency other than the base currency of a portfolio is subject to foreign exchange rate risk. These rates may fluctuate and adversely affect the value of the investment when it is realized and converted back into the investor’s base currency. The liquidity of an investment is subject to supply and demand. Some products may not have a well-established secondary market or in extreme market conditions may be difficult to value, resulting in price volatility and making it difficult to obtain a price to dispose of the asset.
European Union Members: This marketing communication has been approved for issue by Lombard Odier (Europe) S.A., a credit institution authorised and regulated by the Commission de Surveillance du Secteur Financier (CSSF) in Luxembourg and by each of its branches operating in the following territories: Belgium: Lombard Odier (Europe) S.A. Luxembourg • Belgium branch, a credit institution regulated in Belgium by the Banque nationale de Belgique (BNB) and the Financial Services and Markets Authority (FSMA); France: Lombard Odier (Europe) S.A.• Succursale en France, a credit institution and regulated in France by the Autorité de contrôle prudentiel et de résolution (ACPR) and by the Autorité des marchés financiers (AMF) in respect of its investment services activities. Netherlands: Lombard Odier (Europe) S.A. • Netherlands Branch, a credit institution regulated in the Netherlands by De Nederlansche Bank (DNB); Spain: Lombard Odier (Europe) S.A. • Sucursal en España, a credit institution regulated in Spain by the Banco de España and the Comisión Nacional del Mercado de Valores (CNMV); and United Kingdom: Lombard Odier (Europe) S.A. • UK Branch, a credit institution regulated in the UK by the Prudential Regulation Authority (PRA) and subject to limited regulation by the Financial Conduct Authority (‘FCA’) and the Prudential Regulation Authority (‘PRA’). Details of the extent of our authorisation and regulation by the PRA and regulation by the FCA are available from us on request. UK regulation for the protection of retail clients in the UK and the compensation available under the UK Financial Services Compensation Scheme does not apply in respect of any investment or services provided by an overseas person.
In addition, this marketing communication has also been approved for issue by the following entities domiciled within the European Union: Gibraltar: this marketing communication has been approved for issue by Lombard Odier & Cie (Gibraltar) Limited, a firm which is regulated and authorised by the Financial Services Commission, Gibraltar (FSC) to conduct banking and investment services business; Spain: Lombard Odier Gestión (España) SGIIC, S.A., an investment management Company authorised and regulated by the CNMV.
Switzerland: This marketing communication has been approved for issue by Bank Lombard Odier & Co Ltd, a bank and securities dealer authorised and regulated by the Swiss Financial Market Supervisory Authority (FINMA).
United States: Neither this document nor any copy thereof may be sent, taken into, or distributed in the United States or given to any US person.
This marketing communication may not be reproduced (in whole or in part), transmitted, modified, or used for any public or commercial purpose without the prior written permission of Lombard Odier.
© 2016 Bank Lombard Odier & Co Ltd – all rights reserved

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