Private pension provision (3rd pillar) serves to close the pension gap from the 1st and 2nd pillars. Pillar 3a is particularly interesting in this respect, as it allows additional tax savings to be made. The amount of the possible annual contribution is limited, but it can be completely deducted from taxes at the end of the year. In return for this tax incentive, the money can usually be withdrawn no earlier than five years before reaching the statutory retirement age.
Pillar 3a pension assets can either be saved in a pension account, paid into an insurance solution or invested in a securities account. The latter in particular offers greater flexibility and the opportunity to invest your assets over a long period of time to increase their value.
In this article, you will learn more about the investment solutions in pillar 3a, how the funds have been invested in the past and the advantages of investing directly.
Investing 3a assets makes sense in most cases because the investment horizon is often very long.
Over a long period of time, it can make a big difference whether you invest defensively or dynamically.
Investing 3a assets via simple and digital solutions (apps) is becoming increasingly popular, which means that young people are also getting involved with the topic at an earlier age.
The new option of investing in direct investments offers several advantages, such as greater transparency, lower costs and more precise control of portfolios.
No matter which investment form or provider you choose, the main thing is to let your assets work and generate annual returns.
Why it makes sense to invest pension assets
In the case of private pension provision with 3a, we are generally talking about a long-term investment horizon. Pillar 3a can be drawn down no earlier than five years before reaching the regular AHV retirement age.
An early withdrawal is strictly regulated by law and only possible under specific circumstances. As a result, the capital remains in the account for a long time and is therefore suitable for investment in securities. This is where the so-called compound interest effect comes into play, which is often underestimated. This describes the fact that invested capital increases exponentially, even with a constant return. This is due to the fact that generated returns on capital are reinvested and thus generate new capital, which in turn generates capital. Thus, it quickly becomes clear that the increase in value is highest at the end of an investment period.
Of course, this effect also occurs with a fixed interest rate on a savings account. However, a difference of 1-2% return per year over 20 to 30 years can make a significant difference in the final capital.
As an example:
If you invest CHF 100,000 at 3% per year for 30 years, you will receive CHF 242,726.
If you invest the same capital at 4% per year, you will already receive significantly more at 324,340 CHF – that is a difference of 81,614 CHF or 33.6% more capital.
You should therefore definitely consider whether it doesn’t make more sense to invest your pension assets more in equities, where the historical return over a long period of 30 years is much higher at around 7% per year than with bonds or a fixed-interest account. As mentioned at the outset, the time factor plays the decisive role here, and that is precisely what is usually abundant in the case of pension assets.
How pension assets were invested in the past
In the past, Pillar 3a assets were often placed in savings accounts, which in the past at least still had a respectable interest rate. However, with the onset of the low-interest environment in 2009 as a result of the financial crisis, there was effectively no longer any savings interest on account balances.
As a result, 3a assets were increasingly paid into pension funds of major banks or insurance solutions in order to at least compensate for inflation. With the advent of new, digital providers, low-cost investing in ETF and index fund portfolios became increasingly popular. Unlike insurance or mutual fund solutions, this allowed people to personalize their investments for the first time, albeit to a limited extent.
These solutions were easy to open, transparent and could be easily managed independently via the respective app. In the normal case, however, investors can only choose between a selection of a few ETFs and index funds. What was already normal in traditional asset management unfortunately did not exist in 3a retirement planning until much later: discretionary mandates with investment in direct investments.
Discretionary mandates are investment portfolios consisting of direct investments in individual stocks, bonds, etc., which can be fully customized to each client’s preferences and preferences. These portfolios are managed individually and independently from other portfolios, which significantly increases the management effort.
For this reason, this concept is often reserved for high-net-worth clients in the private banking sector. Yet the advantages for the investor cannot be denied:
By investing in direct securities, the portfolio can be specifically tailored to the client’s wishes and needs, as well as his risk appetite.
By being able to see what is in his portfolio at any time, he also gains the maximum possible transparency. In this way, investment in undesirable companies can be avoided.
In addition, not using collective investments such as funds and ETFs brings the advantage that no additional product costs are incurred. This, in turn, contributes to general transparency vis-à-vis the customer.
Since the customer is not allowed to manage his retirement savings account independently, this task must be left to an asset manager or a bank. From the asset manager’s point of view, the direct investment approach has the additional advantage that client portfolios can be managed much more precisely. This makes it possible to react even better to certain market conditions, which ultimately benefits the return on the client’s portfolio. Furthermore, specific investment strategies and styles can be implemented, where ETF and index fund portfolios often implement pure risk optimization from modern portfolio theory.
Pillar 3a is currently enjoying great popularity, and rightly so. Thanks to the introduction of simple and intuitive retirement planning apps, the younger generation in particular is looking at building up their retirement assets at an earlier stage. This is probably also due to the fact that nowadays you are more often confronted with the topics of retirement provision and retirement provision with 3a in advertisements and magazines. The recent changes to the AHV system in particular have meant that this topic is now also receiving the attention it deserves among more and more women.
In order to make the most of one’s pension assets over a long time horizon, regardless of the amount, it is essential to invest them. Using our example on compound interest, it became clear that the long-term outcome can change significantly depending on the decision of whether and how to invest the assets. With the current trend of rising interest rates, even simple interest savings accounts are becoming more attractive again. However, the past shows that it has always paid off to invest your capital as dynamically as possible over 20 to 30 years. Ultimately, it is a very personal decision how risky to invest, but also which provider suits you best.
The new direct investment offering is particularly interesting for those who want a portfolio that is as transparent and individual as possible, in which it is clear exactly which companies they are invested in. Others, on the other hand, are satisfied with a passive ETF portfolio that simply covers the broad investment market. However, the most important thing is to invest your capital in the first place and to use the long investment horizon for yourself in order to be in as comfortable a financial situation as possible in old age.
The tax system in Switzerland is extremely complex. In addition to the federal tax, taxes are levied in the cantons and municipalities. Each of the 26 cantons has its own tax laws, which means regionally different taxation of assets, income and profits. But at the same time, Switzerland is known as an investor-friendly country. If, for example, you realize a profit with price gains on shares, this remains tax-free for private investors. Thus, investing in shares in Switzerland is also interesting from a tax point of view. The general tax burden in Switzerland is also low in international comparison.
However, only through clever planning can you operate an efficient pension plan and reduce your personal tax burden at the same time. Personal pension planning is therefore one of the most effective ways to save taxes. Read this article to find out what you should bear in mind.
Capital income are subject to income tax – capital gains are tax-free.
Declare assets correctly and recover withholding tax.
Withholding tax abroad can reduce returns.
Private investors must observe the threshold for professional trading.
Pillar 3a offers additional opportunities to save taxes.
Switzerland’s low tax rate by international standards gives investors hope. The fiscal quota is the most common way to measure the overall tax burden. It corresponds to fiscal revenues, including social security contributions, as a percentage of gross domestic product (GDP). According to figures from the Swiss Federal Statistical Office, Switzerland’s fiscal-to-GDP ratio is 28.5 percent in 2021. By comparison, in OECD countries with a comparable level of development, the ratios average a good 34 percent and range from about 17 to 46 percent.
The cantons in Switzerland have a high degree of tax autonomy. The federal government, on the other hand, may only levy taxes that are permitted by the federal constitution. The cantons, on the other hand, also decide on the levying of property taxes, gift taxes or inheritance taxes.
This makes the tax system complex and to save taxes in Switzerland, knowing some details is essential.
Capital Income and Capital Gains
Basically, the tax law distinguishes between capital income and capital gains.
Capital income: Capital income includes income generated by capital. This includes interest as well as dividends from shares or funds. This income counts as taxable income.
Capital gain: This arises from price gains generated by securities. These are tax-free for private investors as long as they are not generated commercially.
Withholding tax
In addition to income tax, Swiss investors also pay the so-called withholding tax of 35 percent. The withholding tax on investment income is a tax levied by the federal government. It is intended to ensure that income and capital gains are disclosed.
Investors can reclaim the withholding tax if they correctly declare their assets in their tax return. The taxpayer can declare the withholding tax on the official forms of the tax authorities, which will reimburse it.
Withholding tax of foreign securities
In the case of income from foreign securities, the withholding tax of the respective country of origin applies.
Below is a selection of countries and their withholding taxes:
USA: 30 percent
Germany: 26.375 percent
Austria: 27.5 percent
Great Britain: no withholding tax
Australia: no withholding tax
The Swiss Federal Tax Administration provides information on withholding tax for all countries on its website. Income from foreign securities is generally subject to income tax regardless of the foreign withholding tax.
However, investors can partially avoid double taxation through double taxation agreements that Switzerland has concluded with numerous countries. In these cases, some withholding taxes can be credited against income tax in Switzerland when foreign dividends are paid out. In most cases, this involves about 15 percent. In some cases, the remaining amount can be reclaimed in the country of origin. However, due to the administrative effort involved, this is often only worthwhile for larger amounts.
Wealth tax
Wealth tax is an annual tax levied on the taxpayer’s total assets. Tax is levied on the basis of net assets, i.e. after deduction of liabilities and cantonal social deductions. Therefore, it is often advantageous to take out loans for the investment and thus save taxes. The tax rates in the cantons or municipalities of residence are between 1.3 and 11.5 per mille. There is a progressive taxation, whereby assets above one million francs are particularly affected.
Most cantons and municipalities grant different tax allowances. Marital status and children also have an effect. The differences are considerable. The tax-free minimum, depending on the canton, is between CHF 10,000 and CHF 200,000.
As a private investor, always keep an eye on: Threshold to professionalism
As a private investor in Switzerland, you should always keep an eye on the threshold for commercial activity. As soon as a private investor becomes a professional, different rules apply and he or she is subject to profit tax law. The exact rules for the threshold for professionalism are very complex in Switzerland and are interpreted differently from case to case. However, there are some general guidelines that private investors should be aware of.
According to a circular issued by the Swiss Federal Tax Administration, taxpayers who are found to meet the following criteria will be looked at more closely:
Credit financing of investments ensures that taxable property income (for example, interest and dividends) is lower than the pro rata interest on loans.
The value of purchases and sales made in the course of a calendar year exceeds the value of securities and cash balances held at the beginning of the tax period by a factor of five.
Within a tax period, capital gains have been realized that account for more than 50 percent of all taxable income.
Investments are closely related to a specific professional activity and are not available to all investors.
Securities sold were held for less than six months. Day traders must therefore be prepared for a heightened scrutiny.
The taxpayer trades in derivatives (especially options) that do not serve the sole purpose of hedging his securities positions.
Different investments – different taxes
The need for private pension provision was recognized early on in Switzerland. This is shown by the exception in the tax laws to exempt gains from investments for private investors from income tax.
In detail, there are some differences in the investment forms:
Taxes on interest accounts and shares
The federal government initially levies withholding tax on interest and dividends from shares. This means that the bank transfers 65 percent of the income to the account holder and 35 percent to the Federal Tax Administration.
With the withholding tax, the federal government avoids tax evasion. If you declare your bank account and securities income correctly in your tax return, you will receive the withholding tax back. To do this, you declare your investment income in the securities list of the tax return. The withholding tax is then refunded by your canton, which is usually done by offsetting it against your cantonal taxes. For personal taxation, the income is then added to the taxable income (dividends or interest before deduction of withholding tax).
With regard to wealth tax, securities are taxable at market value. In the case of credit balances, the nominal value corresponds to the market value. Life and annuity insurance policies are subject to wealth tax at the surrender value during the savings phase.
Accumulating funds
In the case of funds with no ongoing distribution to the investor, the income is generally reinvested in new units. The taxation is basically no different from that for distributing funds. For this purpose, the fund companies report the reinvested income to the tax administration as of the reporting date.
Cryptocurrencies
Cryptocurrencies are digital means of payment that depend on a protocol and the technology behind it. Owning cryptocurrency units such as Bitcoin is economically comparable to owning cash.
Provided cryptocurrencies are part of private assets, capital gains are tax-free, as from other investments. In the case of cryptocurrencies, the tax regulations on commercial trading must also be observed in this context. The prospecting (mining) of cryptocurrencies against remuneration based on the provision of computing power is considered as self-employment and leads to taxable income.
Credit balances in cryptocurrencies must be reported as “other credit balances” in the securities and credit balances register and are subject to wealth tax. The year-end exchange rate is decisive for the valuation.
Real estate assets
In addition to property tax amounting to approximately one to two per mille of the value of the property, those who live in their own home in Switzerland must pay tax in particular on the so-called imputed rental value. This value corresponds to about 60 to 70 percent of the usual rent. In return, however, all maintenance expenses and loan obligations are tax-deductible.
If you sell your house, apartment or land and make a profit, you must pay tax on this in all cantons. This profit can be high if you bought your home many years ago when prices were much lower.
How much of the profit you have to pay tax on depends in most cantons on how long you have owned the house: The longer, the lower the property gains tax. On the other hand, cantons levy a higher tax on real estate gains realized during a short period of ownership; this is done to curb speculation.
You can determine the amount of real estate gains tax online at many cantonal tax administrations.
Example:
You have sold your property in the municipality of Aarberg in the canton of Bern at a price of CHF 500,000. In addition to the purchase price of CHF 300,000, you had deductible maintenance costs of CHF 150,000. This results in a profit of 50,000 CHF. Assuming an ownership period of 5 years, this results in a property gains tax of 10’723.55 CHF. The profit tax would be reduced to CHF 6,169.95 with an assumed ownership period of 20 years.
Saving Taxes in Switzerland: These Options Every Private Investor Should Consider
Private pension provision is a major lever for saving taxes in Switzerland. Therefore, pay particular attention to the following points when making your investments:
In the case of shares, aim for tax-free price gains: Investors looking for high-yield investment opportunities should consider what they focus on. Bonds regularly yield interest, but this interest is taxable and thus reduces the return. Stocks seem to be a worthwhile investment thanks to dividend payments, but dividends are also subject to income tax. Securities that forgo dividends may be a better option for investors. After all, stocks can lead to significant increases in value over the long term, and when they are sold, the entire gain remains tax-free.
Avoid classification as a professional trader: Achieve this by investing for the long term with infrequent rebalancing. Also, avoid leverage when trading and use options exclusively for hedging. Also, make sure that your profits from stock trading do not account for more than half of your pure income.
Take advantage of the opportunities for self-provision: This includes pillar 3a. Assets are tax-free until the time of the capital benefits. Only thereafter are they subject to annual tax. In the 2022 tax year, as an employee, you can deduct up to CHF 6,883 (a maximum of 20 percent of net income) from taxable income as payments into the tied pension plan of pillar 3a. As a self-employed person (without a pension fund), the amount is CHF 34,416. Read more about the 3a maximum amount here.
Purchases into a pension fund are deductible: The possibilities depend on the personal coverage gap. You can find out the maximum payments in your annual pension fund statement. In order to make optimal use of the progression, it is advisable to spread the expenses over several years.
Structured products with tax-free coupons: Structured products consist of a combination of different investments. Some providers offer constructions in which only a small interest income is generated. The greater part of the distribution is generated by the sale of options and thus remains tax-free.
Withholding tax on investments abroad: As already explained in the paragraph “Withholding tax on foreign securities”, different withholding taxes apply in the individual countries worldwide. These can only be offset if there is a double taxation agreement with Switzerland. In all other cases, they reduce the return. You should bear this in mind when choosing a product, such as ETFs or funds.
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Personal situations that may also be relevant from a tax point of view are, for example:
Retirement: The tax-saving potential depends crucially on whether you want to draw your pension as a lump sum or as an annuity. Because this is more favorable from a tax point of view, you should prefer a lump-sum withdrawal – especially if the money is invested at the same time. The reason: The pension fund annuity must be taxed in full. However, the payment of the capital is only taxed once, separately from the other income, and at a lower tax rate.
Home ownership: Current costs of your property can be deducted from your taxable income. These include interest on a loan and work to maintain the property. You can choose between a flat rate (between 10 and 20 percent of the imputed rental value, depending on the canton) and the actual costs. This also applies to vacation homes, where you can also deduct a flat rate for wear and tear of around 20 percent for the furnishings if you rent out the property.
Digitization is advancing inexorably in all areas of life. For some years now, it has also been evident in the world of finance through cryptocurrencies. However, only a few people are really familiar with this topic. In addition, cryptos have very high price fluctuations and many people have lost money as a result.
Therefore, in the following article we will show you what exactly cryptocurrencies are. Furthermore, we will go into whether it makes sense to invest money in cryptocurrencies and what you should pay attention to.
How do Bitcoin and other cryptocurrencies actually work?
Cryptocurrencies are a very young financial instrument that few people understand yet. Any currency that exists exclusively digitally, i.e. as a number on a computer, and secures transactions using cryptography is called a cryptocurrency. The oldest and best known of the digital currencies is bitcoin. In our normal monetary system, banks are needed for transfers. They hold the accounts of the payee as well as the payer and process a transfer.
With a cryptocurrency, the bank is dispensed with as a central instance. Digital currencies are in fact transferred via peer-to-peer system. The remitter and the recipient only need a so-called “wallet” (digital purse) and they can take their cryptocurrencies to any place in the world. Transactions are recorded in a public register or cash book and verified by several computers.
How exactly does a transaction work?
If you want to buy or sell cryptocurrencies yourself or send them to other people, you need your own wallet. This is comparable to your bank account. However, instead of an account number, you get a wallet address. You can buy digital currencies on an exchange by depositing Swiss francs and exchanging them for cryptocurrencies. In the course of the purchase, you need to specify your wallet address as the recipient. If you want to send some of your cryptos to another person, you need the recipient’s wallet address.
What is the blockchain?
You can think of the blockchain as a public ledger. All transactions are stored in it and they are preserved forever. Each block has a certain size. When a block is full, a new block is attached to it, creating a chain, the blockchain.
Where and how can I pay with cryptocurrencies?
All you need to pay with cryptos is a QR code and your smartphone with your wallet. There are still relatively few people who use cryptos as money in everyday life, however, the development is progressing more and more here as well. In Switzerland alone, for example, over 85,000 merchants have been able to accept payments in Bitcoin and Ether for some time.
There are also some Bitcoin vending machines in Switzerland where you can buy Bitcoins and also sell them again for Swiss francs. The SBB ticket machines also have a Bitcoin function.
What cryptocurrencies are there?
The oldest and best-known cryptocurrency, Bitcoin, was developed by Satoshi Nakamoto in 2008. In the meantime, there are countless other cryptocurrencies. The following can be counted among the most important of the digital currencies:
Bitcoin
Ethereum
Tether
Ripple
Cardano
New cryptocurrencies are developed or launched almost every day. Mostly, startups use the digital coins to raise capital for a new project. So, they develop a cryptocurrency and then sell it on the market. New cryptocurrencies are also created through mining. In the course of mining, computers solve complex computational tasks and receive bitcoins as a reward, for example.
There is also a distinction between the Bitcoin and Altcoins. Altcoins (= alternative coins) are all cryptocurrencies that were developed after Bitcoin. In addition, there are the so-called “tokens”. They are also digital currencies. However, tokens use an existing blockchain. For example, Tether is a token that uses the Ethereum blockchain.
What distinguishes cryptocurrencies from other currencies and stocks?
The key difference between cryptocurrencies and other currencies and stocks is that they are traded exclusively digitally. It is therefore not possible to hold a Bitcoin in your hand and pay with it in cash in a store. Furthermore, currencies can be multiplied at will. For example, the major central banks printed a lot of new money in the wake of the 2008 financial crisis and the 2020 Corona crisis. This is not possible with bitcoin, for example, because it is limited to 21 million units.
Normal currencies, also known as fiat money, continue to perform certain functions. These include:
the medium of exchange function
Function as a unit of account
Function as a store of value
Many experts are undecided as to whether cryptocurrencies fulfill all three functions. For example, one criticism is that digital currencies are subject to too much volatility and therefore they cannot be a store of value.
In addition, cryptocurrencies are unbacked. So there is no value behind a digital currency and there is no gold peg, as was the case with normal fiat currencies for a long time. On the other hand, if you buy a stock, you become a shareholder in the company. Your stock will go up as the value of the company increases.
Advantages and disadvantages of cryptocurrencies
What are the advantages of cryptocurrencies?
1. There is an above-average chance of return.
Bitcoin and other cryptocurrencies primarily represent a new way to invest money. In recent years, investors have been able to earn high returns by investing wisely. Those who have invested their money in bitcoin since 2008 are now enjoying annual returns of around 230.00%.
2. Digital currencies offer you anonymity and independence
Cryptocurrencies are free from government control. There is no central authority that can block or access the account in case of seizure, for example. The wallet on which your cryptocurrencies are stored is exclusively accessible to you and therefore makes you independent of banks.
3. Bitcoin and altcoins can protect against inflation.
Cryptocurrencies are very volatile, so critics say that they do not offer good protection against inflation. However, while most fiat currencies around the world have lost significant value over the past 10 years, cryptocurrencies have allowed investors to preserve and even increase the value of their money.
4. Trading cryptocurrencies is possible around the clock.
Digital currencies can be traded 7 days a week, 24 hours a day. For this reason, they are very interesting especially for traders. For investors who are long-term oriented, there is a possibility to buy or sell even on weekends or holidays, which is very convenient.
What are the disadvantages of cryptocurrencies?
1. Cryptocurrencies are very volatile and risky.
On the one hand, Bitcoins and Altcoins offer enormous opportunities for returns. However, on the other hand, they are subject to a risk that should not be underestimated. Thus, price drops of 20% per day are not uncommon. In addition, many investors have suffered a total loss by buying the wrong cryptocurrency. This is because the entire market is unregulated.
2. It is a financial instrument that is still very young and little established
In recent years, the cryptocurrency ecosystem has grown a lot. More and more people are now interested in this market. The price trends of various digital currencies are impressive and numerous people have become millionaires. However, you must not forget that it is still a very young and little established market that has a very short history.
3. If you make a mistake, your money will be lost forever.
There is no advice from a bank before investing in cryptocurrencies and you also do not enjoy investor protection in case you become a victim of fraud. If you choose the wrong cryptocurrency or make a mistake when transferring money, your money will be lost forever.
4. You need to protect yourself from hackers and you are your own bank.
If you decide to trade cryptocurrencies, you will inevitably have to deal with the issue of “security”. After all, if you store larger amounts of Bitcoins and Altcoins on your computer, you can become the target of hackers. We therefore recommend that you use a hardware wallet to store your cryptos securely. Because there are also some dubious trading platforms.
Get rich and poor with cryptos
How to make money with cryptos:
1. Invest in mining hardware and become a miner.
You have the option to buy powerful computers and mine cryptos. However, for this you need the right hardware and a lot of experience. Besides, you should pay attention to the fact that the technology is always evolving and hardware that is sufficient today will not bring good returns in just a few months.
2. Actively trade cryptos
Most people make money by trading digital currencies. This means that they buy and sell cryptos. Your goal should be to buy different cryptos when the prices are low. They subsequently sell at a higher rate. In theory, this sounds easy. Unfortunately, you usually never know when the bottom of a bear market is reached. Also, it is only clear in retrospect when the bull market has reached its end.
Therefore, we recommend that you buy regularly on a monthly basis. This way, you benefit from the cost-average effect and you don’t have to worry about when is the best time to buy.
Through this approach, the Tesla company, for example, has made a good profit. Thus, the car manufacturer bought numerous Bitcoins and profited from the price increase at the end of 2021.
However, small investors have also become millionaires with a clever investment strategy, as the example of Dadvan Yousuf shows. He became a crypto millionaire at the age of 17 and continues to be active in the crypto market.
This way you lose money and become poor through cryptos:
1. Not your keys, not your coins – loss control over your own cryptos.
Many investors have lost all their money because the trading exchange they had their digital coins on was hacked. As an example, the scandal surrounding the FTX exchange can be mentioned here. Institutional investors are also affected.
2. You make losses because you trade emotionally.
Numerous people have become poor or lost money by trading cryptos because they were too emotional. Always trade rationally, buy monthly and use bull markets to realize your profits. If you have made book losses, it is advisable to wait patiently for the next bull market and not sell hastily and in a panic.
Trading cryptocurrencies is for savvy investors who are willing to take risks
The cryptocurrency asset class is a very volatile market. Note that although there are very strong price increases. However, there is also the risk of total loss and you have few options to hedge your risk. Additionally, there is a risk that you will make technical mistakes or get hacked. Therefore, the market is suitable only for experienced investors who are willing to take risks. We recommend that you start with small amounts and gain experience before investing larger amounts.
Forecast and outlook
Numerous well-known investors, such as Warren Buffet, have been negative about the future of cryptocurrencies for years. The forecasts about how the prices will develop are basically far apart. While some market participants expect Bitcoin to rise to USD 150,000 and more, others do not expect cryptocurrencies to recover.
The market is very volatile and dependent on too many different factors to make a reliable cryptocurrency forecast. Most experts agree that digital currencies have a future. Uncertainty prevails as to what this future will look like. Last but not least, numerous governments are planning to introduce their own digital currency, for example the digital euro. The exact future is therefore uncertain.
If you have a Pillar 3a account, it’s unlikely that you’ll be with exactly the provider that offers you the best terms. By switching to a different provider, you could save several hundred francs each year – depending on the size of your retirement savings and the difference in interest rates.
In this article, you will learn when it may make sense to cancel your pillar 3a. You will also learn how a change is possible and what you should bear in mind.
Ordinary withdrawal of Pillar 3a retirement capital is possible from five years before the AHV retirement age.
Early withdrawal is only possible under the conditions strictly regulated by law.
A change of product is possible at any time, as is a change of provider.
There are sometimes considerable differences in conditions among providers.
In the case of life insurance policies, early termination or switching is usually not worthwhile.
Switching to pillar 3a: the main reasons at a glance
Pillar 3a products are ideal supplements to the state pension plan of Pillar 1 as well as the occupational pension plan of Pillar 2. Often, the tax-advantaged tied pension plan is also more lucrative for the self-employed than the option of buying into a pension fund. But what if you want to access the capital early?
There are various reasons for a pillar 3a switch or a pillar 3a dissolution.
The most important are:
The conditions are unfavorable compared to competitors.
Dissatisfaction with the general conditions of the agreement or with the provider.
Pillar 3a dissolution due to reaching the age limit.
Early withdrawal, provided the requirements are met (note the tax implications).
Cancel pillar 3a: When does it make sense and when not?
When the pension assets from pillar 3a are terminated, the pension capital is available. However, the legislator has provided clear regulations for this case. In addition, the termination should be carefully examined in each individual case, as disadvantages often arise in the event of premature termination. Basically, a distinction must be made between early withdrawal and reaching the age limit.
Early withdrawal
The rules for early withdrawal are similar to those for Pillar 2. According to the law, Pillar 3a assets may be paid out early in the following cases:
Establishment of self-employment
Repayment of mortgages
New construction and purchase of owner-occupied residential property
Moving out of Switzerland (important: demonstrably permanent)
In the event of death
In the event of drawing a full disability pension
Purchase into a pension fund (if there is a pension gap as an employee, for example due to non-contributory phases)
In this context, a transfer of capital from pillar 3a to pillar 2 is tax-neutral. If the capital is transferred directly, no taxes are levied.
Reaching the age limit
The so-called ordinary withdrawal of the capital from pillar 3a is possible at the earliest five years before reaching the AHV retirement age. This is currently 64 years for women and 65 years for men. In principle, the retirement capital from a 3a account must be withdrawn in full in one sum. However, up to five 3a accounts are possible. The payout is subject to a reduced capital gains tax.
Special case of life insurance
The termination of a life insurance policy before the regular end of the policy term is always associated with costs, about which you should make specific inquiries.
In the first few years, the surrender value that is paid out is close to zero, and as the insured, it is not uncommon for you not to receive a single franc. This is due to the fact that in the first few years, the acquisition costs, including the acquisition commission, are initially charged. But even in the further course, an early termination of life insurance is usually associated with disadvantages. After all, an alternative investment would have to yield a substantial return, but this can only be achieved with a significantly increased risk.
Anyone who applies for new insurance coverage at a later date will basically have to buy it at a high premium. The higher entry age on the day of the new policy is then applied, and people in poor health may no longer receive insurance.
Switch to pillar 3a: How is it possible and when does it make sense?
You can change the provider of your pillar 3a account at any time. Many providers will even support you in doing so. It is also possible to convert the pillar 3a product. However, the money must remain in the 3a system.
It is therefore irrelevant whether the current balance is transferred to another bank or within the various pension solutions (interest account, life insurance or securities account).
For example, you can switch from a 3a interest account to a 3a securities account or vice versa. Both with your current bank and by transferring the capital to another provider. The notice periods applicable at the respective providers must be taken into account.
Special features for life insurance policies
Switching from one insurance policy to another pillar 3a product is possible in principle, but normally involves very significant disadvantages. The reasons for this are the same as those already described in the section on termination.
Special features of the securities custody account
When changing the provider, the previous bank sells the securities at the current daily rate. The new provider receives the capital resulting from the sale of the securities and in turn buys new securities at the then current daily rate. A direct transfer of the securities is not yet possible with any bank. This means that your pension capital is not invested for a few days.
Pillar 3a change: often sensible
The differences in conditions between banks can be enormous. It is therefore advisable to compare them regularly. Finally, the 3a assets can be transferred from one provider to another.
As of October 2022, the interest rates for 3a interest accounts range between 0.05 and 0.25 percent. Although still at a low level, there are clear differences in the interest rates. In absolute terms, these are also likely to increase with the current rising interest rate level.
If you have an investment horizon of more than ten years, you should also consider a 3a securities solution when making a switch. Although this means accepting a higher risk in the short term, experience has shown that you will usually achieve a higher return in the long term.
Cancel or change your Pillar 3a account: These details are required
In order to terminate one’s pillar 3a account, the providers often provide their own forms, which facilitate the termination. It is particularly important to state the reason for termination, as this is required by law.
In addition, the following should be noted:
As a rule, the termination must be in writing (providers usually provide information on their website and provide forms).
Indicate your 3a account number.
When switching securities, it is useful to indicate that the existing securities still have to be sold.
When changing providers, name, address as well as the new account number should be provided.
Find out in good time about your provider’s notice periods, as these can be set by the providers themselves.
Change provider Pillar 3a account: Expiration
When switching, keep in mind that you can only ever cancel or switch the entire account balance of a 3a account. For this reason, it always makes sense to distribute the deposits over several 3a accounts.
The switch is carried out in the following steps:
Opening of the new 3a account with the new provider.
Wait for confirmation of the opening of the new account from the new provider.
Cancel the 3a account with the current provider and order the transfer of the retirement assets to the new account.
Previous provider sends confirmation of termination.
In the case of a securities account, the units are sold at the current daily price.
Pension assets are transferred to the new 3a account.
Frequently asked questions (FAQ)
What explains the differences in conditions among providers of pillar 3a accounts?
Most banks offer a fee-free 3a account. However, fees of between 0.4 and 1.2 percent must be expected for 3a securities accounts.
The differences in the conditions are due to the different business models of the banks. The individual banks calculate themselves what conditions they can offer for their 3a accounts. New low-cost offers have emerged in particular as a result of advancing digitization.
Are there any costs when switching 3a account providers?
There are usually no costs for regular retirement withdrawals. However, since providers want to keep their customers for as long as possible, many providers now charge fees for early withdrawals or when switching providers. According to current experience, these can amount to up to 120 francs.
Are there any special offers with new providers?
Some providers now entice customers who switch a securities account to them by assuming all transfer costs.
The success of an investment results from an interplay of favorable circumstances and an ideal strategy. Whether active trading or passive investment in index funds – every portfolio is individual and must be managed accordingly. Even with a passive investment, investors must become active so that the chosen investment strategy lasts over the long term. In addition to a review of the portfolio, rebalancing may be necessary.
What this rebalancing is about, what advantages it brings and how it works, you will learn in the following article.
A securities portfolio should be diversified to the extent possible and consist of several asset classes. It can consist of stocks, bonds or other investments and usually reflects the personal risk appetite as well as the expected return. With a high share of equities, investors must generally expect higher price fluctuations and thus be more willing to take risks. A more conservative portfolio, on the other hand, consists of bonds with a very good rating and index funds, for example.
Due to the different development of the investment markets, the individual values can also develop unequally. This results in an imbalance between the various asset classes. Depending on how pronounced the individual price changes are, a conservative portfolio can also quickly become an offensive portfolio.
Rebalancing is about restoring the original weighting in a portfolio by buying and selling individual assets. This also brings the relationship between risk and return back into balance. Rebalancing is therefore often used as a control tool so that the risk taken does not increase uncontrollably in the long term. In rebalancing, upper and lower bandwidths are therefore defined in percent for each asset class. In principle, there are many reasons for regularly rebalancing a portfolio.
Reasons and advantages of portfolio rebalancing
Basically, there are several reasons which speak for portfolio rebalancing. By defining upper and lower ranges, emotional investment decisions are largely eliminated. This investment discipline can counteract the psychological pitfalls of investing and, for example, suppress fear selling. As a rule, rule-based rebalancing can achieve higher returns for the same level of risk than a buy-and-hold strategy. In addition to investment discipline, the particular advantages of rebalancing are risk control and countercyclical trading signals.
Risk control is the main reason for rebalancing the portfolio. In the stock market, prices rise and fall daily. Depending on the asset class, the economic situation and other factors, values can also change in the medium or long term. This is also accompanied by a change in the respective portfolio. Phases can therefore occur in which the proportion of risky investments increases significantly. This is the case, for example, when certain company shares increase in value or ETFs decrease in value.
With portfolio rebalancing, you can optimally control and manage your risk. In a simple way, the distribution of asset classes can be corrected again by individual purchases or sales. If you refrain from adjusting your portfolio, you may unknowingly or unintentionally run a higher risk of capital loss.
Another advantage lies in the countercyclical trading signals sent by portfolio rebalancing. This means that shares in risky forms of investment, such as equities, are sold in good stock market times and bought at lower market prices. This increases the chances of returns in the long term. However, rebalancing should not be confused with market timing. According to prevailing opinion, there is no methodology to reliably determine the right entry or exit point. For this reason, regular rebalancing should be done according to a fixed rule and executed automatically.
Each rebalancing is as individual as the underlying portfolio. Depending on current market developments in the overall economy and the specifics of individual sectors or companies, fluctuations in value can vary greatly. Accordingly, the individual asset classes and portfolios must be considered in a differentiated manner. The time period in which the individual values shift can also be very different.
However, rebalancing can not only happen between asset classes such as equities or bonds. In value-based rebalancing, each individual security is assigned a certain weighting with a defined tolerance range. As soon as the performance of the security falls below or exceeds this tolerance, the rebalancing takes effect.
Example of rebalancing
For our example, we have chosen a simple portfolio with a balanced investment strategy. This has a structure of 50 percent equities and 50 percent bonds with a very good rating. The investment amount is 100,000 Swiss francs and thus 50,000 Swiss francs for each asset class. In our exemplary portfolio, the equities have gained about eight percent. The share of bonds has gained about four percent during this period. As a result, the distribution of the portfolio has shifted from the original 50:50 to 52:48. At this point, therefore, 52,000 francs are now invested in equities and only 48,000 francs in bonds.
As a rule, equities are more volatile than bonds. Bonds, on the other hand, usually react faster and more directly to interest rate changes on the market. Due to the increased share of equities, the portfolio has a higher risk profile and thus a higher loss potential than desired. The balance can be restored by selectively shifting the values in the portfolio. By selling shares, buying bonds or a combination of both, the distribution is adjusted back to 50:50.
What criteria should be used for rebalancing?
Figuring out how often and when to rebalance a portfolio is not always easy. On the one hand, too frequent rebalancing should be avoided. On the other hand, rebalancing needs to be done after a certain period of time to realign and adjust the risk in a portfolio.
In order to be able to manage risk effectively, a distinction must first be made between the individual risks. In a portfolio, there are country risks, market price risks, default risks and other risks. This means that the overall risk can be managed not only through the selection of investment groups, such as equities or bonds, but also through the choice of individual products. In this way, high-risk countries or sectors can be specifically avoided.
Basically, there are three different strategies according to which rebalancing can take place: time-based rebalancing, value-based rebalancing and cash flow-based rebalancing. These strategies exist under different names and in different variations.
The most common and comparatively simplest is time-based or calendar-based rebalancing. Here, a rebalancing is carried out in a cycle of 12 or 24 months and at a fixed point in time through purchases and sales. This usually does not take into account how the market is behaving at that time and how good the stock market month is.
In value-based rebalancing, a portfolio is rebalanced whenever the proportion of stocks, bonds or another asset class reaches a certain threshold. Until this point, the investor usually remains idle. Exceeding the defined threshold then automatically triggers a reallocation. With this strategy, it is advisable to set certain percentages in advance depending on the original value. If a certain portfolio component is to comprise 40 percent and the threshold value is 8 percent, the component may move between 32 percent and 48 percent without triggering a rebalancing. Only when this threshold is reached is the portfolio rebalanced.
Most portfolios are managed dynamically, which benefits cash flow-based rebalancing. The cash flows from inflows and outflows can be used to perform ongoing rebalancing free of charge and, in the case of sales, in a tax-neutral manner. This method reduces the disadvantages in terms of costs incurred. For this reason, the strategy is very popular. However, it is comparatively costly and requires time and know-how.
When and how often does portfolio rebalancing make sense?
As with buying and selling assets, investors are always asking themselves the question of the optimal time for rebalancing. In addition, it is often essential at which intervals or according to which situations a rebalancing of the portfolio should be carried out.
A very simple rule of thumb is that the weighting in a portfolio should be reviewed and adjusted at least annually. This can be done at a certain point in a year, for example. Alternatively, the adjustment can be decided depending on the market situation or the state of the stock markets.
Basically, the shorter the chosen interval, the more expensive rebalancing will be. Large time intervals, on the other hand, have the disadvantage that the portfolio can sometimes move very far away from the initial situation.
In addition to the time-dependent interval, there is also the value-dependent interval. Here, the portfolio is always rebalanced when the proportion of stocks, bonds or another asset class has reached a certain threshold. With this interval, it can be helpful to set certain percentages in advance depending on the original value.
In the case of exceptional market situations, it may also be necessary to reallocate the portfolio outside of defined intervals. Particularly low or high prices may make it advisable to buy or sell securities. When rebalancing, investors generally distance themselves from pure speculative transactions. Rebalancing a portfolio should be a rule-based, forecast-free and disciplined process in order to achieve the highest possible return while maintaining the same level of risk.
What should one pay attention to when rebalancing?
When creating a portfolio, investors should first think about their personal risk profile. This forms the basis for buying or selling decisions and determines the composition of the various assets.
Rebalancing is an active measure in an otherwise passive investment. However, this rebalancing of assets can also be associated with additional costs. For this reason, it should be calculated whether rebalancing is carried out at longer or shorter intervals. Costs incurred should always be included in the overall consideration of the return in order to obtain a realistic overall picture. Especially for smaller amounts, the costs for rebalancing have a greater impact.
In principle, transaction fees are incurred when trading securities. In the case of fund rebalancing, issue surcharges are also added. Such costs must always be in proportion to the desired return when rebalancing. If the costs are too high, it may be advisable to refrain from rebalancing. A rule of thumb says that rebalancing does not pay off if the costs amount to more than one percent of the investment amount.
In recent months, prices on the world’s major stock exchanges have plummeted. This has led to great uncertainty among numerous investors. They do not know how to behave properly now.
In the following article, we will therefore show you which strategy will help you to survive the turbulent stock market phase. Falling prices offer great opportunities if you act correctly.
On the stock market, a fundamental distinction is made between bull and bear markets.
A bull market can be defined as a period of stock trading in which prices rise almost exclusively over a longer period of time. Minor setbacks are normal and are offset by higher highs. There is great euphoria in this market phase and no one expects bad price developments.
The opposite of a bull market is the bear market, in which we currently find ourselves. If prices on the stock markets fall by 20% or more, experts speak of a bear market. Two consecutive months of price losses also characterize such a phase.
Looking at the Swiss Market Index (SMI), it is clear that it is trading around 25% below its peak. At the beginning of 2022, the index reached almost 13,000 points. By contrast, at the beginning of October 2022, it is struggling to reach the 10,000 point mark. The other major stock market indices, which include, for example, the S&P 500, the DAX and the Dow Jones, are also experiencing similarly high price losses.
Many investors are looking for the reasons behind the developments of recent months. They are also wondering how long prices will continue to fall. There are many reasons for the bear market. The following aspects lead to the falling prices on the stock markets:
the start of the Russian war of aggression
the uncertainty associated with the war (the stock market does not like uncertainty)
a global increase in inflation
monetary policy measures of central banks (rising key interest rates)
after a bull market that lasted more than 10 years, a bear market is not unusual and healthy
Ultimately, a combination of the aforementioned reasons is favoring the current stock market situation. In addition, there is a great deal of uncertainty and fear among investors. These tend to sell shares in a bear market. This often results in a situation on the markets where every investor sells in panic and prices fall significantly over weeks and months.
However, as an investor, you should consider the following two aspects and keep them in mind:
Bear markets are a great opportunity because you can buy stocks cheaper
Every bear market is followed by a bull market
A look at the past shows you why you should act wisely and keep a cool head right now. Then you will emerge as a winner from the bear market.
A look at the past illustrates the opportunities of the current crisis
If you look at the last decades, you will see that there have been bear markets time and again.
The bursting of the real estate bubble in 2008 can be counted among the best-known bear markets in history. The bear market lasted from June 2007 to March 2009, and 7 quarters passed before the bull market started again.
Another bear market hit the stock markets in August 2000. The dotcom bubble burst and the world was in a bear market (= bear market) until March 2003.
In an article, the Handelszeitung has listed the bear markets chronologically since 1928. This overview makes it clear to you that bear markets do occur from time to time and that they are not unusual. Bear markets have historically lasted an average of about 9 quarters. So staying power pays off when investing in the stock market.
Keep in mind that no one can predict exactly when bull and bear markets will start. As a rule, this can only be recognized and analyzed in retrospect. So always prepare for different market phases.
The development of the stock markets points in a clear direction in the long term
Various companies have analyzed the price developments on the stock markets over the past years and decades. As part of this research, they have determined that you, as an investor, would have achieved a positive return on your investment in the SMI in 40 out of 53 years since 1969. The overall performance of the SMI is therefore clearly pointing upwards, despite intermittent price corrections in the context of bear markets.
For example, if you had invested regularly in the SMI from 1977 to 2021, you would enjoy an average annual return of 9.96% today. Other indices, such as the Dow Jones and the DAX, have also achieved a similar performance.
From the data, analysis and graphs, it can be deduced that stocks rise in the long run and thus provide higher returns compared to other investments (for example, gold, real estate and bonds). So far, the stock markets have always recovered sooner or later after a slump. Go for long-term investments.
Real estate markets, on the other hand, have sometimes gone sideways for years or decades. The same development can be observed with gold and other precious metals. With an investment in stocks, however, you have always been right, at least historically.
The reason for this is that economies around the world are increasing their productivity and aiming for a higher gross domestic product. Innovations and increasing globalization are also price drivers. This is not the case with commodities or other forms of investment, which is why you would sometimes have achieved little or no return with gold, for example, over decades.
How should you act as an investor?
The past is no guarantee of how prices will develop in the future. Nevertheless, a trend and a strategy for action can be derived from it. In the current uncertain stock market times, this in turn helps you to make the right decisions. As an investor, you proceed as follows, knowing that bear markets occur from time to time and that they are normal:
1. Remain calm and keep your long-term goal in mind.
Among other things, this means that you continue to invest regularly and do not allow yourself to be unsettled by negative reports on the stock market. You simply sit out the bear market patiently, follow your private financial planning.
2. Review your portfolio regularly, but do not fall into actionism.
Many investors tend to impulse sell because they are scared. This leads to lower returns and even losses in the long run. Stay calm and buy undervalued stocks. After all, the crash is where the money is made. You buy the stocks cheap from the investors who are scared and profit during the next bull market.
Most investors make the mistake of selling in a bear market and then missing the start of a bull market. This should not happen to you. Psychologically, however, it is hard to watch prices fall for months or even years and still continue to invest.
Psychology plays a role in stock market investing that should not be underestimated. If you are mentally strong enough and act anti-cyclically, it will pay off for you.
3. Stay invested so that you do not miss the upswing
Especially the particularly good and stable stocks recover quickly after the bear market. Therefore, be sure to hold on to these stocks. No one knows when the bull market will start and you definitely don’t want to miss it.
4. Keep a cash reserve to make new investments after the bottom is formed
We recommend that you invest regularly. This way, you will definitely not miss the bottom. If the market runs sideways for a very long time and the mood among market participants is exclusively negative, this often indicates a broad bottom. In this case, you should have cash reserves to reinvest. In addition, it is important that you never rely on the money invested in the stock market and have enough cash reserves to easily survive bear markets and the interim losses.
Also, take advantage of allowances and retirement planning tools, read more in these articles:
Most people don’t like bear markets because prices plummet and they have book losses in their portfolio. However, bad times on the stock market offer enormous opportunities. If you analyze the market carefully and buy stable company stocks, you will achieve above-average returns in the long term.
In particular, the insurance, tourism and consumer goods sectors have a stable business model and recover quickly after crises. It should be noted that you should diversify your portfolio as broadly as possible. For newcomers, an ETF is also more suitable. New investors can use the MSCI World, for example.
It is also advisable to invest in large companies that have suffered particularly heavy price losses. Take advantage of the crisis and diversify your portfolio. This also means that you invest globally. So, for example, buy company stocks from Switzerland, but also from America, the euro zone or Asia.
When will the stock markets recover?
Basically, no one knows when the markets will rise again. However, past experience shows that indices are very sensitive to decisions made by central banks and governments. The current global economic crisis will probably be over when inflation falls and stabilizes at a moderate level.
The Russia-Ukraine conflict also has a major impact on prices. If it becomes apparent that the war will end, this could lead to an upswing on the stock market. Ultimately, falling key interest rates and a loosened monetary policy on the part of central banks, as past experience has shown, lead to a rally on the markets.
One possible development in the coming months could be that the central banks raise key interest rates even further. This is largely priced into the markets, but an unexpectedly high increase could lead to another small stock market crash. However, the even higher interest rates should bring inflation down in the medium term.
With the end of the war between Russia and Ukraine, the pressure on the commodity and energy markets will also ease. The central banks will then lower interest rates again to help the economies out of recession. All these factors could trigger a next bull market.
However, this is only a possible scenario. The market is ultimately dependent on many economic and political variables and factors and is currently very volatile.
Managing one’s own assets is a major challenge, especially if the assets are not only to maintain their value but also to increase it. For this purpose, part of the assets must be invested in securities, real estate or other assets.
An asset management mandate represents a lucrative opportunity to have the assets managed by experts according to one’s own ideas.
The following article explains the possibility of asset management in more detail and offers a comparison of different investment forms.
Asset managers are authorized by the client to create and manage a portfolio with a fixed amount of capital
Management according to the agreed investment strategy
Asset management saves demanding and time-consuming work
Mandate is exercised according to the individual agreements and the predefined strategy
Asset management mandate definition
An asset management mandate confers the power to fully manage the agreed assets by the asset manager. In doing so, the managers make active investment decisions by buying and selling stocks, funds and other assets, thus investing your capital over a specific investment horizon.
The agreement of a strategy depends on the client’s goals and risk tolerance and determines the measures of management. Furthermore, there are different types of asset management, which can differ fundamentally in their characteristics, depending on the investment assets and risk tolerance.
The asset manager acts independently and without the participation of the client in the agreed period of time. Thus, it is possible to react quickly to changes in the market. If a need arises, this may also mean changing the general investment process.
The making of individual decisions and the independent making of purchases and sales also represents the fundamental difference compared to an advisory mandate. In the case of an advisory mandate, the advisor only has an advisory function. The final investment decisions, on the other hand, are made by the client himself.
What types of asset management mandates are there?
There are many different types of asset management. Which one is right for you depends largely on the agreed investment strategy. Furthermore, the risk tolerance as well as existing asset reserves also determine the optimal type of asset management. The best-known forms of investment are examined in more detail below:
Asset management with index investments
Many funds are based on an index and try to replicate or even outperform its price performance. However, only a few of these investment funds actually succeed in doing so. An investment in indices with an adjusted risk orientation is therefore a proven asset management strategy.
Depending on the investment strategy, assets are invested in indices that adequately reflect the relevant market. The portfolio is then managed for profit by means of intelligent balancing. This means that depending on market developments, the portfolio is always adjusted so that it still reflects the selected investment strategy.
Asset investments with investment funds
In this investment process, the assets are invested in a diversified portfolio. The respective proportions are determined by the investment strategy and risk tolerance. Actively managed funds are used to supplement the portfolio, either to increase the potential return or to reduce the overall risk of the portfolio. Usually, the individual securities are distributed across regions and sectors in order to compensate for the fluctuations in value that are customary in the market.
Asset management with individual securities
The management of a portfolio with individual securities is a variant that focuses on individual securities such as shares or certificates. In this case, investments are usually made with a higher risk tolerance due to the lower diversification in order to achieve targeted higher returns. However, the risk can also be broadly diversified and specifically reduced in the case of management with individual securities. This form of asset management offers the highest possible degree of individualization, as individual companies can be selected and not a whole package, as is the case with ETFs or funds.
Asset management BVG-oriented
BVG describes the law for the minimum requirements for occupational pension provision. In common usage BVG is often used as a synonym for pension fund. A BVG-oriented asset management therefore describes a portfolio that is oriented towards the average of Swiss pension funds. This includes investments in stocks, bonds or even real estate. In the area of this management, the portfolio is also constantly adjusted in response to market developments.
Asset management according to discretionary mandate
Depending on the amount of investment assets and the desired investment strategy, individually designed asset management mandates can also be agreed. Since such mandates require more effort both in their creation and in their management, they are usually only recommended above a certain level of investment assets.
In a so-called discretionary mand ate, an investment strategy is developed together with the client. This sets a framework that determines how granular the portfolio is designed and in which assets it is invested. At this point, both the amount of the investment assets and the personal risk tolerance are taken into account.
What rights or decision-making powers are delegated with these mandates?
An asset management mandate places numerous rights and duties in the hands of the manager. This entails a high level of responsibility and therefore also requires a great deal of trust on the part of the investor. The interest of the manager is therefore to create trust by providing the most professional, transparent and responsible service possible.
What decisions can the administrator make independently?
The transfer of an asset management mandate confers numerous decision-making powers on the manager. These are necessary in order to be able to manage assets as profitably as possible. The mandate therefore includes, in particular, powers to buy and sell securities. This is carried out by the administrator independently and without consultation with the client.
Compliance with the legal system
As the manager of a third party’s assets, numerous legal regulations apply. Great importance is attached to compliance with Swiss laws and regulations. In addition, the handling of third-party assets requires internal regulations, compliance with which must be strictly observed.
The legal system comprises numerous regulations, which include complete documentation of the asset management. Furthermore, the manager has a duty of disclosure, which relates in particular to the risks of the investment. In addition, compliance with investment guidelines is an important factor in asset management. Read also our article on digital asset management.
What else is usually reconciled?
Mandatory reconciliations are made as part of the management process. Furthermore, individual agreements and the respective investment strategy can also add further reconciliations. Since the risk appetite is a central factor in investment management, the definition of a risk framework is of particular importance. This reconciliation is recorded accordingly and provides the manager with the extent of risk diversification.
Who is liable in the event of a loss?
Since there is a comprehensive duty of disclosure within the framework of the contractual agreement, the investor is aware that an investment can involve losses. In this respect, the asset manager must act to the best of his knowledge and belief and in accordance with the prescribed laws and guidelines. Furthermore, requirements such as those relating to risk diversification and due diligence must also be complied with.
In the event of a breach of certain duties, the asset manager must pay for possible financial losses. However, the risk of asset loss due to general market fluctuations and developments is known to the investor. The latter therefore bears the risk and is generally liable for any losses incurred as a result. However, a possible duty to provide information in the event of a certain loss must also be observed here, which must be complied with by the manager.
Why are there asset management mandates?
Asset management mandates have been successfully taken on for many years and enjoy a high level of popularity. There are numerous reasons for this high demand. There is no denying the advantages of having your own assets managed by experts.
Expert management for high returns
The management of one’s own assets by specialists is probably the greatest advantage that asset management brings. At any time, the portfolio is monitored and managed by people with expertise and great experience. In this way, action can be taken quickly. Furthermore, the right decisions are made at the right time, as experienced asset managers are better able to recognize market developments and draw the right conclusions.
High time savings
Another major advantage of having your own portfolio managed by a third party is that it saves time and effort. It is not only the acquisition of the necessary knowledge that takes a lot of time. In particular, the constant monitoring of the market as well as political and economic changes require a lot of effort.
Avoiding one’s own emotions
Dealing with one’s own assets requires a high degree of discipline. This is especially true for activities that involve a certain degree of risk. Therefore, investors often tend to let themselves be guided by emotions. In the field of securities trading, this can lead to wrong decisions, which can have negative consequences. The management of the portfolio by an independent person leads to a detachment from this emotional attachment and allows a complete focus on the factual level.
For whom are asset management mandates a suitable tool?
Wealth management is perceived by a wide variety of groups of people. In terms of personal and financial situation, asset management offers numerous possibilities. This is sometimes due to the great advantages as well as to the variety of different models that can be adapted to the individual investment strategy.
The idea of expert management according to one’s own specifications
The basic idea behind asset management mandates is that individuals without the necessary expertise to manage and grow an investment asset can successfully operate a portfolio. Since many individuals do not have the required knowledge but still want to create an asset, the idea of third-party management by experts was born. These experts can manage the assets depending on the current market developments and the personal ideas of the investor.
More attractive for higher investment assets
The asset management mandate comes with fees. These fees can often be reduced for higher investment assets, as many asset managers have a tiered pricing model where the percentage fee decreases as assets increase. Therefore, asset management is more worthwhile for people who want to have higher assets managed. The fee also depends on the type of asset management chosen.
FAQ
What fees are charged for asset management via a mandate?
The fees for an asset management mandate cannot usually be given as a flat rate, as they depend on several factors. Sometimes it depends on how complex the management of the agreed model is. In addition, the amount of the assets and other factors play a role.
What alternative approaches are there to asset management mandates?
The best-known option for asset management support is investment advice. This form is not a complete management, but only an advice for own decision making.
Who offers an asset management mandate?
An asset management mandate is offered by numerous independent asset managers. These can also join together in various legal forms and usually offer their services independently of banks. Banks themselves, including major banks and private banks, often offer asset management services in addition to investment advice.
Asset management better through a bank or independent managers?
Banks often have comprehensive products, which are gladly offered during an investment consultation. Banks often enter into a conflict of interest if they also use the bank’s own products in asset management. Independent asset managers, on the other hand, specialize in asset management and do not offer their own products. This means that there is no conflict of interest and the risk for the investor can be reduced.
Is it worth hiring an asset manager despite incurring fees?
The fees for an asset manager also depend significantly on the investment assets and the chosen financial instruments. The high volume of orders and experience indicate that this is a form of value investment that definitely pays off in comparison to other forms. The certainty alone that one’s own assets are in professional hands and the personal service is already a reason for many to decide in favor of asset management.
Everyone has dreams and wishes. Whether it’s their own house, private retirement provision or a trip around the world. For this purpose, it is necessary to save money so that dreams can become reality. Aimless saving leads to rash actions. The consequence of this is that wishes do not come true.
Is it possible to achieve one’s goals safely and quickly with well thought-out private financial planning? Yes, it is – in the following article we offer you some assistance in this regard.
Any private financial planning is based on one’s own situation, desires and ideas and requires perseverance and conviction.
By answering specific questions and making concrete plans, financial planning can take shape.
In the article, we offer guidance in the form of a sample calculation and planning – it can help as a guideline in your elaboration.
All the following questions should be answered honestly and self-critically. As a result, you will receive a useful framework for your personal financial planning at the end of the guide.
Definition – what does private financial planning mean?
The starting point for sound financial planning is to determine your current situation. You should take stock of all available factors. These include:
Income
Expenses
Assets
Debts
which you carefully determine in order to obtain a realistic basis for your private financial planning.
Income
Income includes the current salary per month. If financial planning is carried out for the family, the income of all members also counts. Other sources of income include rental income, interest, dividends, other income and income from self-employment.
The largest item in expenses is fixed costs for rent and living expenses. You can find these expenses from the budget. Other expenses include costs for motor vehicles in the household and for insurance and loans.
Assets
Part of assets are real estate, investments, savings, and balances in life insurance or regular savings plans.
Debts
This is where you need to determine the current balance of loans for real estate and personal loans for purchases.
It is best to create a template or Excel spreadsheet to record all this information.
What are the goals of private financial planning?
It is important to have a clearly stated goal in mind with private financial planning. It is irrelevant whether the desired goal lies far in the future or is already achievable in the medium term. What is decisive is the strategy that is worked out to achieve the desired goal. Here are some examples of short- or medium-term and long-term planning goals:
Private financial planning is the central element in bringing the desired goal into focus. Now it is a matter of recording income and expenses so that the targeted plan can be realistically achieved. With the help of good detailed planning, it can be checked whether suitable savings measures are helpful. In many cases, the desired goal can be achieved more quickly.
What is the starting position for your own financial planning?
The basis for forward-looking life planning is a critical examination of the current situation. To do this, you need to take stock of your finances and ask yourself the following questions:
On the income side of the budget planning is the monthly salary for dependent employees. The advantage over self-employed / freelancers is that this item is easy to determine based on the payroll. In many cases, the monthly salary hardly changes.
Is there any other income?
When determining further income, only secure values should be included in the financial planning. This includes rental income and interest from financial investments. Irregular income from sideline activities or dividends, which could also fail one day, should be assessed with caution.
What assets exist?
The easiest way is to assess credit balances at banks and cash investments as of the respective reporting date. Savings plans and life insurance policies communicate the asset value or surrender value of the insurance on a regular basis. The assessment of the value of real estate is more difficult. The values here should be set rather conservatively. Reserves for uncertain times as financial investments also belong to the assets.
What expenses burden my budget?
On the expenditure side, private households have to bear the costs of rent, living expenses, motor vehicle costs, insurance and old-age provision. There should be enough wiggle room in your expense approach to plan for leisure activities and vacations. Otherwise, financial planning will become a nightmare for the family later on.
Are there debts and in what amount?
You can use confirmations from the banks to determine the amount of the remaining debt as of the balance sheet date.
Is an inheritance to be expected?
Extraordinary income is helpful to reach goals faster.
What assets do I need for retirement?
Retirement planning is an important part of financial planning. The cost of assisted living or a place in a elderly home, in particular, has become a considerable expense. After all, you want to be independent in retirement and enjoy time with your partner or family, old-age poverty affects about 20% of people in Switzerland.
The value of one’s own health is an important asset. An accident at work can happen on any day. The Corona pandemic of the past two years has caused health problems in many families. Usually, these are unexpected events that strike like a bolt from the blue. In the case of prolonged illness, sources of income are at risk.
Sickness benefits in Switzerland amount to about 80 percent of previous pay for a period of two years.
But how can health risks be hedged?
When there are declines in income in private households, the entire finances often get into trouble. Costs remain the same, and further expenses are often required for rehabilitation and the restoration of health. The healthcare system in Switzerland is exemplary. However, it does not cover all services. Especially for hospitalization and dental treatment, it is a good idea to take out supplementary insurance. With occupational disability insurance, the package of preventive measures is complete.
The world of work has been changing rapidly since the turn of the millennium. Jobs that were considered crisis-proof for decades are being displaced by new technologies. The digital age has changed jobs in many industries. Employees have lost their jobs or had to look for new fields of employment. Economic crises have led to short-time work, which means loss of income.
You should have a financial reserve for these cases. This is absolutely a part of your private financial planning. For this emergency, it makes sense to create reserves in the amount of at least three net monthly incomes.
When building up private assets, investments should be put to the test in times of crisis. When investing in shares, safety instruments such as stop loss should be discussed with the investment advisor. It is crucial that you are always in control of the situation and remain capable of acting. It is better to forego a promising business than to take too great a risk.
What ideas and values influence your own private financial planning?
A few years ago, the focus in private financial planning was on maximizing returns with manageable risks. This view has since changed. The low-interest phase on the global financial markets, which has been going on for years, is only giving investors low returns in the interest area. Such investments are hardly worthwhile any more. Other values are coming to the fore and investors are paying more and more attention to them.
Climate change is increasingly focusing attention on environmental issues in the financial sector. In investment consulting, experts are paying attention to sustainability and judging companies not only by their business success. They question how the results are achieved and whether ethical principles of occupational health and safety and human rights play a role.
Corporations that produce armaments are judged cautiously. The same applies to companies that have products manufactured under inhumane conditions in low-wage countries. Investors scrutinize these issues carefully before committing to investments in shares or financial market products. In the end, it is up to the individual investor to decide the extent to which moral principles are incorporated into the investments to be made.
When it comes to financial market instruments, stocks and ETFs are at the forefront of investment advice. Depending on the time horizon and risk tolerance, there is a wide choice. In the annual reports, brochures and on the Internet you have the possibility to inform yourself about ethical and moral principles regarding the individual companies. In addition, there are also ETFs that focus entirely on sustainability, but the definition of sustainability is not always the same.
Which way is the best? – Knowledge, procedure and advice
Private financial planning is an important part of life planning. It is significant if you include all family members in the first step. You lay the foundation by recording:
Income
Expenses
Assets
Debts
are determined. It is not necessary to consult an advisor for this.
The next step is to determine the investment horizon for achieving the goal. In this context, it is necessary to consider how you can most safely achieve the investment goal with the available funds. Here, the selection of financial instruments is already a more challenging task. Not every person is a financial expert and knows all the advantages and disadvantages of each investment.
Simple financial investments such as:
Time deposit
Term deposit
Savings bond
Fixed-interest securities
are easy to understand and can be concluded after a short consultation.
As investment products become more complex, it is better to seek advice from an experienced investment advisor. For financial planning investments in:
ETFs
Fund investments
Shares
Derivatives (e.g. options)
Commodities / precious metals
Real estate
you should seek the advice of an experienced expert.
It is not enough to understand what riskier forms of investment are all about. It is important to know exactly all the risks and what impact this could have on your private financial planning. In any case, you should follow the principle of risk diversification and never invest all your money in one type of investment.
Choosing the right investment advisor is a matter of trust. If you have a long-standing relationship with your bank, your first point of contact will certainly be there. In any case, your investment expert should have sufficient expertise and prepare serious proposals. You should avoid self-appointed experts who sell financial market products and make extraordinary promises of returns. Those who think they can increase their assets in a short time usually end up with a nasty surprise. Long-term investments are usually the better choice.
What does an example of successful private financial planning look like?
1. the initial situation
Personal key data
Mr. Planer, family man 32 years old
married, 2 children
Working as an employee
Own house as a goal of financial planning
Financial key data:
Family income: 5’000 CHF per month
Sum of all expenses: 4’000 CHF per month
Surplus for private financial planning: 1’000 CHF
Assets: 15’000 CHF
Debts: none
To simplify the example, we have already included in the financial key data in the expenses costs for retirement, professional security and leisure activities of the family. Thus, the complete monthly surplus of 1’000 CHF is available for asset accumulation in the private financial planning.
2. determination of the goal and the appropriate measures
Goal: Purchase own house
Investment horizon: 8 years
A) Build up financial reserve
B) Investment of 50 percent of the surplus in safe financial investments
C) Investment of 40 percent of the surplus in forms of investment with yield opportunities
D) Maximum 10 percent of the surplus as investment in risky financial assets
3. allocation of surplus for financial planning
A) Building up financial reserve
The financial reserve should be available at all times to avert harm to the family in case of emergency. Three monthly salaries are planned for this purpose. This is an amount of CHF 15,000, which is taken from the existing assets of CHF 15,000 and invested in a separate time deposit or call money account.
B) Investment of 50 percent of the surplus in safe financial investments
Safe investments include fixed-term deposits, installment savings plans, fixed-income securities and investments in funds with a focus on real estate and fixed-income securities. CHF 500 per month is invested in this segment.
Result after 8 years
Capital: 500 CHF per month saved over 96 months = 48,000 CHF
Return: estimated 1.5 percent return per year during the term = 3’529 CHF
Result of the investment: 51’529 CHF
C) Investment of 40 percent of the surplus in forms of investment with yield opportunities
ETFs, fund investments in shares and share purchases belong to the somewhat riskier financial investments with return opportunities. CHF 400 per month is invested in this segment.
Result after 8 years
Capital: 400 CHF per month saved over 96 months = 38’400 CHF
Return: estimated 5.0 percent return per year during the term = 9’292 CHF
Result of the investment: 47’692 CHF
D) Maximum 10 percent of the surplus as an investment in high-risk financial assets
High risk investments are made in warrants, derivatives or commodities and precious metals. In our example, a maximum of 100 CHF per month is invested in this segment.
Result after 8 years
Capital: 100 CHF per month saved over 96 months = 9’600 CHF
Return: estimated 10.0 percent return per year during the term = 5’240 CHF
Result of the investment: 14’840 CHF
It is essential to have an experienced and serious financial advisor at your side when investing in forms of investment with potential returns and when investing in high-risk financial assets.
4. result of private financial planning
Total result after 8 years of financial planning
Building block A: 15’000 CHF
Building block B: 51’529 CHF
Building block C: 47’692 CHF
Building block D: 14’840 CHF
Investment result: 129’061 CHF
With the investment result of 114,061 CHF (component A is a liquidity reserve and is not touched), 20 percent equity can be provided for the purchase of a single-family home worth just under 570,000 CHF. The remaining just under CHF 456,000 is to be financed by a loan. With a monthly surplus of CHF 1,000, the annuity for the loan can be paid.
FAQ about financial planning
What is private financial planning?
This tool makes it possible to achieve individual goals and dreams based on the current situation. A well-designed financial plan is helpful in achieving a targeted financial goal with a high probability of success.
Why is it important to create a private financial plan?
With the help of planning, a thoughtful approach to investments is put in place. With discipline and perseverance, intermediate goals can be reviewed. A good plan facilitates the achievement of the desired goal.
Is a financial planning guidebook significant?
Absolutely! An expert in the financial industry can tell if private financial planning is realistic and all factors have been considered. The financial expert’s advice is especially important if riskier financial investment products are used as part of the planning process.
How is financial planning arranged in a relationship/ marriage?
Trust and transparency are important in private financial planning in the relationship / marriage. Which account model the partners decide on in the end is up to each person.
In what form should financial planning be made?
Tools include app, Excel spreadsheet or a simple sheet of paper. Especially for recording the current situation and formulating the goals, no special form is needed. It is then more challenging to simulate various possible scenarios in the area of financial investment and to include complexities such as savings plans.
Most people do not know much about investing money. However, they want to build up assets and need to provide for their own old age. Many customers are also afraid of losing money when they invest it.
In the following article, we therefore explain how you can structure your own wealth accumulation in such a way that you increase your chances of return while at the same time taking a manageable risk. Long-term investments help you to achieve your own financial investment goals in a structured way.
there are a variety of ways to invest money over a long period of time
Long-term investments differ from short- and medium-term investments and trading in numerous respects.
one’s own return expectations, investment goals and personal risk appetite are important aspects to consider in long-term investing
with long-term and regular investments, the fluctuations and risks on the money and capital markets can be profitably exploited
What is meant by a long-term investment?
ou always make long-term investments when you invest your money for several years. Many investors want the highest possible return and at the same time want to take little or no risk. In addition, they want to be able to dispose of their money at any time. In this context, people talk about the so-called “magic triangle” of investing money.
“Magic” is the triangle because not all three wishes (availability, high return and little risk) can be realized at the same time. As an investor, therefore, you must always choose no more than two “corners” of the triangle. For example, a longer investment period goes hand in hand with a higher return opportunity. If you are prepared to take risks, you can also achieve good returns with a short term or if the money is available at any time.
Long-term investments should be distinguished from traditional “trading“. Trading is the trading (buying and selling) of shares or other securities. The buying and selling dates are usually only a few days apart. Short-term investments even have a term of only a few weeks or months.
Different forms of long-term investments in detail
Investors are often looking for a quick profit. So they want to invest their money and achieve high returns in the shortest possible time. However, this approach often results in losses because too much risk is taken. The stock markets, for example, are subject to short-term price fluctuations of up to 24.00%.
Therefore, it makes more sense to focus on long-term investments. You have the following investment options to invest your money for the long term and achieve high returns:
Stocks or stock funds (investment savings)
ETFs (investment savings)
Real estate and real estate funds
Bonds
Shares and share funds
Shares and share funds are among the classic forms of long-term investment. If you want to invest in stocks/stock funds, you should allow for an investment horizon of about 7 to 10 years. With a long time horizon, you can easily ride out a crash on the stock market or even use it for your own investment.
It is important that you never invest exclusively in one or a few individual stocks. Instead, diversify (spread) your money by buying 30 different stocks, for example. A stock fund is also good for diversification.
Advantages of investing in shares or share funds:
You have high yield opportunities
dividends are paid out at regular intervals (however, not all companies pay dividends)
the money is available at any time
shares are part of the special assets – even in case of insolvency of your bank the securities are protected
Disadvantages of investing in shares or share funds:
the securities are subject to (short-term) high fluctuations
a total loss is possible
You need a securities account and pay fees for the purchase and sale of shares.
the selection of suitable shares and funds requires expert knowledge
ETFs
In the recent past, more and more investors have decided to use ETFs (Exchange Traded Funds) for strategic asset accumulation. An ETF is defined as an exchange-traded index fund. An ETF therefore tracks an index (for example, the Dow Jones) 1:1. ETFs are also well suited for investing money over the long term and profiting from stock market developments. The advantages and disadvantages of ETFs at a glance:
Advantages ETFs:
good return opportunities
low fees
the invested money is available at any time
in case of insolvency of the ETF provider the money is not lost
You can only buy the whole index but you cannot choose the individual companies
Real estate and real estate funds
Buying or building your own property is also one of the long-term investments. If you do not want to buy your own house or condominium, you can invest in real estate funds instead. These generate an annual return. Real estate, on the other hand, can either be owner-occupied or rented out. Of course, real estate investments also have advantages and disadvantages:
Advantages of real estate as well as real estate funds as an investment:
You benefit from monthly rental income
alternatively, you live rent-free in old age
You have tax advantages if the property is rented out
real estate protects you from inflation, as it is a tangible asset
through real estate funds you can invest in real estate even with little capital
Disadvantages of real estate and real estate funds as an investment:
investing in real estate requires a high level of expertise
sufficient equity capital is required
Interest on borrowed capital and ancillary purchase costs must be taken into account and calculated
Real estate funds can not be sold at will, but are subject to a holding period
Investing in bonds
Bonds are still an option as a long-term investment. When you invest in bonds, you make a loan to either a company or a government and receive a fixed rate of interest each year. At the end of the term, you get your invested money back. Bonds also have several advantages and disadvantages:
Advantages of bonds:
regular distribution of interest
Bonds are generally subject to lower fluctuations in value than shares
If the bond is held until maturity and the issuer is not insolvent, no losses are made with bonds
Bonds can be sold at any time
Disadvantages of bonds:
Depending on the credit rating, corporate bonds can also be subject to a high level of risk
If interest rates on the money and capital markets rise, the market value of a bond falls.
Depending on the credit rating and interest rate level, bonds can have very low yields.
There are other forms of investment that are suitable for long-term investment. For example, you can invest your money in precious metals (gold, silver), cryptocurrencies, derivatives, private equity and similar investments. All forms have advantages and disadvantages. Which investment form you ultimately choose should depend on your own financial goals, risk tolerance and investment horizon.
Keep in mind, however, that it always makes sense to spread your assets as broadly as possible across different asset classes. For example, buy some gold, invest some of the capital in stocks (individually or as an ETF/fund), and also acquire some real estate. This way you are well positioned for the long term and you have assets to fall back on.
Interim conclusion: Shares are suitable for long-term asset accumulation
Above all, shares are well suited for long-term asset accumulation.
Provided you have the opportunity to invest your money over several years or even decades, investment savings (ETFs and equity funds) are particularly suitable for long-term wealth accumulation. But why is that? Why do you benefit from long-term investing through investment savings?
The benefits come from three main aspects:
You benefit from the compound interest effect
short-term market fluctuations do not play a role
The cost-average effect means that the time of entry is less relevant.
The example of the Dow Jones is an excellent illustration of the fact that you would have generated a return of approx. 9 percent per year with a long-term investment from 1980 to 2014.
What aspects should you consider when choosing the right (long-term) investment?
When choosing the right investment for you, several factors always play a role, which we will now discuss in more detail:
What are your financial goals and what is your time horizon?
The decision on which investment you choose should be based primarily on what financial goals you are pursuing with it. Do you want to save for the time after your active working life or do you want to buy a house in 10 years? Do you want to use the money to finance your child’s studies?
The next question is what time horizon you have available to achieve these financial goals. For example, if you plan to retire in 10 years, it is not advisable to finance a completely new property, because repayment usually takes about 25 to 30 years. If you have not yet set aside any capital for your own retirement, you will also have to take higher risks in order to reach your financial goal in 10 years.
What portion should you keep as a “nest egg”?
The second point concerns the diversification of your assets. It is advisable to always keep a “nest egg” in your account. This is about three months’ salary that you can easily dispose of in case of an emergency. Some people feel more comfortable having a higher nest egg. Others do without it altogether, but this is not advisable, as it may force you to sell some of your investments when liquidity is needed.
What risks do you want to take?
As you already know, your chance of return increases as long as you are willing to take a higher risk. Nevertheless, everyone has an individual risk propensity. So consider whether you could live with it if the invested capital falls in value over several months or even years, as can happen in the stock market. Are you financially and also psychologically able to endure such a phase?
How well do you know the different forms of investment?
Do you have knowledge in investing in the stock market? If you answer “no” to this question, it makes sense to seek advice in advance. If, on the other hand, you already know your way around, you can start buying shares, funds and ETFs in a structured way. It is always important to understand the type of investment you are putting your money into.
Do you plan to invest money once or monthly?
Choosing the right form of investment also depends on whether you plan to invest one time or monthly. For example, it’s a great idea to invest in an ETF on a monthly basis. On the other hand, if you want to make a one-time investment with a short time horizon and a low risk tolerance, you are more likely to choose a life insurance policy.
How flexibly do you want to dispose of the money?
You can invest your money on a fixed basis or look for investments that give you the flexibility to dispose of the money at any time. Physical gold, for example, is liquidable (you can sell the coins), but you have to go to a dealer and fees apply.
Do you want to benefit from regular distributions or is total return important to you?
For many people, it is important that they receive regular distributions, for example in the form of interest or dividends. These investors then usually opt for rental property, dividend stocks or bonds. However, if total return is important to you, then choose stocks or ETFs that do not pay dividends. This may also have tax advantages.
In principle, it is possible to get advice at any bank. However, local advisors often work on a commission basis. This means that you profit if you buy a certain product. Therefore, get as many different opinions as possible from independent advisors and additionally inform yourself online.
Should every investor make long-term investments?
Long-term investing ensures that you have an above-average chance of return with a manageable amount of risk. As a result, you beat inflation and benefit from the compound interest effect. Only long-term asset accumulation ensures that you have enough money in old age. The 3rd pillar (your private pension plan) should therefore be designed entirely for long-term investments.
Which providers are there for long-term investments?
You can find numerous providers in the market where you can make long-term investments. These include:
The world of finance is complex and not immediately understandable to everyone. Private banking is a term you hear more and more often in connection with finance – but what exactly is private banking?
Private banking is the optimal solution for customers who value individual advice and management of their assets. Private banking services range from wealth planning to finding suitable investment objects. Estate planning and inheritance matters are also handled by the Private Banking team.
However, private banking is not for everyone – there are certain minimum requirements that must be met before you can enjoy these services. However, digitization and new providers are making private banking accessible to a much wider range of customers in Switzerland as well.
In this article, you will learn what private banking means, for whom the offers are suitable, and what you should consider when selecting providers.
The most important at a glance
Private banking means individual management of private assets.
Securities management, such as efficient trading in equities, is one of the most important forms of investment. But private banking also takes into account investment opportunities in real estate, closed-end funds and private equity.
Today, innovative providers and digitalization are making private banking in Switzerland accessible to broad sections of the population.
Compared to retail banking, private banking is characterized by exclusive products, individual service, consideration of the client’s wishes, and long-term client relationships.
Low-priced standard products and financial instruments with short-term profit opportunities are just as unlikely to be found in private banking as offers for interest rate hopping.
Private Banking: Definition & Meaning
Private banking in Switzerland, as in other countries, is a service provided by banks or other financial service providers that focuses on the needs of high-net-worth individuals (HNWIs). These services include a wide range of financial products and services tailored to the specific needs of these client segments.
Private Banking customers generally receive a more comprehensive service than in Retail Banking. This is due to the specific needs of the customers, which are generally more complex than those of average banking customers.
Sophisticated services and investment types
Providers offer a range of services, including investment advice, wealth management, asset strategy, credit and financing solutions, tax advice, estate planning, and other specific services.
Private banking primarily involves strategic wealth optimization and planning. This involves needs-oriented analysis and structuring of all assets. Individual operational asset advice and asset management are also offered. Consulting and support services, such as in real estate management, also fall under private banking. In the case of Family Office, private banking is carried out for the assets of all the members of a family group.
The target group: High-net-worth individuals (HNWIs)
The term High-Net-Worth-Individuals (HNWIs) refers to individuals with high net worth. Typically, HNWIs are assumed to have more than $1 million in assets. HNWIs make up a small share of the population, but they have a large share of total wealth.
It should be noted that there are no rigid boundaries for defining the target group. On the requirements, therefore, see also our comments in the section “Who has access to private banking?”.
Private Wealth Management
Customers whose assets fall below certain lower limits are classified as retail banking. When upper limits are exceeded, international private banks or investment banks refer to private wealth management. This is a financial services sector that deals with the management of the assets of so-called high-net-worth individuals (HNWIs).
Unlike private banking, the range of services also includes advice and management of assets outside the financial markets. These include advice on building and managing art collections and the acquisition of antiques.
Personalized advice: the private banking process
To ensure quality in private banking, the process usually follows the following phases:
First, you as the customer define your needs and wishes so that private banking can meet your requirements. Keywords in this context are, for example, securing the future, liquidity and retirement. Likewise, generation management can be addressed, where the objectives regarding the transfer of assets to the next generation are discussed.
This is followed by the development of a concept that corresponds to the investment objectives. This is always preceded by a well-founded analysis, in which, for example, your willingness to take risks and the possibility of taking risks are determined. A liquidity management takes into account the desired and necessary liquidity – your private financial plan.
In the subsequent execution phase, the financial transactions required to put together the defined portfolio are carried out.
Finally, the portfolio is reviewed on an ongoing basis and adjusted as necessary to ensure that it reflects current market conditions. Controlling also includes the performance of the individual financial products.
Private Banking: Services at a high level
The services generally include measures for wealth planning and asset management. As already described above in the process, the focus is on working out individual needs. This includes the following essential areas with the corresponding investment forms:
Securities management
Individual portfolio consulting
Shares, bonds, debentures, investment funds, ETFs and other financial instruments, including investment and ongoing controlling and updating
Hedging and risk management
Pension solutions
Risk insurance
Property insurance
Liquidity
Accounts & Deposits
(Credit) Cards
Real Estate Management
Consulting for residential and commercial properties
Asset management is the most comprehensive service in this area. The private client entrusts the bank with the management of his or her assets in compliance with previously agreed principles and guidelines. Exceptionally high assets are often managed in the bank’s own so-called family office. Alternatively, multi family offices offer asset management services for several, few large assets. In this respect, family offices represent a special segment within private banking.
The term “high net worth individual” is not clearly defined. Banks usually define the term based on the assets they manage for the client. Often, access to private banking only begins with assets of one million francs or more. However, some institutions also have lower limits for individual support. Here, the private banking client often starts with as little as 100,000 francs.
The need for a minimum sum is basically understandable. Compared to retail banking, in particular, a significantly higher expense arises due to:
individual advice with increased personnel costs
necessary technical know-how
independent execution of the necessary financial transactions
ongoing asset management (controlling and updates)
Naturally, these costs can only be represented above a certain level of assets. For private clients, too, the cost factor would no longer be in proportion to the return if the assets were too low.
Innovative providers enable private banking for broader customer groups
Providers developing digital investment solutions are considered the newcomers in the wealth management rating. However, you should pay attention to subtle but major differences.
While some robo advisors already offer automated investment starting at a few thousand francs, qualified asset managers go well beyond that with their services. The latter use, for example, the know-how and investment philosophy of established family offices. As a result, private banking is being digitized with the aim of opening it up to significantly more customers. This means that the entry hurdle is lowered to 30,000 francs, instead of half a million or even a whole million francs. The offering is thus aimed at technology-savvy customers with a demand for qualified private banking.
What you should look for in a private banking provider
When choosing a private banking provider, it is important that you choose one that meets your needs and requirements. Here are some points to consider when choosing a private banking provider:
Quality of advice – Expertise in the financial market: private banking is a matter of trust. Even though the Internet is becoming increasingly important in obtaining information and banking transactions are also being carried out online, the quality of personal advice should be the top priority, especially for larger sums of money. Therefore, pay attention to which know-how the advice is based on at the provider. What expertise can the acting persons demonstrate in the areas of asset management and wealth planning?
Access to high-yield financial products that also focus on wealth preservation: In private banking, wealth optimization is primarily about achieving a balance between income and security. The assets should at least be preserved in inflation-adjusted terms. The provider therefore needs comprehensive research in addition to a sound investment strategy. In this context, pay attention to existing ratings or assessments of whether the provider has met this requirement in the past.
Security and continuity: As a private banking client, it is important to know that your assets are in safe hands. It is therefore advisable to obtain detailed information about security before deciding on a provider. This includes, for example, ensuring that transactions are carried out via secure access channels.
Individual and innovative concepts that take your wishes into account: Digitization and individuality do not have to be a contradiction in terms. Innovative providers make it possible, for example, to take into account desired investment topics such as health or environmental protection within the portfolio.
Independence instead of product sales: The products must be selected exclusively with the focus on the customer and be based on independent decision-making criteria. If a provider only offers its own funds or only standard products, this should be questioned critically. So check on the basis of the financial products offered whether the provider puts them together independently of banks.
Transparency in investment forms and asset development: What applies to independence in terms of product selection should also apply to ongoing reporting on your asset development: Transparency. Therefore, make sure you have predefined reports from which you can observe the development of your assets at regular intervals. In this context, transparency also means information about transactions that have been carried out.
Trust as a basis for long-term cooperation: Let the approach work for you right from the start. Do you have the feeling of being surrounded by the necessary competence? Do you trust the investment proposals? Only when trust is established will you perceive the private banking services as a welcome relief.
What is the alternative to private banking?
Anyone looking for adequate support in wealth planning and asset management should first think about their needs. This includes, in particular, the question of whether you are concerned purely with investing money or whether other topics such as inheritance, foundations, retirement planning and taxes are relevant.
The next step is to know the options, depending on the size of the assets. The decision for private banking will always remain a personal one. For example, if you yourself have in-depth expertise in the securities business, you may want to manage it yourself in the future.
If you have smaller assets or only want to have a smaller sum managed by a third party for the purpose of optimization, the robo advisor market now offers a wide range of options. Depending on the provider, the entry barriers are already very low at around CHF 2,000. In return, there is automated asset management with standard products, where you can deposit your desired risk tolerance.
Frequently Asked Questions (FAQ)
What temporal form of customer relationship is private banking about?
Compared to retail banking, private banking is about a long-term customer relationship. The advice is aimed at long-term wealth preservation. In retail banking, the focus is on the products, which is why it is more common to switch providers here (for example, by comparing interest rates on call money).
How safe are private banks compared to big banks?
Basically, investments at private banks in Switzerland are just as safe as at big banks. All banks in Switzerland have access to the esisuisse deposit guarantee for amounts up to 100,000 Swiss francs. Custody assets are also always owned by the client. This means that in the event of bankruptcy, they would be segregated from the bankruptcy estate and paid out to the customer immediately.
For whom is private banking particularly suitable?
Provided that the minimum investment amounts are reached, private banking is suitable for most customers. After all, few have the expertise and experience in the financial world to work continuously and reliably on asset optimization. The less know-how and time available, the more Private Banking is the right option.
Is private banking more costly than retail banking?
When viewed as a fee percentage, private banking has higher fees. Ultimately, the high-cost service must be paid for. However, this does not mean that using private banking ultimately means a poorer return – the rule is the opposite. Through product- and bank-independent advice, planning and decision-making, more suitable forms of investment are found on the one hand, and their suitability is constantly checked on the other.
