Crypto assets in the Swiss private wealth management
Creators: name: Cabus, Bruna
Publisher: name: ZHAW Zürcher Hochschule für Angewandte Wissenschaften
Year: 2022
Subjects: 332: Finanzwirtschaft

description: Switzerland has enjoyed a well-regarded reputation as a leading financial center for many decades due to its high-quality services, expertise, and stability. Wealth management services have been a major source of income for banks. However, the Swiss wealth management industry competitiveness is falling behind in terms of financial sector digital capabilities.
As the world advances technologically, new client expectations emerge; consequently, the Swiss financial institutions must adapt to these new client demands, which requires the institutions to embrace technological breakthroughs. The technological advancements of this century include cryptography, the underlying technology of the revolutionary crypto asset’s ecosystem. Due to the institution-sceptical libertarian movement that started crypto assets, they are a controversial topic. This is shown by how Swiss financial institutions are differently positioned concerning the topic: some are at the intersection of the crypto ecosystem and traditional finance, while others are studying the topic or have stated their opposition to crypto assets.
Consequently, the purpose of this study is to comprehend the extent of crypto asset offerings by Swiss financial institutions, as well as the rationale behind their position, their impressions of clients' demand, and their view regarding the institutionalization of crypto assets. In addition, as the crypto asset sector expands and a rapidly rising number of crypto asset categories and classes are established, this study aims to examine the crypto asset class(es) that have the potential to meet the demands of Swiss wealth managers and their clients. The methodology used to address these topics is based on interviews with experts in the field. The qualitative analysis adopts the grounded theory approach. The grounded theory approach seeks to discover or construct a theory using qualitative data that have been methodically collected and analysed using comparison techniques.
The interviews revealed that Swiss financial institutions that offer crypto asset investment solutions to their clients do so in collaboration with Swiss crypto banks or Swiss custodians and that only a limited number of crypto assets are currently offered. In addition, it was acknowledged that there are a variety of services and offering structures among firms that provide clients with crypto asset investment options. Financial institutions in Switzerland that do not currently offer crypto asset investment solutions to their clients still provide educational services or utilize cryptography for internal operations. Moreover, regardless of their position on crypto assets, it was recognized that financial institutions can book investment products listed on regulated exchanges, such as crypto funds and crypto ETPs, if a client with an execute-only mandate requests it.
The position of banks that currently offer crypto assets is based primarily on client demand, the wealth-driving source emerging from the asset class, a belief in the asset class value proposition, advantages in portfolio management, and the desire to position themselves with younger clients, where demand for crypto assets is concentrated. And for banks that currently do not offer crypto asset solutions to their clients, reputational concerns, the lack of regulation in the asset class, the immaturity of the asset class, the number of unsuccessful ventures, the perceived threat to financial institutions, and the market volatility are the main reasons for their positioning.
Moreover, Swiss wealth managers have differing opinions regarding the crypto asset classes that are expected to meet their and their clients' demands; however, based on the findings of the interviews, selected cryptocurrencies, crypto utility tokens, and crypto security tokens are the crypto asset classes that are viewed favourably by Swiss wealth managers.
Based on the analysis of the literature review and expert interviews, the crypto ecosystem is in an emerging phase, and institutions are faced with the need to position themselves in an innovative ecosystem that presents Swiss financial institutions with both opportunities and risks. Positioning themselves in this environment demands an in-depth analysis of the asset class, an assessment of client needs, and an overall strategy that reduces the risks associated with the asset class.