“There is a great desire for safety” – interview with Serge Fehr and Nannette Hechler Fayd’herbe

Ms Hechler-Fayd’herbe, Mr Fehr, how is the Swiss banking sector faring? In view of recent events, is the Swiss model in need of fundamental change?

Fehr: No, fundamental change is not necessary. In terms of international comparison, Switzerland’s financial centre is unparalleled as regards financial knowledge, reputation, solid business models and its ability to adapt. What’s more, it’s very well diversified. Whether private clients, institutional investors or SMEs, in Switzerland they can each find services tailored to their needs. That’s not to be underestimated.

Nevertheless, it was just a year ago that a respected Swiss institution – Credit Suisse – went under, and Bank Julius Baer has been involved in some risky lending. Won’t this have consequences?

Fehr: Some banks have strayed too far from their roots, i.e. their core business of wealth management. It’s important to listen to clients and not be prescriptive about how they should invest. That would be the wrong approach. Instead, you need to listen, analyse, do your homework and then offer made-to-measure investment solutions suitable for the client. This, of course, takes time. As a pure player in wealth management, Lombard Odier can do this. We concentrate on a few key offerings that we implement extremely well. It helps, of course, that we’re an independent company owned by our Managing Partners, whose interests are completely aligned with those of our clients.

Hechler-Fayd’herbe: These days, our clients set great store by the strength and stability of their bank. These are qualities that we can offer. And in a volatile macro environment, they also want security. Switzerland sets the global standard in this respect, due to its adaptability and the expertise it offers.

All the same, a lot of money is flowing to places like Dubai, Singapore and Hong Kong. Where does Swiss private banking stand in relation to these aspiring hubs?

Fehr: This is actually a trend we welcome, because it encourages us to leave our comfort zone. It forces us to continuously reflect on our business model. So I don’t see this development as a threat.

Hechler-Fayd’herbe: On the contrary, we even benefit from these other locations and share in their growth, as we have a presence in the Middle East. Besides, historic shifts in worldwide money flows have always moved in different directions. These are fluctuations that should not be overrated.

Where exactly are you growing, and in what segments?

Hechler-Fayd’herbe: Globally speaking, growth is being generated by companies that, for example, are developing new technologies and creating wealth as a result. Geographically, these companies may be anywhere. As long as wealth is created through innovations, this is good news for us, regardless of the form or the region.

And in Switzerland? Where are the opportunities in the domestic market, and what potential does the Swiss market offer a private bank?

We see the greatest potential in German-speaking Switzerland. We have clients here for whom stability is very important. They don’t like it when their bank is associated with negative media coverage.

What differentiates German-speaking Switzerland from other regions, such as Geneva?

Although clients delegate their investments, they absolutely do want to understand how their wealth is invested and where the performance will come from. That’s even more true in German Switzerland than elsewhere. In addition, our clients here are increasingly concerned about their retirement and its consequences. I see great growth potential for us in this area.

How do you explain this need?

Zurich has a high concentration of entrepreneurs and executives. For both of these groups, their lives post-retirement are a key concern, but they have limited time to think about this in advance. Most start planning for this period when it’s almost too late.

How big is your team in Switzerland now and what are your plans in Zurich?

We’ve established a team with an office in Zug and reinforced our team in Zurich. Lombard Odier now has more than 2,000 employees in Switzerland. Our Managing Partners consider Zurich to be a very important site, and we’ve had a presence in the city for over 35 years. The CIO office has a very large team here and all of the bank’s services are available from Zurich. We’re here to stay.

Senior Managing Partner Hubert Keller announced that 2024 will be a year of transition for Lombard Odier. What role will you play in it?

Hechler-Fayd’herbe: As regards the CIO office, we are aiming for a thought leadership role. Our clients are becoming increasingly financially knowledgeable, and it is important that they know that their portfolios are underpinned by an analysis process that has been well thought through. We receive more and more technical questions and we provide answers.

Fehr: In Zurich we want to increase awareness and alter perceptions of Lombard Odier and what makes us who we are. I’ve talked to our teams a lot about this. Many potential clients still think that a private bank is only interested in billionaires. Yet we serve a broad spectrum of wealthy clients and can offer them attractive solutions. This pathway is now defined.

What exactly does it look like?

It’s about the transfer of wealth to the next generation. A few years ago, this was hardly talked about because it requires a lot of sometimes emotive conversations. For example, our recent survey showed that 80% of clients are ready to talk about transferring their wealth. This presents us with opportunities.

Both of you have come from Credit Suisse: what distinguishes Lombard Odier’s way of working from your previous employer?

Hechler-Fayd’herbe: There’s one particular way a private bank’s approach is different. A private bank makes a very big effort to understand its clients and provide tailor-made solutions. The big universal banks don’t always do this as they’re not designed for it. Added to this, of course, is Lombard Odier’s ownership model. The Partners have a very strong desire for security, which is enshrined in the Group’s business model. And that’s exactly what our clients are looking for too. We are not generalists. In German-speaking Switzerland, very few wealth managers are organised in this way.

Fehr: Something else that sets us apart from the universal banks is the long-term nature of our strategy. This long-term view is our greatest asset, something that shouldn’t be underestimated. The decision-making processes may be a bit longer, but once the strategy is in place and our Partners are completely behind it, we come through even volatile markets well. What I wouldn’t like to go back to are standardised solutions. This was never our approach at Lombard Odier.

What are your market expectations for 2024?

Hechler-Fayd’herbe: The central banks need to make an effort, because inflation is becoming more and more unpredictable. There’s a general trend, but then there are deviations from it, partly because the markets anticipate a lot of things. For us, that means less risk, more liquidity and fixed income exposure in the asset allocation.

How quickly can a private bank like Lombard Odier adapt to changing moods in the markets?

Hechler-Fayd'herbe: We can react very quickly. For example, last year, when the interest rate and growth environment shifted, we adapted our asset allocation and implemented the changes within a short period. Specifically, that meant greater exposure to US equities. That enabled us to make profits in the US tech sector, a positive that was immediately visible to our clients in their portfolios.

Do you put pressure on Serge Fehr’s team when you change asset allocation in line with the markets?

Hechler-Fayd’herbe: There’s always room for discussion.

Fehr: Our new asset allocation includes liquid and illiquid investment categories. These primarily include private assets, which we’ve invested in for a long time. In addition, our clients in Switzerland are making it known to us that they would like to increase their holdings of private assets over the next five to ten years. So we have to position ourselves strategically for the long-term here, but this fits with our CIO view. All the same, building up private asset commitments takes time.