Will the licensing requirement for independent asset managers by the end of 2022 trigger the anticipated consolidation of the industry?

Christian Bataclan Director, Deals Financial Services, PwC Switzerland 15/08/22

Under new legislation entering into force at the end of 2022, all unregulated independent Swiss asset managers will need to file their license application with FINMA by year end at the latest. Will this trigger the anticipated consolidation of the industry? We set out to answer this question on the basis of our market research combined with the findings of a survey of 83 IAMs.

Independent asset managers (IAMs) are what you may call the SMEs of the Swiss financial services industry. Often founded by successful former relationship managers at private banks, they operate an asset-light but high-margin business, primarily offering discretionary portfolio management to a longstanding clientele. The industry is granular, fragmented and relatively opaque. With the advent of a compulsory licensing, FINMA supervision and the prospect of tighter reporting requirements, however, the industry looks set to become more transparent.

Estimated number of IAMS in Switzerland

The aim of our survey is to get a more accurate grassroots view of the industry’s concerns and how IAMs are planning to respond to the new legislation. Thus, we commissioned external agency Norstat to conduct a market survey of 83 “pure-play” independent asset managers from mid-May to mid-July 2022. The results are published in a new white paper: IAM Market Insights "Will the licensing requirement for independent assets managers by the end of 2022 trigger the anticipated consolidation of the industry?".

Our key takeaways

Our key conclusions based on our market research combined with the findings from of a survey of 83 IAMs.

The industry is granular and fragmented, with over 2,100 players, and until now has been relatively opaque in terms of publicly available information on matters such as assets under management (AuM) and the structure of their client portfolios. With the advent of FINMA supervision and increasing reporting requirements, however, we expect overall transparency to improve.
IAMs need to take action. Most of them are in the process of being licensed or are delaying submitting their application until the last minute, which can take up to several months. A failure to meet the 31 December 2022 deadline could expose them to penalties and sanctions if they wish to continue conducting their business.
IAMs cited main challenges going forward are pressure on margins driven by increasing compliance costs and regulation, as well as the need to invest in digitalisation to address evolving client expectations and improve the competitiveness of service offerings.
We anticipate a growth in M&A activity, although an imbalance between plans to acquire and willingness to sell will create a buyers’ market, with plenty of acquirers and a scarcity of targets driving up valuations.
The three key motivations for acquisitions are the benefit of being a licensed IAM able to acquire IAMs that are exiting, a chance to grow the assets under management (AuM) base and gain more size to be more attractive to hire talent, and a desire to improve efficiency by achieving economies of scale and reducing costs.

The licensing requirement for Swiss independent asset managers as of the end of 2022 looks set to become a watershed moment. Strategically, on the one hand some IAMs have already decided not to apply for the licence and could consider disposing of their business. On the other hand, those who remain will be able to seize this opportunity if they wish to grow through acquisition, attract promising talent and/or reduce their costs through economies of scale. Whatever the case, there are interesting times ahead, with opportunities bound to emerge on both the buy and the sell side.