LDN - Business

Julius Baer looks to fixed price system to bolster returns

[June 08, 2018] By Angelika Gruber

ZURICH (Reuters) - (This version of June 7's story refiles as the bank corrects breakdown of its mandates business to read 34 percent(not 50 percent)advisory mandates, 16 percent discretionary mandates & 50 percent(not 30 percent) remianing business.)

Swiss private bank Julius Baer <BAER.S> is shifting more customers to a pricing system that charges them a fixed fee for its services as part of a wider industry effort to buffer against choppy revenues.

In the past, Swiss private banks did not put a fixed price tag on their advisory services for wealthy clients, but charged fees based on transactions carried out for them.

These transaction fees were once the primary source of income for many wealth managers, but banks are now moving away from setting fees for individual transactions in the wealth management business. This is partly to meet new European Union rules known as MiFID II but also to protect them from times when clients are reluctant to commit to transactions.

"We are replacing volatile transaction fees with more stable advisory fees, and that certainly also benefits shareholders," the group's head of advisory solutions, Philipp Rickenbacher, told Reuters in an interview.

Switzerland's third-largest listed bank is seeking to shift more customers over to the fixed fee pricing scheme introduced in 2015. This is known as a mandate model, which replaces the previous system that was based on the frequency of transactions undertaken for customers.

"We want to shift our customers worldwide over to mandate models," Rickenbacher said. "Probably not 100 percent (of clients), but certainly above 80 percent. Even 90 percent would be very feasible in the future." To date the share of customers in the new system has increased to around 50 percent.

Commission and fee income now contributes around 60 percent of the bank's operating income.

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The sign for Swiss bank Julius Baer is seen at a branch office in Luzern, Switzerland, November 23, 2017. REUTERS/Arnd Wiegmann/File Photo

At larger rivals such as UBS <UBSG.S> and Credit Suisse <CSGN.S> which have a higher proportion of ultra-wealthy clients, mandate penetration stands at roughly a third of wealth management business, according to the banks' financial statements.

Thirty-four percent of Julius Baer's clients have advisory mandates which provide the customer with the final say on whether to proceed or not with an investment.

A further 16 percent are signed on to discretionary mandates, in which they delegate final investment decisions to the bank, to be executed based on their general preferences.

Its remaining 50 percent of customers either operate largely independently, with the bank acting as executor of requested trades, or hold contracts predating the launch of Baer's new mandates model in 2015.

The mandate structure, in which customers' rights and obligations are clearly set out, has also eased implementation of new investor protection rules under MiFID II, Rickenbacher said.

"The contractual framework allows us to implement requirements under MiFID II in our advisory process and ensure we meet the obligations," he said.

(Writing by Brenna Hughes Neghaiwi; editing by Jane Merriman)

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