Choosing your financial advisor is one of the most important decisions you’ll make about your wealth. And it’s not just the person or institution that matters: the process is equally crucial.
These are the 8 most sensible and effective steps to do it right:
1. Start with the recommendations
The first and most advisable thing to do is ask friends, family, and trusted individuals, such as your lawyer or accountant. Having a recommendation greatly reduces the risk of falling into bad hands. Furthermore, you’ll receive better service because the advisor will be incentivized to ensure your satisfaction, so the person who referred you will continue to recommend them to other clients. In wealth management, prior trust is invaluable.
2. Have at least two or three options
Never settle for just one name. Comparing two or three consultants allows you to evaluate approaches, costs, working styles, and proposals.
3. You are the first filter
Before evaluating the advisor, define:
- Your financial goals
- Your expectations
- Your way of working
A good advisor adapts to you, not the other way around.
4. Bank or independent advisor?
Working directly with a bank has historically been the most traditional option. However, in the last 20 years, a new model has emerged and grown significantly: that of independent financial advisors, also known as External Asset Managers (EAMs), Financial Intermediaries (FIMs), Registered Financial Advisors (RIAs), or Family Offices (FOs).
An independent advisor is typically a former senior banker who left traditional banking to offer more personalized, transparent advice aligned with the client’s interests. These advisors manage your bank account with limited authority, but they are not bank employees and therefore do not have the same incentive to sell their own products, as is common in banks.
Both models have advantages and disadvantages, which we will analyze below.
🏦 Banks
Pros:
- They are better known, they have a brand.
- Solid and recognized infrastructure.
- Wide range of proprietary financial products.
- A sense of institutional security for many clients.
- They usually have several offices and specialists, which represents an important center of knowledge.
- Direct access to integrated banking services (loans, cards, accounts, etc.).
Contras:
- The advisor is an employee of the bank, which creates conflicts of interest.
- Frequent incentives to sell our own products, not necessarily the best for the customer.
- The banker is employed and paid by the bank, so his actions are primarily aligned with the bank’s interests. The banker’s boss is another banker.
- Advisor turnover: the client often changes contact every few years.
- Product architecture is not always open, with a strong emphasis on internal solutions that, depending on the bank, may be limited and not always the best.
- If you’re not satisfied with your banker, you usually have to close your account, which can be a complex and cumbersome process, especially if you need to open an account at another bank. Changing bankers within the same bank is uncommon, although it is possible.
🧭Independent financial advisors
Pros:
- Greater alignment of interests with the client, since there is no pressure to sell our own products.
- The independent advisor is paid directly by the client, which fosters greater alignment with the client’s interests. In this model, the advisor is the client’s boss.
- A more personalized and long-term approach.
- They have access to several banks, which offers greater convenience and flexibility.
- Open architecture: they can choose the best products, banks and providers depending on the case.
- If you are not happy with the independent advisor, you can immediately cancel their limited power and give it to another independent advisor or work with a banker at the same bank without having to close the account.
- Several independent advisors go beyond traditional advice and offer exclusive services such as access to private investments, concierge services, family office services, etc.
Contras:
- The independent financial advisor sector is highly fragmented and, being relatively young, does not yet have large, global brands comparable to those of banks.
- Although the vast majority of independent financial advisors in Switzerland are regulated by FINMA, some, due to their specific circumstances, are not subject to this oversight. Therefore, it is advisable to verify that the advisor is indeed licensed by FINMA.
- Independent financial advisors are usually smaller than banks and generally have fewer in-house specialists, so they must rely on external specialists.
- Since they are not part of the bank, the independent financial advisor may have more limitations in negotiating preferential terms on credits or loans, compared to an in-house banker of the entity.
- The cost of an independent financial advisor is added to the bank’s fees. However, in practice, independent advisors negotiate significantly lower bank fees for their clients, leveraging economies of scale, as they typically maintain multiple clients and substantial volumes with the same institutions. This greater negotiating power (leverage) allows them to integrate their fees, so the total cost to the client is usually similar to that of a direct bank client, with the added advantage of having a truly independent advisor aligned with the client’s interests.
There is no single best solution; it depends on each individual case. However, what can be said objectively about Swiss banks and independent advisors is the following:
Bancos suizos (banca privada)
- Ranking: They are the world’s #1 in cross-border (offshore) private wealth management, representing approximately 25% of the global market share.
- Assets under Management (AuM): They manage around CHF 3 trillion in private banking and up to CHF 9 trillion in assets under custody, of which approximately half correspond to foreign clients.
- Entities: there are fewer than 80 private banks left (there were 122 in 2010).
- Productividad: un banquero senior gestiona de media unos USD 200-300 millones (cifra estimada)
- Service: the time spent with each customer is limited and the focus tends to lean towards administration, sales and own products.
- Tradition: Swiss banking has a history of more than 200 years
Swiss Independent Financial Advisors (EAMs):
- Market: There are approximately 1,500 independent financial advisory firms in Switzerland; the market is highly fragmented.
- Assets under Management (AuM): Independent advisors manage approximately CHF 500-600 billion, which represents approximately 15%-20% of total assets under management in Switzerland.
- Trend: It is a segment with significant growth, driven by the brain drain and customers leaving banks.
- Service: EAMs manage an average of about USD 100 million, 2-3 times less than a private banker, so they have more time to offer better service to their clients.
- Multibank model: Independent financial advisors typically work with several custodian banks, allowing for greater diversification, access to different platforms, products, and banking infrastructures, and a flexible combination of solutions. This translates into a very powerful proposition for the client.
5. Define how you like to work
Ask yourself if you prefer:
- Delegate decisions
- Take them together
- Do it yourself with occasional support
There are basically four models of financial advice:
- Discretionary (you delegate the decisions). This model is for investors with little experience or for people who prefer to delegate management to dedicate themselves to their business or hobbies.
- Consulting (joint decisions). The consultant sends proposals and the client makes the final decision.
- Execution only. For expert clients who don’t need proactive advice, but do need a personal advisor to support them when an error, transfer, or market conversation arises.
- Consulting without asset management. Ideal for corporations or large estates with multiple financial institutions that require consolidation, an independent external opinion, risk assessment, or reduced bank fees. Assets are not managed by the independent advisor. This model is offered by only a select group of independent advisors.
There isn’t one that’s better than the other. There’s just one that’s right for you.
6. Define your investment strategy
It is built on two pillars:
- Investment horizon: how much capital you have and for how long you don’t need it.
- Risk profile: how much you can afford to lose if things go wrong.
Based on this, you and your advisor will define an investment strategy. The most common strategies are the following:
- Conservative (0-10% equities, 70-80% fixed income, 10-20% alternatives)
- Moderate (20-30% equities, 50%-60% fixed income, 10-20% alternatives)
- Balanced (40-50% equities, 40-50% fixed income, 10-20% alternatives)
- Dynamics (60-70% equities, 20-30% fixed income, 10-20% alternatives)
- Aggressive (80-90% equities, 10-20% fixed income, 10-20% alternatives)
Alternative investments can be real estate, gold, private equity, etc.
7. Understand your advisor’s costs and incentives
Always ask: How does my advisor make money?
There are three main models:
- Direct fees from the client
- Remuneration via products and banks
- Mixed model
Transparency here is key to aligning interests.
Costs depend directly on the service model the client chooses. Not all models cost the same or offer the same level of responsibility from the advisor.
- The most economical model is execution only, since the client makes all investment decisions and does not require proactive advice.
- The most expensive model is the discretionary one, because the advisor makes the investment decisions and is 100% responsible for the results.
Typical costs in Swiss private banking (for Latin American clients)
The fixed costs in private banking are approximately as follows:
- Custody: 0.20%–0.50% (depending on the amount under management).
- Ticket fees for buying/selling securities (usually ranges between 0.10% and 0.80% depending on the amount and the security)
- Mail Hold
- Administrative costs
Additionally, banks charge a wealth management service fee, according to the following model:
- Advisory model:
Latin American clients typically pay a total of between 1.00% and 1.50% annually.
- Discretionary model:
The total cost is usually between 1.30% and 1.50% annually, depending on the investment strategy:- More aggressive investment strategies come at a higher cost, due to their greater complexity and the manager’s responsibility.
- More conservative investment strategies have a lower cost, as they have a lower expected return.
- Execution only:
This is the most economical model, with an approximate cost of 0.30%–0.40% per year.
To these costs must be added the commissions of the products, structured notes or funds that may be owned by the bank or other financial institutions, which usually range between 0.30% and 1.50% per product.
Costs with independent financial advisors (EAM)
In addition to the bank fees, there are advisory costs. Independent advisors typically negotiate significantly better terms with banks thanks to economies of scale.
Bank fees:
- Negotiated custody: around 0.10%-0.25%
- Ticket fees: approximately CHF 100–150 per transaction
The fees of the independent financial advisor are in addition to the bank’s costs and depend on the service model and the amount of assets under management (AuM).
- Discretionary model: 1.30%-1.50%
- Advisory model: 1%-1.50%
- Modelos exucution only: 0.30%-0.40%
- The advice-only model can be a fixed amount or a percentage of approximately 0.10% of the assets under service.
Thanks to this negotiation, the total cost to the client is usually very similar to that of a private bank, but with the advantage of having independent advice.
To these costs must be added the commissions of the products, structured notes or funds that usually range between 0.30% and 1.50% per product.
Compensation models
There are two compensation models:
- With retrocessions: retrocessions are perceived for certain products or funds.
- No kickbacks: only explicit fees are charged to the client.
In the case of banks
- Banks typically receive retrocessions or management fees from the products and proprietary funds they offer.
- These commissions are a regular part of their business model.
Independent financial advisors
- The model is mixed: some work without kickbacks and others with kickbacks.
- When there are retrocessions, they must be agreed with the client from the beginning in the management mandate.
8. Expected returns
It’s important to understand that your investment strategy will have a direct impact on your portfolio’s expected return. Broadly speaking, and before fees, the following average returns can be estimated:
- Conservative strategy: around 3% per annum, equivalent to the current yield on 1-year US Treasury bonds.
- Balanced/average strategy: approximately 5% per year, combining fixed income and equities.
- Aggressive strategy: in the range of 8%–9% annually, taking as a reference that the S&P 500 has had an average return close to 10% annually in the last 30 years.
These figures are long-term estimates and can vary significantly from year to year. Greater exposure to equities means higher expected returns, but also greater volatility and risk. Therefore, choosing the right strategy should always align with your investment horizon, risk tolerance, and financial goals.
And why do customers in Latin America choose Esfera Wealth AG?
At Esfera Wealth, we speak your language. We are a Swiss boutique specializing in serving Latin American clients, with over 15 years of experience in the region. We are passionate about providing our clients with personalized and professional service.
The name “Sphere” reflects our commitment to providing comprehensive solutions. For us, each client is a sphere: a unique world of their own, deserving of personalized attention.
Not only do we offer the four models mentioned (discretionary, advisory, execution only and advisory without asset management), as well as conservative, moderate, balanced and aggressive strategies, but we also have partnerships that make us unique.
We are part of Aquila, the largest group of independent advisors regulated by FINMA in Switzerland. We are also part of Wealth Experts, an influential network of professionals serving high-net-worth clients in Latin America, with over 50 professionals in 10 cities specializing in banking, legal, real estate, insurance, and entrepreneurship. Through this network, we offer comprehensive family office solutions.
Contact us if you have any questions. Our team is open and always willing to help. info@esferawealth.com or Tel +41 44 213 62 40.
