Swiss finance professor Teodoro Cocca believes Credit Suisse's collapse shows a bank's reputation is more important than individual client advisors when switching institutes. The unspoken truth no one admits.

UBS's third quarter 2023 numbers managed to calm shareholders down. The outflow of rescued Credit Suisse assets was also stopped. But the figures also pointed out a matter that is constantly being discussed in the private banking business. What is the most important part of the client relationship? The advisor or the bank?

What it is really asking is whether clients have deeper affiliations with advisors than with the bank and its accordant reputation. Of course, both are important but is one more so than the other?

Searching for Stability

UBS's turbulent takeover of Credit Suisse is a particularly good example to use given that it shows a bank whose reputation suffered massive harm. When it comes to the latter institution, all bonds in effect imploded, putting the relationship between clients and client advisors in sharp focus.

Private clients withdrew massive amounts of money from Credit Suisse in the months leading up to the rescue effort in March 2023 even though there were no significant departures of client advisors at the time. During that phase, changing banks was less a question of a client's relationship with her or her advisor and much more a search for an institution that was financially stable.

Everything Else

It is also particularly interesting to look at what has since happened. Just this week, UBS communicated that over 500 Credit Suisse client advisors had left the bank since the takeover, taking about $20 billion francs ($22 billion dollars) in client assets with them. On average, that would be about 40 million francs per client advisor.

A typical book of clients has about 200 million francs, which means that the advisors managed to take about 20 percent of the assets they managed with them. It is not a high number and is roughly the industry average one might expect in normal times.

Good Reputation

Ostensibly, the relationship between advisors and clients was not as strong as assumed, even in such an extreme situation. Another argument that clients who had been at both banks would look for a new one simply to diversify their assets also doesn't appear to be particularly relevant.

Having a UBS jump in with its solid reputation seems to have been enough for many Credit Suisse clients, sparing them the effort of having to change banks even if their own advisor was one of those who had left the new combined entity.

Early Departures

It is probably too early to render a final judgment on what is happening. It can take time for a client advisor to find their feet at a new employer and convince their old clients to join them and switch banks. The numbers show, however, that a client's link to their advisors is not as tight as they would like many of us to believe, even in such an extreme situation. 

Of course, there are particularly talented advisors who are in a position to build exemplary links with their clients. But these probably left Credit Suisse a good deal earlier. That also raises the question as to whether those who stayed at Credit Suisse were the ones who, for lack of better words, had much charisma and acumen. If so, it might explain the meager successes of those who had stayed on somewhat better.

Newfound Team Approach

What is highly visible in the current situation is the fact that in private banking, the targets of the bank and the client advisor don't entirely tie up. Both parties want to strengthen their links with clients in order to make more money for themselves. Client advisors with deeper relationships get higher variable compensation. If the bank has more leverage, then they receive a higher percentage of the gross income booked.

In the past 20 years, the major banks have tried to limit the power of client advisors in the private banking business. The old model of one-to-one advisory has been increasingly replaced by a team approach. One of the advantages of pursuing that has been the decreasing importance of the individual who is part of an advisory team, which also weakens the client's relationship with individual advisors.

The events related to Credit Suisse again seem to support the thesis that when switching institutions in private banking, reputation is more important than relationships. Of course, client advisors see the same thing quite differently.

Teodoro D. Cocca has been Professor of Asset and Wealth Management at Johannes Kepler University Linz since 2006. Before that, he spent several years at Citibank in investment- and private banking, conducted research at the Stern School of Business in New York, and taught at the Swiss Banking Institute in Zurich. In addition, as a Swiss citizen with Italian roots, he is an associate professor of private banking at the Swiss Finance Institute (SFI) in Zurich while acting as a consultant for financial companies and public authorities in Switzerland and abroad.