Former private bankers prepare to enter robo-advice arena with Werthstein

Former private bankers from Switzerland and Germany are poised to launch a new type of digital wealth manager, adding to the rapidly expanding universe of robo-advisers.

“The idea is to launch an investment ideas house with an ‘invest button’ attached,” says Giles Keating, one of the firm’s four founders, and previously influential head of research at the private banking arm of Credit Suisse, from which he recently retired after 30 years with the firm.

 “I feel strongly that financial technology is very much the way of the future for wealth management,” says a “rejuvenating” Mr Keating. One of the biggest barriers to integrating web-based approaches in any major bank are legacy IT systems, he says. “When you start from scratch, you can just design everything in a modern way and make it much simpler and friendlier and more familiar to people.”

The firm, called Werthstein, was co-founded by CEO Bastian Lossen, previously heading Credit Suisse’s marketing strategy across the Americas, Apac and Emea regions. Felix Röscheisen, previously chief operating officer for private banking business at Germany’s HypoVereinsbank, is the chief financial and operating officer. Technology expertise is provided by Michael Stemmle, founder of Additiv, Switzerland’s largest fintech company.

Creating content regarding investment strategies is the firm’s key aim, “high quality investment analysis written in a very accessible and easy-to-read way, how it would be in the FT or The Economist,” explains Mr Keating. “But after reading or watching the video, clients can simply press the button and invest.”

Similarly to other robo-advisers, investors’ assets are placed in “carefully risk-controlled”, or “core” model portfolios, taking into account clients’ risk preferences. But what is unique to this “financial and media company” is that clients can participate in portfolio construction, selecting preferred long-term investment themes or ‘Zeitgeists’.

Zeitgeists’ pros and cons are presented and debated in the format, of “TV panel shows”, held by the Werthstein Institute, an advisory board, chaired by Mr Keating, also including Valérie Plagnol, former economic adviser to the French prime minister, German securities journalist Stefan Risse and Christine Shields, former head of risk at Standard Chartered Bank. Such a panel of experts and economists decide in a voting round which proposal is the best.

The firm’s investment committee, of which Mr Keating is also part, makes the final decision of which themes to implement in portfolios, by translating them into investment solutions.

“Although the final decision is taken by an internal committee, one of the most important inputs to that committee is visible on the screen to our investors,” says Mr Keating. “That is quite a step forward for transparency, in terms of how portfolios are managed, while allowing clients a degree of involvement.”

Clients can watch the clips on their computer, tablet or smartphone and decide – by pressing a button – whether to add the investment theme to their portfolio.

Prospective clients can open an account via smartphone within minutes. “We are really designing the service first and foremost for the mobile,” says Mr Keating, who will make extensive use of social media such as Facebook and Twitter as “good, cost effective ways of interacting with clients without having to charge them high fees that come from a face to face meeting.”

Interactive sessions on Facebook allow clients to type in questions for panel members. “We are very much into dialogue with our clients, but we are doing it in a modern way, designed to be much more scalable than a traditional wealth manager,” he says.

The online wealth manager is in a soft launch phase, currently managing money for family and friends, and is set to launch “very early in 2017” in Germany, where it has opened an office in Munich and is recruiting staff.

The German market is not as “overcrowded” as the UK, yet represents a “large pool of wealth”, which can be shifted from savings into investments with higher long-term potential. It targets affluent and HNWI clients with €100,000 to €5m of bankable assets – the “densest part of the wealth curve” – and has plans to build presence in Switzerland soon, and in the rest of Europe. Asia, where investors have a reputation for short-term trading is also on the cards, with a solid core portfolio increasingly important to clients. “In Asia this model will have a lot of potential,” believes Mr Keating. 

Zeitgeists

In order to be selected, Zeitgeists need to show projected growth “significantly above the generally expected growth rate of the broader market”. Valuations must not be at extreme levels, and markets which appear to be in a bubble phase are excluded.There must be a diversified way of investing in these themes, through an externally managed collective fund - and Werthstein has strong bias towards ETFs - or via a group of securities, selected through a “clearly defined investment process".

“Live” investment themes in the equity space currently have appealing tags such as ‘Mandarin millennials’, ‘content is king’, ‘global robotics’ and ‘battery renaissance’. Emerging market bonds is the only currently-selected fixed income Zeitgeist.

“The choice of Zeitgeist needs to raise the portfolio’s growth potential without unduly increasing risk,” says Mr Keating. The firm is building its list of investment themes, which is expected to include 10 to 12 of them at any one time. Each Zeitgeist will typically have a "reasonably long life," of nine months to four years. “In our model, we want to be focused and choose a very limited number of investment themes for the future. We use limited resources and deploy them effectively.”