In the notoriously difficult German wealth management industry, Julius Baer is plodding on one step at a time – and booking profits, market head Heiko Schlag tells finews.com. 

Wealthy Germans were lucrative business for Swiss private banks for years until crackdowns on banking secrecy. Switzerland hasn't been as successful in exporting its wealth management industry onshore.

Most Swiss banks struggle to nurture their German offices into profitability: A host of them including Credit Suisse or J. Safra Sarasin have pulled out. Meanwhile, UBS' churn of personnel in Frankfurt illustrates the difficulty of onshore offices.

Profit Climb, Assets Surge

Julius Baer is bucking the trend: Switzerland's largest wealth management-focused bank celebrated the opening of its Berlin branch at a reception at the Swiss embassy just before Europe headed into lock-down. It is the Swiss bank's tenth in Germany under the leadership of market head Heiko Schlag.

The Swiss bank has reason to celebrate: it posted a pre-tax profit in Germany of 4 million euros last year, Schlag told finews.com recently. The modest bottom line was bolstered by a 20 percent climb in revenue, as well as a one-quarter surge in assets – not only due to favorable market performance.

Julius Baer's assets in Germany are now solidly double-digit billion euros. Schlag said the bank won 700 clients last year, which is roughly the average since he joined in 2011.

Unflinching Client Focus

finews.com has spoken to Schlag several times since then, during which the wealth veteran emphasized terms like culture, humanity, and empathy – both in respect to clients as well as to Julius Baer's roughly 200 employees in Germany.

According to Schlag, Julius Baer's hard-fought success in Germany is due to an uncompromising focus on client needs and desires. These are effectively the same principles touted by Swiss private bankers, but which frequently fall short in reality: few wealth managers have adapted their business models to center entirely on clients.

Carving a Niche

It appears that Julius Baer has used the approach to carve out a niche in Germany. While managing assets has become a «commodity» service, advice has become more precious – and expensive to provide due to MiFID II rules.

«Through our focus on advice, we've become a niche provider in Germany,» Schlag told finews.com. «But within that niche, we have depth,» he notes, referring mainly to quality, which at Julius Baer has its price: Schlag and his team managed to buck the trend of crumbling margins (even lifting them).

Hefty Investments

Julius Baer's investment in order to offer MiFID-compliant advice was considerable. Schlag recorded the German unit's first profit in 2015, but the continuous investment as well as other effects weighed on results in the following years.

Last year saw the bank finally break free of the major investments – and now Schlag wants to devote more time to growth as well as lowering Julius Baer's cost-income ratio in Germany. «Our clear goal is to improve the profitability we have been generating since 2015,» he said.

«Germany plays a key role in Julius Baer's strategy, and we want to contribute a substantial share,» Schlag said. The pledge corresponds to CEOPhilipp Rickenbacher promise to focus more strongly on profitability, and no longer as single-mindedly on winning new money. 

Word of Mouth

The pandemic notwithstanding, Schlag plans to hire at least 20 private bankers this year. Julius Baer's assets in Germany shrunk due to markets tumbling, but he signals that fresh money from new and existing clients at least partly offset the drop.

Schlag's recipe of consistently focusing on client needs and contact is emerging as a ever-more important in tumultuous times. «We're dependent on satisfied clients – they recommend us on,» he notes. «In a highly-regulated market like Germany, this is so important.»