American financial services provider Vanguard adapted to local conditions since moving to Switzerland. Now the time is ripe to develop the financial industry a bit on its own, says country head Roger Bootz in an interview with finews.com.
Mr. Bootz, Vanguard has now been in Switzerland for 15 years. Are there any special anniversary activities to mark the occasion?
We can celebrate three times over. Because in addition to our 15-year presence in Switzerland, Vanguard ETFs have been traded on the Swiss stock exchange for 10 years. We have also been active in the European market for 25 years, with the main office in London and other locations such as Zurich, where we now have 11 people.
Why wasn't Switzerland the first location on Vanguard's map of Europe?
That has to do with the conditions in the local financial center. Of course, we have been talking to clients in Switzerland for more than 15 years. We tended to focus on indexed mandates for pension funds and other institutional investors. Since 2019, however, we also want to be as close as possible to the end client in Switzerland, for which our presence in Zurich is very helpful.
However, the Swiss financial center is very bank-heavy.
That is true. Because of this market structure, we also cultivate the classic wholesale business. We want to reach end customers primarily through banks, insurance companies, and asset managers.
What proportion of the Swiss market is still accounted for by institutional business?
Institutional customers still account for about 20 percent. The remaining 80 percent belongs to the wholesale business, which could increase further in Switzerland in the future.
So the clientele has changed significantly in the 15 years with a Swiss presence. Did Vanguard misjudge the Swiss market?
It was originally decided to get a foothold in the Swiss market through its institutional business. But Vanguard is geared more toward a retail clientele, both in the US home market and in Europe. These proportions are now reflected in Switzerland as well.
How is the Swiss office integrated into the Vanguard network?
We have divided Europe into the regions of Southern Europe, Northern Europe, and the United Kingdom. Switzerland belongs to the South with Spain and Italy.
«We are building on a heritage that has stood the test of time»
We have good connections with London, but also to the US, because we obtain various services from there and are always in close exchange.
What developments will the Swiss office be dealing with in the near future?
Above all, we want to make Vanguard's investment approach more widely known, which is based on four pillars: realistic goals, balanced investments, cost control, and a long-term investment horizon.
These are all plausible and sensible principles, but they are not unique to Vanguard. What's innovative about them?
John C. Bogle formulated these principles almost 50 years ago when he founded Vanguard. At the time, these rules of conduct were quite new. Today, we are building on this heritage, which has stood the test of time.
In this tradition, we aim to cover investment markets as broadly and cost-effectively as possible. I have the impression that there is still a gap in this respect in Switzerland.
Why is it that the investment principles propagated by Vanguard are not so well established in Switzerland?
Banks make their money in the investment business with an execution-only business, fees from investment proposals (advisory), or discretionary mandate business. The Vanguard approach does not play out equally in all three business models.
How can Vanguard develop even better in these market structures in Switzerland?
There is no doubt that we can still make gains in index-oriented investments. For one thing, the ETF industry has grown 14.4 percent annually in Europe over the past decade.
«There's still a lot of room for improvement»
For another, Vanguard's ETF market share of assets under management is about 6 percent in Europe, compared with 22 percent in the United States. There's still a lot of room to go.
Will this momentum continue?
Without a doubt. Global ETF growth has been 16.9 percent over the past decade. Since the beginning of the year, about $200 billion has been added to the $9.74 trillion in global ETF assets.
Vanguard is benefiting greatly from the trend toward index-based investing because about 80 percent of assets under management at Vanguard are invested in index products, with the remaining 20 percent in active products.
Given the turbulent stock market environment, it would be expected that active managers, who want to avoid market risks, would be more popular.
The more efficient the investment markets are, the fewer opportunities there are for active managers. In this respect, the investment style always depends on the state of the markets. So there is no simple answer.
The last few months have shaken the Swiss financial center. How much has its reputation suffered as a result?
From an international Vanguard perspective, nothing has changed. Switzerland remains a core market in Europe.
«Client funds are being transferred from one institution to another in Switzerland»
As a player with its own office in Switzerland, the demise of Credit Suisse must nevertheless lead to many discussions.
We see that client money is being transferred from one institution to another in Switzerland. As a result, in our day-to-day business, the demand from banks, asset managers, and independent asset managers for index investments is increasing.
How plausible is it that international players would want to fill the gap if Credit Suisse were to disappear from the Swiss financial center or be severely downsized?
I can't speculate on that, especially since a lot is still up in the air. What is certain is that as an asset manager, we will adapt to the new situation and also market our product range to any new competitors in the banking center. It is also not yet clear whether there will be any regulatory changes in asset management in Switzerland.
After eight years in Germany, you returned to Switzerland at the beginning of January 2023. What was the deciding factor for this return?
After being offered the management of Vanguard in Switzerland following a long period in Germany, I returned to my Swiss homeland with one eye laughing and one eye crying.
How do you perceive the Swiss financial center now?
I have the impression that the Swiss financial center has not changed noticeably in recent years. In certain areas, however, Germany is clearly ahead of Switzerland.
Where exactly?
The range of execution-only services, which can be traded without bank advice at discount brokers, is much larger.
«I miss simple, inexpensive, and regular savings vehicles»
Currently, independently decisive investors in Germany have invested around 93 billion euros in ETF savings plans. I miss such simple, low-cost, and regular savings vehicles in Switzerland.
How could this change in Switzerland?
After all, Switzerland is not a desert; according to McKinsey, around 30 percent of invested assets in Switzerland are invested passively. But for ETF savings plans to become more widespread, retail customers need to be much more directly involved.
And where is Vanguard itself active in Switzerland?
As a product supplier, we are in talks with various banks so that ETF savings plans are also on their tables. We also want to get our catchy investment principles across to people even better.
Give us an example.
It's easy to understand, for example, the advice of Vanguard founder Bogle not to look for the proverbial needle in the haystack when it comes to financial investments, but to buy the whole haystack.
In other words, it's about simple but «boring» investing.
You can call it that if you add the adjective cost-effective. We focus on creating the right building blocks for successful investing.
Do you also add new building blocks?
We deliberately avoid investments in cryptocurrencies, for example. By contrast, we now also cover ESG investments.
«Investors cannot clearly define the rules of sustainability»
In doing so, we use the exclusion principle to form the broadest possible funds or ETFs that can be used as core building blocks for the client's portfolio.
So Vanguard refrains from actively influencing companies when it comes to sustainability?
Investors are not suited to clearly define the rules of sustainability. That's a job for the regulator. But we proclaim that companies disclose their ESG risks themselves.
As one of the largest passive investors through ESG investments, doesn't Vanguard also have to ask itself how it exercises voting rights as a shareholder in companies?
We demand accountability from companies on whether they are preparing for potential disruptions in their business model. What we want is confident business leaders, because disruptions are coming to every company, at some point.
Roger Bootz is head of business development for Switzerland and Liechtenstein and the country head for Switzerland at Vanguard. Before joining the US financial institution, he held various positions at DWS for eight years, most recently as Head of Sales Advisory EMEA ex-Germany. Before that, he held senior positions at UBS, Société Générale and Stoxx.
