Independence means the freedom to set your own objectives, forge your own strategy and build your own team to realise your dreams.

This is according to Egon Vorfeld, managing partner at Forum Finance Group (FFG), a Geneva-based adviser.

‘When you are an independent asset manager, you are the general, you decide upon the strategy, the battle and get on with it,’ the Dutch manager says.

Founded in 1994 by Hervé Chanut and Denys Chamay, the FFG has endured as the industry has evolved over the past 22 years.

The key to survival in the current environment is being ready to adapt, but in order to thrive, you must also be ahead of the curve, Vorfeld says.

This proactive stance has defined FFG’s response to challenges from regulatory hurdles to size constraints and the succession issue.

American know-how

Now managing over CHF1 billion in assets under management, the firm’s latest breakthrough is its registration as an investment adviser with the Securities and Exchange Commission (SEC), part of its ongoing plans to expand its offering to US clients.

Although the firm’s client base is mostly from north-west Europe, Switzerland and Latin America, it also has business in the Middle East, Asia and the US.

The SEC registration comes at a time when many asset managers across Switzerland are turning American clients away as a result of high regulatory demands. FFG made the decision to up its regulatory oversight as it saw an increasing number of its clients spending time in the US and being considered US residents.

‘I think a lot of banks had a knee-jerk reaction to the enormous fines, some of which have come through after the whole banking secrecy episode, and it became clear that there had been undeclared money held in Switzerland.’

Vorfeld sees opportunities to attract new clients as there are many US clients who have been turned away but still want to keep their money in Switzerland.

‘A lot of people think that doing business with Americans is a much higher risk and that if you make a mistake, the consequences are a lot more severe,’ he says.

On the process of becoming SEC regulated, he says: ‘What they expect you to put in place is actually a good thing. It’s just that you can’t do it unless you have a certain critical mass.’

This application was made shortly after FFG received Finma approval, which made the process smoother, Vorfeld says.

The procedure took the Geneva boutique two weeks to finalise, as it was focused on transparency, requiring complete information on the number of clients, assets under management and the identity of shareholders.

Although the application itself was cheaper than Finma’s, maintaining and complying with the processes is likely to prove more difficult, he says.

The decision to apply came as part of an initiative to stay ahead of the curve against a backdrop of increasing regulation, he explains: ‘The regulatory pressures are just going to increase, the rules are going to change, and expectations are going to go up.’

Flying solo

It was in 2000 that Vorfeld first decided to go independent. Leaving the City of London, he headed for Geneva where he started up his own private client wealth management business, Independent Wealth Management (IWM).

Geneva was the destination of choice as Vorfeld says he grew an affinity with Switzerland during his schooling in Villard, at Aiglon College.

‘Switzerland is one of the few places in the world where they have historically always looked after people from all over the world and always taken a global view on how to invest the money.

‘I felt that if you are going to start a private client wealth management business, you should do it where they are best at it and where they have been doing it for the longest.’

One of the company’s founding principles was that it would first limit its total clients to 30. Second, it would operate not on a stock-picking level but would invest on a ‘best of breed’ basis.

In order to invest globally, it is crucial to select the best managers who specialises in particular sectors or regions, Vorfeld says.

‘Very few people were going for a “best of breed” fund selection as I did. Most were still solely picking stocks. I also chose to be 100% independent and transparent by returning all rebates back to clients – something very uncommon in those days.’

This avant-garde approach to investment selection is still visible in FFG’s allocation of assets.

Early on, IWM benefited from a turbo boost as over half of the firm’s assets were invested in hedge funds that outperformed during the correction in 2001 and 2002.

‘That really made me look very good and allowed me to quickly expand my business. The crisis turned out to be a blessing in disguise.

‘It gave me a very good track record relative to most of my peers, and I could explain that it wasn’t just a choice of going to good fund managers who I’d done a lot of due diligence on; it was also because I was not encouraged to do anything different, I was totally independent in my choice.’

These hedge funds were up 10-20% in a market that was down 30-40%, he adds.

Although this strong track record put Vorfeld in a strong position, it soon became clear that a certain level of assets would be required for the company to go to the next level and attract larger clients.

‘In 2007-08 – given the anticipated regulatory changes – I came to the conclusion that I really needed to have a much larger critical mass for my business to be viable long term.’

It was with this in mind that IWM merged with FFG in 2009.

Stronger together

Upon arrival in Geneva, Vorfeld completed his piloting licence, and he says the qualities needed for a pilot are not dissimilar to those required to run an asset management business: both call for intense precision and commitment to decisions.

‘You cannot be complacent. You have to recognise and take the dangers seriously. You cannot be careless and you need to be well prepared and attentive. I think all of those qualities gel very well with somebody who’s going to look after private clients’ wealth,’ he says.

Ever watchful for storm clouds on the horizon, Vorfeld was quick to act on hazards to the industry, including the end of the age of Swiss banking secrecy as a result of increased regulation.

Although gaining in size was crucial, Vorfeld says another part of the attraction of merging his company was running a business with a couple of partners and working on something together.

During that period, FFG was going through a transition of its own, as founding partner Denys Chamay was retiring. The firm was looking for new blood to join the partnership to become three again.

The global financial crisis served as a wind tunnel to test the two firms, and a joint decision was made to postpone the merger until after the crisis so that any damage could be assessed.

Executed in 2009, the merger took only a month to complete and the firm’s assets under management have since tripled as the company has gone from seven employees to nearly 20 today.

Unlike a simple cost-sharing platform, Vorfeld stresses that what was undertaken was a true partnership.

‘What was clear was that the three of us had very similar principles as to how to treat clients, how to invest and how to work together as real partners.’

Two partners have since joined the firm’s management team, including Hippolyte de Weck, who joined in 2011 after 17 years at UBS where he was responsible for the UHNW Belgian families.

In 2013, Philippe Kern joined from Pictet, where he spent 34 years having specialised in Latin America. A long stretch at a single company is an attractive quality to the firm, and one that both de Weck and Kern displayed.

Fighting for freedom

Operating with independence is like flying in clean air, Vorfeld says, adding that investing exclusively in third-party products and not having in-house products is an incredible advantage.

‘Being totally independent means your client has the choice of custodian bank, they can effectively separate their service providers according to their skills and services, and they don’t have a manager under pressure to sell them various products or services.’

Having a ‘light’ structure also allows a business to adapt faster to the changing climate, he says. This is very unlike the way banks operate, as they are moving towards standardisation as the industry is becoming more regimented.

‘Banks often limit their relationship managers to specific geographical regions, and they will limit their ability to invest that portfolio – often giving that responsibility to a portfolio manager.’

By contrast, independent advisory is more like flying solo and requires each manager to have skills across a range of areas. Vorfeld explains that you must be able to manage client relationships, portfolios and a business.

‘You’ve got some great asset managers, you have great client managers, but to be both and to manage all of that correctly, to allocate an appropriate amount of time to the different parts, is not easy.

‘I believe a lot of bankers would like to become IAMs, but many don’t have the entrepreneurial streak in them or are not quite brave enough to take the risk. It is a very big step.’

Once the fear of flight is overcome, the potential for personal satisfaction is huge, he says. ‘The best part is that you focus solely and entirely on what it is you really want to do and that is find a client, provide them with a great service, make sure they’re happy and do it in the way that you believe is best.’

This freedom has always been a part of Vorfeld’s flight plan. ‘Even when I started in the City, I knew that one day, that’s what I wanted to do.’

Selecting winning managers

FFG only invests in managers after site visits and avoids managers who have shown style drift or have a liquidity mismatch between their fund and the underlying assets.

Vorfeld is always pleased to see a manager investing a significant amount of their own money in a fund. This fits with the company’s preference for a long-term, fundamental value approach to investing rather than high-turnover trading.

Like many investors, FFG has very little in investment grade bonds, and virtually nothing in government bonds.

Vorfeld explains that it has become challenging to find the right/risk reward ratio in the fixed income space in the current environment. With little confidence in economic growth, Vorfeld doesn’t expect rates to rise in the near future, though when rates do rise the US will inevitably be the trigger.

‘When they do, you are likely to see some dramatic problems in the fixed income space.’

In fact, fixed income exposure has already drifted from being a safety net to being a liability in a client’s portfolio, Vorfeld says.

This has led the firm to switch into convertible bonds, secured loans and high-yield debt. FFG is also looking into sovereign emerging market debt, particularly from nations with strong balance sheets.

In terms of equities, blue chip stocks that have global businesses, strong management and a solid balance sheet are a good bet compared with government bonds, where investors are guaranteed not to make any money but could potentially lose a lot, he says.

Even so, indices show equities are fully valued. ‘From these elevated levels one could easily imagine a significant correction in the equity markets if there is a scare in some political event, a large profit warning in a sector, a big shift in commodity prices or concerns about systemic risk.’

Future projects

New projects are always on the horizon at FFG as the leadership constantly size up the competition.

With a view to expanding the firm’s reach, Vorfeld reveals its plans to open representative offices in both Europe and Latin America. Chile and Columbia are attractive options, Vorfeld says, and he expects a Latin American office to open within the next six months.

Meanwhile, Britain’s vote in favour of Brexit derailed plans to open a London office as their EU headquarters. The firm is now considering Brussels or Luxembourg instead.

This lateral expansion is part of plans to grow assets under management to CHF3 billion and expand the Geneva team from the existing 18 to more than 25 in the next three years.

Having dealt with the succession issue in the past, Vorfeld explains the firm already has a strong bench for when the next partner retires.

Even so, the partners are always looking for young blood, he says: ‘We believe we are now the go-to place for private bankers who want to become independent and be part of a true partnership.’

From its best-of-breed investment strategy to a progressive approach to retrocessions and an early acceptance of changing regulations, FFG is geared for the future.

‘I’ve adapted, it became clear that I needed to grow, have the critical mass to be able to invest in the business, get properly regulated (Finma and SEC) and have real partners to team up with to enjoy the gain and share the pain.’

Innovation seems to be the ideal fuel for success in the independent advisory industry, and FFG has plenty of it in the tank.


This article originally appeared in the December 2016 edition of Citywire Switzerland magazine.