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«There Are Now Also Robo-Advisors With A State Guarantee.»

Security: How We Protect Your Assets

Felix Niederer27.05.2019

With True Wealth, you can rely on innovative asset management by a start-up. And at the same time on the security of Swiss banks.

Can I really invest my money with a start-up? Isn't it much safer with a bank? In case you are wondering, it is good to know how we manage your assets. And where exactly your money and securities are being kept. This is namely not with us – but with a custodian bank.

Your Assets are held at a Swiss Bank

In Switzerland, only banks (and securities brokers) keep accounts for cash and securities deposits. When you entrust your assets to us for management, your money is not with us – we open an account for you and your assets with a bank. Such a bank is called a custodian bank.

We have access to your account at the custodian bank. But only to a limited extent. We can buy and sell securities on your account. You give us a power of attorney for this, because that is the core of our mandate. In addition, we are allowed to debit your custody account with our asset management fee.

Furthermore, only you can initiate withdrawals. This is how it has commonly been regulated for traditional asset managers – and it is no different today for a fintech start-up like us.

To make things easy for themselves, most digital asset managers work with a single custodian bank. At True Wealth, you even have the choice between two different banks. We work with Basellandschaftliche Kantonalbank (BLKB) and Saxo Bank (Switzerland) AG.

When you open a new asset management account, you decide yourself which of the two should become your custodian bank. You can also change this decision later. In any case, when you open your account, we will open an account for you with the custodian bank in your name.

Your money and securities are held there in your name. Even in the unlikely event that we should cease to exist at some point, you still have access to your assets there. For example, by continuing to manage your account on the spot. Or you can withdraw the cash and sell the securities or transfer them to another account.

The question remains: How safe are your assets with our custodian banks?

Depositor Protection or State Guarantee

By international standards, Swiss banks are considered to be safer than average. Nevertheless, it is good to know what you can expect in the worst case – if your bank goes bankrupt.

Your cash – lawyers call it sight deposits – is protected at Swiss banks. This is ensured by depositor protection. It applies to all accounts at Swiss banks. Deposits are protected in this way up to an amount of 100,000 Swiss francs.

To this end, the banks have undertaken to jointly protect their clients' assets in the event that one of them should go bankrupt. This is guaranteed by the Esisuisse association. However, there is no security fund.

Some banks offer even more security. Cantonal banks in particular often have a state guarantee from the canton. The amount is not limited. The canton of Basle-Country is therefore responsible for the credit balances at our custodian bank BLKB.

Cash is only a Small Part

Whether depositor protection or state guarantee: Both methods serve to protect sight deposits (another word for cash). However, the cash balance in your account is only a small part of your portfolio. This is because you get almost no interest on sight deposits in the current environment. When we work on a good return for you, we rely on securities – or more precisely, Exchange Traded Funds (ETF).

Securities are not Deposits

Funds are not deposits at the bank. They never appear on the bank's balance sheet. The bank only holds the fund units for you. Even though this is done digitally today, you can think of it in simplified terms as if you had your own safe deposit box at the bank. Your shares are in this personal vault. If the bank goes bankrupt, the contents of the safe deposit box still belong to you. No creditor of the bank is allowed to enter this personal vault and help themselves.

However, depending on the custody agreement, a bank may lend shares from your safe deposit box. This is called securities lending. This is common practice, especially at investment banks. It is mainly used for betting on falling prices, so-called short selling. If you want to sell a share or an ETF that you do not own, you first have to borrow the security.

If the short seller gets into difficulties and cannot return the borrowed security, it is lost for the owner. It is therefore good to know that we have excluded securities lending at both BLKB and Saxo Bank (Switzerland). Securities lending does not take place here. Your shares in the ETF remain your shares and are not lent out.

ETFs are Special Assets

There is still the question of the provider of the ETF. In our clients' portfolios, we rely on funds from major providers such as UBS, Ishares (BlackRock), Vanguard and SPDR (State Street). The size of the providers already ensures a certain security. But the most important thing about ETFs is that they are special assets.

For example, an ETF on the Swiss index SMI buys shares of all twenty companies included in the index. In the portions at which they are included in the index. These shares are not bought by the provider of the ETF, for example UBS. The ETF itself buys them, and they are owned by the ETF, not by UBS.

Securities lending can also take place within funds. The income from lending helps to keep the fees low. We therefore use a mix of ETFs with and without securities lending.

We generally use ETFs for our clients' portfolios that actually buy and hold the shares or bonds. Such ETFs are called physically replicating, because they replicate the index from its components. Only in the case of commodities do we currently make an exception (otherwise the ETF would have to rent oil tankers and wheat silos): Here we use an ETF that replicates synthetically. It replicates the performance of commodities via derivatives and holds the majority of the fund assets as collateral in money market investments.

Protection is only One Side of the Coin

We do everything we can to ensure that your assets are protected in the best possible way. Depositor protection or state guarantee secure cash holdings. Special assets and an extensive renunciation of securities lending ensure safety in securities.

There is no such thing as complete and absolute security: If you want returns, you have to take risks. With diversification and rebalancing, we can help to mitigate fluctuations and achieve the highest possible return. We do this with fees that do not detract from your returns.

But even we cannot change the fact that the market fluctuates.

Disclaimer: We have taken great care with the content of this article. Nevertheless, we cannot exclude the possibility of errors. The validity of the content is limited to the time of publication.

About the author

Felix Niederer

Founder and CEO of True Wealth. After graduating from the Swiss Federal Institute of Technology (ETH) as a physicist, Felix first spent several years in Swiss industry and then four years with a major reinsurance company in portfolio management and risk modeling.


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