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«Now there are also digital wealth managers with a state guarantee»

Security: How We Protect Your Assets

Felix Niederer

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 company that has been offering wealth management services without a bank counter since 2014? Isn't it much safer with a bank? If you're asking yourself these questions, it's good to know how we manage your assets. And where exactly your money and securities are held. Namely, not with us at all - but with a custodian bank.

Your assets are held at a Swiss bank

In Switzerland, only banks (and securities firms) maintain 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. For this, you give us a power of attorney, because that is the core of our mandate. We are also allowed to debit our asset management fee from your custody account.

In addition: As a matter of principle, withdrawals are only made to an account in your name. This is how it was traditionally regulated for traditional asset managers - and it's no different today for a fintech startup like us.

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

When you open a new wealth management account, you decide for yourself which of the two should become your custodian bank. 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 will be held there in your name. Even in the unlikely event that we should cease to exist at some point, you can continue to dispose of your assets there. For example, by keeping your account in place. Or 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 relatively safe. Nevertheless, it's good to know what you can expect in the worst case scenario - if your bank goes bankrupt.

Your cash - what the lawyers call 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 safeguard their customers' assets in the event that one of them should go bankrupt. This is guaranteed by the Esisuisse association, but there is no security fund.

Some banks offer even more security. Cantonal banks, in particular, are often provided with a state guarantee by the canton. The amount of this guarantee is not limited. The canton of Basel-Landschaft is therefore responsible for the assets at our custodian bank BLKB.

True Wealth is FINMA-regulated

True Wealth AG is also licensed by FINMA to manage pension assets and is subject to direct supervision by FINMA. The authorization covers both the management of pension assets (such as Pillar 3a) and the management of discretionary assets. Unlike asset managers that exclusively manage untied assets, True Wealth is not only authorized by FINMA, but also supervised by it.

As required by law, the Pillar 3a assets are deposited with a pension foundation (in our case, Vorsorgestiftung 3a Digital). Since the custodian is Basellandschaftliche Kantonalbank, the state guarantee for the Pillar 3a funds also applies here in the event of bankruptcy of the bank. This is important because the third pillar has no depositor protection.

Cash is only a small part

Whether depositor protection or government guarantee, both methods serve to protect demand deposits (another word for cash). But the cash balance in your account is only a small part of your portfolio. That's because the still-low interest rates are insufficient. When we work on a good return for you, we rely on securities - more precisely, exchange-traded funds (ETFs) and, in pillar 3a, index funds as a supplement.

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 in safekeeping 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 stored in this box. 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 the safe deposit box and help themselves.

However, depending on the deposit 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 don't own, you first have to borrow the security.

If the short seller gets into trouble and cannot return the borrowed security, it is lost for the owner. So it's 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 the major providers such as UBS, iShares (BlackRock), Vanguard and SPDR (State Street). The size of the providers already provides some security. But the most important thing about ETFs is: 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 shares at which they are included in the index. These shares are not bought by the provider of the ETF, such as UBS. The ETF itself buys them, and they are owned by the ETF, not UBS.

Securities lending can also occur within funds. The income from lending helps keep fees down. We therefore use a mix of ETFs with and without securities lending.

For our clients' portfolios, we generally use ETFs that actually buy and hold the stocks or bonds. Such ETFs are called physically replicating, because they replicate the index from its constituents. 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's 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 government guarantees safeguard cash holdings. Special assets and an extensive avoidance of securities lending ensure security in securities. Direct supervision by FINMA provides additional investor protection.

There is no such thing as complete and absolute security: if you want returns, you have to take risks. We can help with diversification and rebalancing to mitigate fluctuations and achieve the highest possible return. We do this at fees that won't hurt your returns.

But even we can't 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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