Private banking in Switzerland

Switzerland has been providing banking services of the highest quality for over a century now. It is true that several new banking centers have appeared in the last few years such as Hong Kong and Singapore, for example, but around one third of the world’s money is still kept – and managed – in Switzerland. Thus, if you are looking to establish an offshore bank account, you should probably consider this jurisdiction before you turn your eyes to others. What makes Switzerland especially attractive for HNWI’s (High Net Worth Individuals) is the possibility to obtain top-quality private banking services in the country.

What is private banking?

Generally speaking, private banking is a set of special asset management services that a HNWI can make use of when opening an account with a Swiss bank. These services are individualized, which means that the bank manager assigned to you will find out about your personal investment preferences and special attitudes such as risk tolerance, for example. Besides, they allow managing the capital that you keep with the bank more efficiently. In essence, you can make investments that will bring higher profits following the advice of your relationship manager (see below). With private banking, you will have access to global investment opportunities thus diversifying your portfolio, enhancing your financial security, and enlarging your wealth.

As a matter of fact, Swiss banks have been forced to enlarge their range of services and improve their overall quality because there were times when they started losing clients. This happened due to the introduction of the new transparency requirements imposed on the banks by the world financial authorities. Luckily, the banks in Switzerland have been able to recover from the heavy blow and they are back in play now.

The return of Switzerland

The 9.11 attack on the Twin Towers in 2001 marked the beginning of a new era in many areas including the financial sector of the world economy. It became evident on that day that western countries’ residents are vulnerable to terrorists and thus new measures in combatting terrorism were required. More stringent security checks were introduced in public places such as airports, for instance, but the banking sector saw changes that were even more substantial.

The desire to protect the world against terrorist attacks has made the world financial authorities put much tougher requirements to the banks. The fight against terrorism financing has been the main reason for the introduction of the new regulations. Today, all banks have to be fully transparent in their activities. Such a thing as ‘banking privacy’ is no longer available anywhere in the world. Clearly, when banks are accountable for all the operations that they perform, there are fewer possibilities for financing illegal causes.

It should be noted that the fight against terrorism has been a convenient excuse for the largest world powers to tighten the screws on tax evaders along the way. Corrupt government officials and casino owners used to keep their money in numbered accounts with the banks located somewhere in the middle of the ocean without paying a penny in taxes. What national government would like that? With today’s level of banking operations transparency, this has become virtually impossible. Numbered accounts still exist but they are opened in the name of the account holder. The bank will readily give the name away to the police authorities on their request. Once again, banking privacy does not exist anymore.

At the same time, the confidentiality of the client’s financial information was one of the largest selling points for Swiss banks before. In the new reality, they can offer banking secrecy no longer. For this reason, the banks in Switzerland saw a few gloomy years some time ago. The good news, however, is that they have proved able to recover from this short-lived crisis by adapting to the new requirements, adjusting their techniques, keeping up with the global digitalization processes, and offering an extended range of services to the customers. Swiss banks now put commercials on TV that feature their real clients. It was unheard of only a few years ago but the matter is that banking privacy is not what the banks in Switzerland sell today.

Let us consider one example of the new attitudes and improved methods of operation that Swiss banks are adopting. It is particularly difficult for a citizen of the USA to open an account outside his or her home country. The US government taxes its citizens and legal residents on their worldwide income. This is why the IRS (Internal Revenue Service) wants to know about all the transactions that Americans perform wherever in the world these transactions are made. Uncle Sam wants his share of all the profits that his subjects make: you should have no doubt about that.

What does it entail for the banks? They have to record all the financial operations performed by their American clients and report them to the USA tax authorities. Some banks consider it too much of a burden (as it involves additional administrative work, that is, additional personnel, that is, the need to pay additional salaries) and thus they deny services to clients from the United States. Most banks in Singapore, for example, currently adhere to this policy.

Swiss banks, in their turn, have been able to overcome this problem. It would be too much of a loss for them not to accept money from the citizens of the richest nation in the world. So, they have learnt how to comply with the FATCA (Foreign Account Tax Compliance Act) regulations by appointing officers who work directly with the IRS and clarify all the requirements that it puts forward to foreign banks that hold American citizens’ money.

Yes, it takes more effort to service USA customers and it is probably more expensive to do that but Swiss banks are prepared to accommodate these costs. A large bank in Switzerland has recently established a subsidiary (that is, set up a new bank) that services American clients exclusively. Other banks set up separate divisions for that purpose. This entails hiring more personnel but unlike banks in some other countries, many Swiss banks do not refuse to work with citizens of the United States.

Thus, Switzerland has restored the share of the world capital that it holds after if fell a bit and now it is starting to further increase it. What makes Swiss banks attractive after the loss of banking secrecy? First, it is the long-lasting tradition of providing highly secure banking services. ‘A Swiss bank account’ is still a synonym to ‘a secure bank account’ even though it is no longer equivalent to ‘a bank account nobody knows about’. Second, it is the wide range of services that Swiss banks offer. Here we would like to talk about the private banking opportunities that some banks in Switzerland provide. HNWI should be especially interested in obtaining these services that are mainly delivered via a bank officer called ‘relationship manager’.

Who is a relationship manager?

A relationship manager is a bank officer who you trust to manage the money that you keep with the bank. Please rest assured that the level of trust can vary! You do not have to make your capital totally dependent on the investment decisions that your relationship manager makes.

There are basically two options that you can choose from when defining the principles of cooperation with the relationship manager. First, you can make a written agreement with the bank for discretionary management of your assets. This would mean that the investment decisions will be made by the bank, not by you.

Prior to signing the agreement, all your investment priorities have to be clearly defined, which in some cases may take time-consuming discussions with the bank officer. You will have to provide understandable guidelines for the relationship manager specifying the investment areas and types that he/ she is entitled or not entitled to utilize. Factors such as your preferred level of risk tolerance also have to be taken into account.

It is crucially important to put these details on paper. The bank is going to make investments on your behalf and theoretically, it can make a bad investment decision and part of your money can be lost. If the bank officer has violated your instructions when making the bad investment, you will be able to hold the bank accountable for the losses incurred thus losing much less of your personal assets or nothing at all.

On average, Swiss banks charge 0.8% of the amount of capital that is managed under a discretionary asset management agreement as an annual fee. This figure may not look very high but if you take the huge amounts of the assets managed under such agreements, you will see that the bank makes a pretty penny from the annual fees.

The second option is signing an advisory asset management agreement with the bank. In this case, you will use the investment advice that your relationship manager can offer but the ultimate decision to make the investment will rest with you. You do not have to make an asset management agreement with the bank if you are a professional investor yourself. That is to say, applying for relationship management services is not obligatory when you set up an account with a Swiss bank.

What makes a good relationship manager?

Unfortunately, it is not the case that each and every Swiss bank employee is a highly qualified specialist. The matter is that the bank may employ a person not because he or she is well trained in providing banking services but because he/ she speaks a foreign language that is exotic in Switzerland such as Arab or Russian, for example. Swiss banks do need both Arab- and Russian-speaking personnel as the number of their clients from both of these parts of the world is growing. However, the people that they hire to talk to foreign clients can be former secondary school teachers or street vendors.

This may appear highly unprofessional but put yourself in the bank’s shoes: there comes a wealthy Arab or Russian client knocking on the door intending to deposit a few million francs and there is nobody he or she can talk to in the bank! So, the bank has to choose between two evils, actually, and it chooses the lesser one hoping that no misunderstanding with the client will arise in the future.

Let us try to portray the image of an ideal relationship manager. First of all, he or she has to be a highly experienced banker and investor. When selecting the relationship manager (which HNWI’s are entitled to do when applying for services to Swiss banks), you have to make sure that he or she has at least five years of professional consultancy experience. If you read the prospective relationship manager’s résumé and see that this person joined the bank only recently, it should put you on the alert. Similarly, if you find that the candidate was engaged in some other types of banking services before he or she turned to relationship management a short while ago, be cautious. A former Compliance Department clerk may not be knowledgeable enough when it comes to investment advice even though he/ she will have spent many years with the bank – working in a totally different area.

Second, your relationship manager should have a large team of experts in various business areas who cooperate with him/ her. Besides, these experts had better reside in various parts of the world. There are potentially thousands of viable investment options in different business spheres and different geographical locations and a single person cannot possibly have sufficient information about all of them. Thus, a perfect relationship manager should be a good networker, apart from other things.

Third, your relationship manager has to hold a high position with the bank. If his/ her word matters for the Board of Directors, he/ she will be in a good position to better promote your interests and strike the best deals with the top managers of the bank for you. If you have a special request to the bank on a certain occasion, you may need a kind of ‘lobby’ in the bank to push it forward for you. A high-ranked bank officer stands a better chance to act as the promoter of such a request than a middle-ranked manager does.

Fourth, your relationship manager must necessarily be your primary point of contact with the bank. Whatever question pertaining to your cooperation with the bank you may have, the relationship manager should be able to answer it on his/ her own or with the colleagues’ assistance. In the best scenario, you should have your relationship manager personal phone number and be able to reach him or her even when he/ she is taking a vacation on a tropical island. This is not always possible to establish such friendly relationships with the relationship manager but it happens at times that personal friendship occurs between the client and the banker after a few years of cooperation.

What are the benefits that relationship management offers?

If you obtain relationship management services from a Swiss bank, you will be able to make use of a number of weighty benefits. First of all, you will always be treated as a priority customer at the bank. You will never have to stand in line or wait for the teller to cash the check, for example. Your relationship manager is going to be there for you to fulfill your requests and answer all your questions. You will be seated in a nice armchair in a cozy office when you come to the bank and offered a cup of tea or coffee. Vanity? Maybe, but it is nice to be treated nicely.

There are much more practical advantages of acquiring relationship management services, however. In particular, they will give you access to the so-called ‘club deals’. A club deal is an exclusive investment opportunity that is not available to regular bank clients.

Such opportunities are not publicly advertised and you do not have a chance to learn about them unless you are a priority client of a reputable Swiss bank. Your relationship manager may make a lucrative offer to you to invest into shares of a private company or an IPO. In other cases, he or she may invite you to take part in a joint investment project that promises to generate a large profit.

There is a worldwide network of Swiss banks and this allows them to exchange information discreetly and make most promising investment offers when they arise in this or that part of the world. These opportunities are kept available only to the chosen ones, that is, Swiss banks’ priority customers. When you sign the relationship management agreement, you will be asked to also sign a non-disclosure agreement that will disallow your sharing the information about the exclusive investment offers with the rest of the world. They do take this issue seriously in Switzerland.

We must emphasize the possibility to make joint investments when you become one of the priority clients of the bank. You may be offered to join a group of investors putting money in a large development project, in a hedge fund, in marina construction, and so on. Often, all of these investors will have accounts with the same bank. Thus, if this joint investment proves unwise, several clients of this bank will lose money. This is certainly the last thing that the bank managers want to happen so they are going to be extremely diligent in ascertaining that the investment project in question is highly secure.

Investment into a hedge fund may be one more interesting option to consider especially if it is a joint investment. What makes hedge funds an attractive asset diversification instrument, is that they can be used to invest into various kinds of commodities beginning with private equities and ending with art collections. The performance of hedge funds is not directly correlated to the performance of the stock markets, so this sort of investment may compensate for the fluctuations in the security markets in some instances.

In addition to that, your relationship manager may suggest some venture capital investments to you. If there is a promising start-up in the IT sphere, for example, or in biotechnologies, and if its goal is ultimately making an IPO, financing this business at the early stage of its operations can potentially bring substantial profits when the company goes public.

Besides, your relationship manager’s advice can support the so-called ‘passion investment’ if you would like to make one. Some wealthy people develop a passion for a certain type of objects such as postal stamps, coins, vineyards where grapes of exceptional quality grow, luxury hotels, football clubs, and so on. Normally, those making passion investments know the corresponding market very well exactly because the objects traded in this market have been their passion for a long time. However, membership in the elite club of premium clients of a Swiss bank can give you access to a wider portion of this market thus enlarging your opportunities to make passion investments.

Here we would like to note that passion investment is not to be confused with emotional investment. The latter is an investment made under the influence of momentary emotions and without thinking, actually. Your relationship manager will be there to hold you from making an emotional investment as there is a good chance that it will bring about losses rather than gains.

Thus, if you would like to grow your wealth via investments but without taking high risks and feeling nervous, opening an account with a Swiss bank should be your choice. Offshore Pro Group has been in close cooperation with a number of banks in Switzerland and we will be happy to assist you in establishing an account with the bank that offers the conditions most attractive personally for you. Please write to us to [email protected] and ask any questions related to setting up a Swiss bank account without hesitation. You are also welcome to contact us via Whatsapp or use the live chat. Our consultants are at your service.