Article written by Jean Bonnefoy – Partner – Périclès Group Suisse
Private banking in Switzerland has long enjoyed envied success, but is now faced with challenges in a difficult context.
The automatic exchange of information implemented as of 2017 de facto leads in the end of banking secrecy for the vast majority of foreign residents and therefore the end of a major competitive advantage for financial institutions vis-à-vis international competition.
Other factors contribute to teh difficulties, such as the SNB’s negative interest rate policy (reducing the return on equity), the strength of the Swiss franc decreasing foreign currency earnings, ever increasing costs of compliance and risk monitoring, the limited access to customer markets such as the European Union, and the loss of assets following tax regularization of non-resident customers.
Swiss Private Banking, however, has undeniable strengths linked to the country’s political stability, know-how in wealth management, investment capabilities in a large number of asset classes, a true culture of confidentiality and service, and a significant market share (25% of cross-borders assets in the world are managed in Switzerland).
Frontiers are shifting and some of the actors in asset management (banks, securities dealers and indépendant asset managers) have to question their strategy, and in particular: what markets are served? How to improve customer relations? How to manage change?
- Above all, they need to concentrate on customer markets they master perfectly well. It is a question of economic efficiency but also of managing risk. The process has started (asset deals, closure of relationships).
An important aspect (at least for developed markets) is the tax rules for each customer, depending on its fiscal residence, which is already taken into account to produce tax declarations but not yet fully integrated in the asset management process.
- Moreover up most importance should be paid to customer relations, with a better understanding of the “customer experience”. This dimension has long been neglected, the acquisition and retention of clients being facilitated by banking secrecy. This must now be a priority, even though the complexity of the services rendered and the international nature of the clientele requires intense work.
The objectives are to define the offer by client segment, set up coherent communication channels and appropriate distribution channels, and overall improve the relevance of the clients information. Digitization of processes allows to rethink the partnership between the client, the asset manager and the associated expert partners (i.e. layers, M&A advisors, tax advisors, family offices).
Many Fintech companies offer innovative functional bricks in this area which must nevertheless be integrated into an orderly and coherent picture.
- So that this client-centric setup does not remain incantatory, the internal culture has to adapt and, in particular, its relation to Change. Again, banking secrecy and its comfortable margins have not helped to develop robust forces in this area in the past and it is clear that mastering Change is a recurring weakness. Change should mobilize the best resources and the top of organizations because defining and especially implementing new business models are fundamental.
All these elements are key and their implementation by the Swiss players, combined with the financial center’s strenght, will defend Switzerland’s position as a leader in international private banking.