Changing tax rules force private bankers East

Offshore funds are no longer sitting tight in Swiss bank coffers Keystone

In the rapidly changing world of Swiss wealth management, many private banks are shifting their attention to the more rewarding Asian markets to avoid becoming glorified tax advisors at home.

Having spent decades sheltering the undeclared assets of foreigners, the bubble has now burst – at least for European Union and United States clients who now face scrutiny from their tax authorities. But wealthy Asians have less to fear from the anti-tax evasion crusade.

Private bankers in the Swiss market are frantically backpedalling as their protective blanket of banking secrecy unwraps before their eyes. Sorting out this mess is transforming many banks into quasi tax advisors – or tax “optimisers”.

“The bankers, particularly in Geneva, are not happy with their new tax advisory role,” Christoph Lechner of the Institute of Management at the University of St Gallen told swissinfo.ch. “But there are few alternatives, especially in Europe.”

On the other hand, tax accountants working with the private banks are very happy with the situation, he added.

New locations

Mario Bassi, managing director of financial consultants Solution Providers, was more diplomatic. Based in Singapore since 2001 and vice-president of the local Swiss business association, Bassi believes private bankers should adapt their services to the needs of their clients – even as a tax consultant.

“A good private banker should adopt the role of a general advisor,” he told swissinfo.ch. Franco Rossi, a consultant for the private banking industry, told swissinfo.ch: “Private bankers themselves will not act as tax advisors, but their banks will beef up their tax optimisation services.”

Private banks are also mirroring the trend of Swiss industrial companies that have been shifting production to other parts of the world – from Bratislava to Beijing. Banks are building up offices in Asia and South America to escape the crippling costs of new regulations and stagnating business in Europe.

They are also chasing the flow of new global wealth that is being generated at a faster rate in emerging economies than anywhere else in the world.

Asia is not only creating more new millionaires than anywhere else, the region is also attracting offshore wealth. Asia will be home to around half of all global assets in the next decade, Bassi estimates.

Wealth of opportunity

Swiss-style wealth management is all the rage in Asia at present, as evidenced by the Bank of China recently entrusting its entire asset management business outside of China to Swiss bank Julius Bär.

Asia accounts for around 60 per cent of the world’s population and a quarter of the 1,000 or so global billionaires. China is the third-largest country by volume of assets, bettered only by the US and Japan.

“Around a third of total global assets are already located in Asia, and, unlike Europe, the growth continues,” said Bassi.

The flood of assets heading to Asian financial centres has raised renewed questions about tax evasion. If clients go direct to a Swiss private banking branch in Singapore or Hong Kong, those assets are not logged in Switzerland.

New tax haven?

Germany is one of the countries particularly concerned about this threat. Having negotiated a deal with Switzerland that cracks down on tax evaders (yet to be passed by Germany’s parliament), Germany does not want to see undeclared funds moving to Asia.

To this end, Germany earlier this month concluded an agreement to enhance the sharing of information with Singapore on tax matters.

For its part, Singapore has repeatedly denied allegations that it could become the next big tax haven after the fall of Switzerland.

Private banking

In 2010, there were 320 banks and other financial institutions in Switzerland (2007: 330, 1990: 625). Of these, 122 were foreign-owned banks (2007: 122, 1990: 126), and 13 private banks (2007: 14, 1990: 22).

Banks in Switzerland managed some SFr5.6 trillion ($6 trillion) of onshore and offshore wealth at the end of 2009.

Switzerland was home to the largest share of offshore assets, with a market share of 27%, just ahead of Britain and the Channel Islands (26%).

Singapore’s financial market has enjoyed spectacular growth in recent years. By the end of 2009, some $1.2 trillion of offshore assets were housed there, compared with $1.09 trillion in Hong Kong and $2 trillion in Switzerland.

Worldwide, there was some $7.4 trillion of cross-border assets under management by the end of 2009.

High net worth individuals had accumulated a combined wealth of $39 trillion by the end of 2009, held both onshore and offshore.

The largest concentration of wealth was in the United States ($10.7 trillion), followed by the Asia-Pacific region ($9.7 trillion) and Europe ($9.5 trillion).

(Sources: SwissBanking, SIF)

(Adapted from German by Matthew Allen)