Follow Jürg Zeltner
In March 2009, the Swiss government announced that it was to adopt Article 26 of the OECD Model Convention, thereby facilitating the international exchange of information in tax evasion cases. This is a new starting position for wealth management business in Switzerland.
In March 2009, the Swiss government announced that it was to adopt Article 26 of the OECD Model Convention, thereby facilitating the international exchange of information in tax evasion cases. This is a new starting position for wealth management business in Switzerland. The bilateral negotiations with Germany and the United Kingdom regarding a flat-rate withholding tax and the US FATCA (Foreign Account Tax Compliance Act) rules, which come into force on January 1, 2013, are driving these changes further forward.
The country's banks continue to benefit from Switzerland's traditional advantages as a location, namely a remarkable level of political continuity and legal consistency by international standards, an independent, stable currency, a highly efficient and dense infrastructure, experience and expertise in wealth management, and respect for legitimate personal privacy (see text box).
How can banks make themselves more attractive?
Are Switzerland's traditional advantages sufficient to ensure that our banks remain attractive to foreign clients over the longer term? Probably not. The banks themselves will also have to work hard to maintain the country's status as one of the few global financial centers. The evolving understanding of bank-client confidentiality, but also of worldwide regulatory pressures, the changing global economic environment and client expectations call for a complete rethinking. So what else do Switzerland's banks have to do to remain attractive to foreign investors?
Clear rules provide security
The cornerstone of offshore wealth management business is compliance, in other words ensuring strict adherence to laws and regulations. UBS was taught a severe lesson in this regard, and we have learnt from the experience: over the last three years we have carefully examined the conditions for business with all key countries and adjusted them wherever necessary. Our client advisors are fully conversant with the specific products and services for each country and the requirements for their approval. They now possess clear, detailed information on approved travel and the rules for e-banking or e-mail and telephone communications, which may vary from country to country.
Banks must set out these rules of conduct for their client advisors in the form of clear and precise written directives specific to each country. Even more importantly, advisors must absorb and live by these rules. Clarity is a prerequisite for greater security for all. For their own protection, clients, advisors and ultimately the bank seek to ensure with the greatest possible degree of certainty that they are acting in accordance with the rules.
The rules referred to above are complex and costly to comply with. Enhanced regulatory requirements such as the European MiFID (Markets in Financial Instruments Directive) rules, the US FATCA and possible future agreements on a flat-rate withholding tax are creating increasingly tough challenges. Above all, the new rules mean greater investment in the compliance organization, training and education, and the bank's infrastructure. It goes without saying that investment advisors can only look after clients from a limited number of countries if they are to carry out their work with the necessary level of expertise and respectability. This means that a bank needs to reach a critical size in order to conduct cross-border business worldwide and on a profitable basis. As UBS developed into a global wealth manager at an early stage, it is very well placed to do so.
Execution and expertise are success factors
Flawless execution of client orders across borders and in all time zones sounds self-evident, but the reality is by no means as straightforward. For a wealth management company to be seen as really well positioned, it must provide products and advisory services that wherever possible are better than those offered by the banks in a client's country of origin. This concerns not only investments but much more besides. Not least, clients need exact, country-specific tax certificates.
The globalized economy, particularly in its current state, and the resulting changes in client needs have shaken up the sector. The role of the private banker is being redefined. In today's business environment they have to be much more than simple relationship managers; as investment advisors they must have their finger on the pulse of the markets, provide clients with timely and easy-to-understand investment recommendations and be able to implement these rapidly. Expertise in capital markets and execution are becoming decisive success factors. Combining wealth management and investment banking from a single source makes it possible to meet these requirements in a credible fashion.
The geopolitical situation is hugely uncertain, with the economic challenges today more complex than they have been for many decades. Dwindling supplies of increasingly expensive commodities, high levels of government debt and international political decisions that are sometimes difficult to predict are all serving to unsettle the markets and heighten volatility. It is no longer enough just to distinguish between industrialized and emerging economies. A country's balance of payments and budget deficit are now much more significant. Market attractiveness is now judged along a new dividing line between strong and weak, with Switzerland among the strong nations.
In this challenging environment, investors' need for focus and expertise is greater than ever. They want fast, comprehensible assessments of the global situation and the financial markets, as has been made abundantly clear by the debt crises in Portugal and Greece and the events in North Africa and Japan. First and foremost, investors expect trusted client advisors to help them protect their portfolios against risks. Secondly, investors are looking for return opportunities in a volatile environment. They expect their advisors to actively seek long-term, positive returns wherever possible. Given the dependency on the markets, no-one can give an absolute promise of this, but clients want to feel that their personal interests take precedence over those of the bank. Thirdly, in the globalized economy investors are increasingly looking for diversification and access to new and promising investment opportunities worldwide. This includes bonds from emerging markets in Asia, Latin America and Eastern Europe. Faith in the potential of alternative investments such as hedge funds, private equity, commodities and certificates that replicate these asset classes is also gradually being restored.
The new paradigm in wealth management
Providing security, sustainable returns, diversification across national borders and access to new investment opportunities worldwide calls for a great deal of expertise and rapid action. To achieve this, the bank must have specialists on the ground to obtain an accurate picture of market developments. These experts come not only from the field of wealth management but also from investment banking and asset management. Increased client requirements and the need to clearly differentiate oneself from the competition make a functioning, integrated business model essential.
In view of the shift in client expectations, we at UBS have decided to focus our entire wealth management organization on an active investment process geared closely to the markets. It is vital these days for client advisors to be au fait with complex products on global markets and able to act swiftly thanks to direct market access. To provide professional support to its client advisors, UBS has bundled together all specialist functions for serving high net worth clients in the Investment Products & Services (IPS) unit within Wealth Management. This enables the bank to harness the know-how of the Investment Bank, Asset Management and the Wealth Management product units faster and more effectively. Expertise and market access still have to lead to comprehensible investment instruments that offer the best possible returns and get to the right clients in the fastest and most efficient way. To convert the comprehensive overall view of the global situation into clear investment recommendations, in early 2011 UBS also created a global Chief Investment Officer organization made up of highly respected specialists.
We firmly believe that clients are prepared to pay a fair price for added value and sustainable investment returns. As such, wealth management business will continue to generate an attractive margin for shareholders.
Wealth management firms that combine the required expertise and execution skills with the advantages – which we hope will endure – of Switzerland as a location enjoy a significant advantage over Western European financial institutions with a domestic focus. This gives grounds for optimism regarding the attractiveness of offshore wealth management.
Products and services in these webpages may not be available for residents of certain nations. Please consult the sales restrictions relating to the service in question for further information.
© UBS 1998 - 2014. All rights reserved.