Why International Clients Still Bank in Switzerland
The Swiss banking industry is in a stronger and more sound position than it has been for a long time. In the lead-up to the annual Bankers Day in 2018, the Swiss Bankers Association published its Banking Barometer with some highly satisfactory results:
• Stable aggregate operating income of all banks with CHF 63 billion in 2017/2018
• Gross profits rose by 12% and the annual profit by 24% (to CHF 9.8 billion)
• Assets under management rose nearly 10% to CHF 7.3 billion — a new post-financial crisis record
• A market share of 27.5% in cross-border banking confirms Switzerland’s global leading position
The Banking Barometer is, naturally, not enfeebling itself with a naive good-weather forecast in the vein of Voltaire’s novel Candide: “Tout va pour le mieux dans le meilleur des mondes (All is for the best in this, the best of all possible worlds)”. There are some administrative obstructions and bottlenecks:
• The automatic exchange of information with foreign authorities
• Basel III: Revision of the capital adequacy regulation
• Customer and investor protection: FinSA, FinIA, in dealings with EU clients: MiFID II
• Recognition of Swiss stock market equivalence
These administrative burdens, together with the continual renewal of IT infrastructure, are major cost items that have risen steadily in recent years with an unabated upward trend. Nevertheless, there remain ample reasons
why international clients should bank in Switzerland.
Switzerland, as a non-EU member state, is faced by numerous competing finance centers, leading to fitness in questions of margin pressure, digitization, and cybercrime. Why then should an international and ultrahigh-net-worth individual choose a Swiss bank to manage their wealth, obtain advice, and potentially increase their asset base?
Success Factor: Performance and Price Transparency
Performance is central to the advisory and management activities of banks and wealth managers. The banking center has made investments in both IT and its international and domestic professional employees with low fluctuation rates. This is why customers continue coming to Switzerland today — on the one hand, they value the transparency of the price–performance relationship and, on the other hand, they appreciate the professionalism of the Swiss private banker.
Furthermore, regulatory developments over the past few years mean that customers’ costs must be declared openly. In order to avoid conflicts of interest between customers and advisors, and thereby strengthen trust, this development is to be welcomed unconditionally.
Success Factor: True Internationality
Switzerland is one of the most international countries in the world. With its share of foreigners accounting for 25% of the national population, Switzerland practices integration and multiculturalism. Many Swiss work abroad for a time, meaning that, when they return home, they know from personal experience how to conduct business abroad. In many cases, well-educated Swiss nationals are conversant in three to four languages.
In addition, as Swiss bank employees are required to have knowledge of technical investment issues, Swiss banks and their client advisors are professionally equipped to organize everything from a partial IPO to a succession plan in detail.
Success Factor: Political Stability
Foreigners may mock the Swiss for their direct democracy and quarterly referendums at national, cantonal, and municipal level; however, these very checks and balances render a stable political environment where no party truly dominates politics, meaning party politics have a disciplinary and equilibrating effect on outcomes.
Additionally, Swiss labor law is more liberal than that of most nations. The legal foundations of the Swiss Code of Obligations are stipulated in 70 articles, meaning a work contract for a banker occupies only two pages. This is aided by a social partnership between employers and employees that has created a productive national work ethos that makes strikes a rarity.
Success Factor: Dual Educational System
In addition to internationality and political stability, Switzerland has yet another invaluable strength: A dual educational system that consists of an academic track (the Matura), followed by university, and of a practical vocational education track, an apprenticeship with vocational secondary school training followed by an advanced technical college degree. The educational standard of Swiss universities ranges from very high to excellent, with Eidgenössische Technische Hochschule ranked 7th best in the world (and 3rd in Europe) by QS World University Rankings.
The Swiss vocational and commercial apprenticeship is an internationally highly respected institution. Here, students begin life in earnest at 16 years of age. Owing to their professional experience, such a trained labor force is in higher demand than are university graduates immediately after their academic studies. For example, UBS and Zurich Cantonal Bank are operationally run by practitioners who started their careers with vocational training. What relevance does all of this have for Swiss banking? For starters, clients can be assured that their service providers have a wealth of experience and, due to having started their careers early, are well attuned to their professional responsibilities.
Success Factor: Tax
Swiss banks have worked diligently to create IT-secured systems that accommodate the tax circumstances relating to customers’ countries of origin. This is achieved at the level of wealth management via the selection of appropriate investments that are suited to customers’ tax requirements. The requirements are also met by providing customers with tax statements. This specialized knowledge is unique worldwide.
It is thanks to Switzerland’s performance culture, its true internationality, its political stability, and its powerful dual educational system that the Swiss economy, and with it the Swiss banking system, has gained renown as a global leader.
The French philosopher Voltaire once said: “Si vous voyez un banquier suisse se jeter par la fenêtre, sautez derrière lui: vous pouvez être sûr qu’il y a quelque profit à prendre (If you see a Swiss banker jump out of a window, follow him — there is surely money to be made)”.
Today, good private bankers tend to focus on investment performance, customer needs, and the customer experience, which is why transparent communication and declaring conflicts of interest are key to customer satisfaction.