Making the case for private banking in Switzerland and Singapore

Switzerland

Françios Reyl, CEO of Reyl and Cie

Geneva to Singapore is 6,511 miles on the map. Zurich to Singapore is a bit less: 6,396 miles. As soon as you enter the world of wealth management, however, distances inexorably diminish. Year by year, Singapore has been getting closer as it picks up market share.

Since the outbreak of the subprime crisis, Swiss private banking has been operating in an increasingly competitive environment. Competition is currently being made livelier still by a number of issues affecting the Swiss financial centre. The environment has changed noticeably as a result of increasing regulatory pressure, the breakthrough of emerging markets, the debt crisis in the eurozone and the resulting economic contraction. The erosion of banking secrecy in fiscal matters has made the task of Switzerland’s bankers and asset managers particularly complicated, compelling them to react quickly, and redraft both their business model and their marketing strategy.

However these contrary winds have not weakened the Swiss financial centre to the extent of threatening its preeminence. Its supremacy in the distinct area of wealth management is not just due to its banking secrecy. While it is true that Switzerland has taken advantage of banking secrecy on fiscal matters, this does not represent its unique selling proposition as marketing experts say in business schools.

From Geneva to Zurich to Lugano the Swiss financial centre has no problem providing other arguments to highlight its added-value and justify its position. In this respect, it is interesting to bear in mind the strong capital inflows recorded in 2011 by a large number of Swiss private banks as banking secrecy on fiscal matters was wending its way to oblivion.

In practice, the attraction and success of the Swiss financial centre rests on two guiding principles. The first features the decisive advantages provided by the Swiss Confederation in political, economic and social terms. The second covers the professional qualities and extensive services of Swiss bankers, managers and of their close partners.

A few words on Switzerland to start with. The permanence of its institutions, the strength of its currency and its healthy economy offer clients of its banking sector excellent guarantees, particularly with regards to security and risk control. Yet Switzerland also boasts a multilingual culture, which facilitates its international renown, and a persuasive corporate tax system.

For more than a decade Switzerland has been one of the most competitive economies in the world. This is due, among other factors, to the quality of its infrastructure, its higher education system, and its prowess in the areas of innovation and company financing. Contrary to certain accepted ideas, Switzerland is not falling over itself touting for business from tax renegades. The country prefers to attract a much more significant crowd of investors and entrepreneurs looking to generate value in optimal conditions.

The banking and finance sector has also flourished thanks to this environment. Bankers and asset managers, the Swiss players in wealth management, have acquired know-how over time, mastering their art and providing unmatched service quality. Today they can offer clients from all backgrounds sophisticated advisory services in every aspect of wealth management. The Swiss financial market also brings together the best of the legal and fiscal professions. Their proximity and complementarity of skills have, for example, enabled bankers and asset managers to develop considerable expertise in cross-border tax planning and wealth structuring issues.

This manifold variety of talent and depth of skills provide the Swiss financial centre with its legitimacy and authority. The Swiss market clearly has sufficient resources to face with equanimity the competition it is now encountering, be it from Singapore, New York, London or Hong Kong. As is the case for its luxury goods, superior engineering and healthcare sectors, Switzerland’s banking sector has the capacity to both strengthen its position in its domestic market and its exports of products and services.

Vincent Duhamel, Lombard Odier

Singapore

Vincent Duhamel, Partner at Lombard Odier and head of Asia-Pacific & Japan

Where are the great fortunes being built right now? Where is the greatest concentration of personal wealth? For the first time, the number of millionaires in Asia overtook those in the US in 2011, according to a report this year by Capgemini.

Couple that with a population that has historically been under-banked compared with its European and North American equivalents and it is unsurprising that most of the world’s wealth managers have staked out a business in Asia. The question is how best to understand what those clients need, and how best to serve them. Each market has specific needs and there is no single answer because everything depends on a client’s domicile, history and legal environment.

A Chinese entrepreneur living in mainland China is probably used to a 20 percent compound rate of return on her own business. That cliché of a risktaker, many argue, is a problem for wealth managers more used to offering capital preservation than double-digit returns and as a result have often tried to offer misguided products with unrealistic risk and return expectations. But the cliché forgets the entrepreneur has been affected by the turmoil that China has been through over the last five or six decades.

When you look at the fortunes won and lost in China since the mid-nineteenth century, you quickly realize that those generational scars make our entrepreneur look first at the safety of their assets and secondly at the returns that they may generate. Will assets be more or less safe in Singapore, Hong Kong or Switzerland? All three offer legal certainty and differing versions of political stability, and two are in the same time zones and offer the right language skills.

Such an entrepreneur does not need to buy the Asia growth story because he or she is already invested in it through their business. What they do want is a global investment offering that cannot be reached from China. The logical step is to look for that security on their doorstep.

Other investors, such as Taiwanese residents, tend to have a more portfolio-oriented approach to managing their wealth and ask questions about global experience and conflicts of interest. They want to be reassured that they are dealing with a truly private wealth manager offering transparent services and un-conflicted advice, unlike most units of a universal bank. Indonesian clients want to anchor their wealth management relationship in Singapore because they understand and respect the predictability of the legal system, and every nationality of entrepreneur sooner or later needs expertise to plan for succession.

But the appeal of Singapore, or Hong Kong, as private banking centres are not limited to clients living in Asia. European investors, exposed to the current economic crisis at home and an increasing regulatory and tax burden, need and want exposure to Asia’s growth and more fiscally-sound markets. For them, the attractions of an Asia-based wealth manager is the stability, politically and legally, that Singapore and Hong Kong now provide, relative to the uncertainty and turmoil over the sovereign debt crisis. And like the Chinese entrepreneur, a European investor is looking for geographic diversification, the protection of his assets and their real purchasing power over time.

Wealth managers who can adapt to the needs of clients with tailored solutions and can show that they have a track record in Asia are at an advantage. While the Swiss private banking label also conferred an advantage in the past, it is now far more telling to be privately held with a history of successfully navigating crises.