To maintain market leadership in offshore banking, Swiss finance is going to have to get in better shape. Better advisory and an upgraded emerging market presence are key.
The possibility that Switzerland could soon fall behind Hong Kong and Singapore as the leading offshore financial center is another shot across the bow for an industry that has been constantly trying to reinvent itself since the financial crisis. Numerous regulatory obstacles have stood in the way, including the automatic exchange of information (AEOI) and the US Foreign Tax Compliance Act (Fatca).
On the Defensive
For the institutions providing offshore services, it has become increasingly hard to explain to clients living overseas why they should choose to have their assets booked and managed in Switzerland.
Given that, it is not surprising that the country could soon lose its role as the world’s leading offshore center. At least that is what the authors of the recent «Global Wealth Report» study by Boston Consulting Group (BCG) predict, as finews.com reported.
A Personal Business
Christoph Künzle of the Zurich University of Applied Sciences (ZHAW) took a closer look at what could prevent that from happening. As a lecturer for banking and finance, he examined what the problems were with a group of students together with a number of relationship managers, and external wealth and asset managers.
One of the most important conclusions that they drew was that clients from all the countries surveyed always looked for a personal relationship, although the exact form or modality was different for each group.
Clients from developed markets look for full and holistic advisory services, as they are often confronted with complicated corporate structures of cross-border tax issues. In contrast, clients from emerging markets pay closer heed to a bank’s reputation, which is often determined by individual perception but often complemented by key figures such as an institute’s equity ratios, the size of its balance sheet, and its shareholder structure.
Fees More Important than Returns
Earlier studies back this up, confirming that portfolio returns are of lesser importance. As the authors write, achieving performance does prevent frustration but it does not do much for long-term client satisfaction. Although they did also come to the realization in the study that clients look at fees far more closely now.
Playing to Strengths
That makes things clear. Swiss offshore banking has to improve the quality of its services and investment expertise. It should also develop a more confident and robust market presence in emerging markets. At the same time, it should be very selective when dealing with potentially risky clients in order to protect its image and reputation.
Digitalization was largely dismissed. Or at least any hybrid form of interaction between clients and offshore clients was still not seen as posing much of an issue in the study.
A Sore Point
The authors of the study hit a sore spot in their recommendation to transfer more offshore banking activities to overseas centers, using further globalization as a further pretext for success. But sensitive questions would need to be answered first. Questions such as whether a client of a Swiss bank in Singapore get the same type of private banking services that it would in Geneva?