After a surge in compliance headcount, wealth planning now seems to be the new growth area for Swiss banks. Although the business is not new – like compliance before it – wealth planning has become increasingly important in recent years, boosted in particular by moves towards tax transparency, legislative changes, falling financial returns and increased client demand for this kind of service.
Wealth planning looks at all legal and tax issues that may affect a client's wealth. "A Knight Frank study concluded that the two factors that affect wealth the most are death and taxes," says Bertrand Binggeli, Co-Head Tax and Wealth Planning at UBP. His team has tripled in size in the last five years and now consists of 15 people, with six in Geneva and the rest divided between Zurich, Hong King and Singapore. His aim is to "ensure the best possible legal situation for clients to preserve and pass on their wealth".
When clients decide to move to a new country, get married or retire, those decisions can have a major impact on their wealth. For example, if a client decides to retire to Portugal, the decision must not be based solely on the ordinary cost of living, but also on the tax regime including inheritance tax and taxes on investments. Situations can quickly become complex. "Today's clients want us to adapt to a new environment in which family members live in different jurisdictions, and that will be even more the case with the next generation."
Things are complex enough if a family is split between two jurisdictions, never mind several, and especially given increasing legal instability. Tax arrangements that have been left untouched for decades, such as the double tax treaty between Switzerland and France on inheritance tax, are being scrapped almost without warning. This sometimes leads to punitive tax rates. There are plenty of examples. Belgium's version of withholding tax was 15% for a long time, but has now been increased to 30%. Similarly, a Swiss resident owning a property in London was not previously liable for inheritance tax if it were left to a relative in direct line. Today, the tax rate is 40%.
As a result, Bertrand Binggeli must work with his international partners constantly in order to monitor developments, anticipate changes and give the best advice to clients, since tax is increasingly eating into their returns. "We focus on after-tax returns. As well as key life events such as marriage and inheritance, we also look at all tax issues relating to financial transactions. That includes choosing the best time to make an investment, or the best vehicle. Tax can seriously affect returns, both for international clients and those resident in Switzerland."
To come back to the initial comparison with compliance, whereas compliance officers spend most of their time talking to asset and wealth managers and not clients, wealth planners' advisory role means they have much greater contact with clients. "Although most of us have a full legal education and solid expertise in the law, we are not authorised to give legal or tax advice. Our role is to make clients and their relationship managers aware of all legal risks and opportunities, so that they can make the right choices. We aim to help the client ask the right questions. We then refer them to their usual advisors and we can put them in touch with specialists if necessary."
Why haven't Swiss banks developed these services more in the past? Previously, when it was hard to get a full overview of clients' wealth, they probably regarded wealth planning as a "nice-to-have" service, not a "must-have". Tax transparency got the ball rolling and, for a long time now, these services have been a way for major international banks, in France or English-speaking countries, to stand out from the field, particularly with respect to domestic clients. This means that certain other banks need to raise their game. "It's a real issue if we want to keep wealth management in Switzerland," adds Bertrand Binggeli.
Obviously, just like compliance officers, wealth planners were previously regarded as cost centres, since clients were not billed for their services. "But if we can deliver better protection of the client's wealth, that also means more money for the bank to manage. We need to go beyond the bean-counting approach and focus on long-term value creation. Also, this kind of service generates loyalty among clients. Because whereas wealth management is still investment-focused in many cases, wealth planning looks at much more personal and even intimate matters, such as where people live and their marital status, and is often an opportunity to meet the next generation. Clients are often very grateful to us when we help them make the right decisions."
Co-Head Tax and Wealth Planning