While some of the world’s non-US banks have ceased serving expat Americans because of compliance costs, it makes no sense for firms to turn their backs on the world’s biggest economy, argues Vontobel.

While
some of the world’s non-US banks have ceased catering to American clients because
of heavy compliance costs, it makes little sense for firms to turn their backs
on the world’s biggest economy, argues the chief executive of Vontobel, the
Swiss private bank.

While
firms such as Deutsche Bank and HSBC no longer serve expat Americans, concerned
by the burden of complying with the recently enacted FATCA Act, Dr Zeno Staub
said it was hard for foreign financial institutions to give the US
market the cold shoulder.

“The US
is too big, too important and too wealthy. The US accounts for 40 per cent of the
global seed pool,” he said, and added that such predominance cannot be ignored.
Dr Staub was speaking to journalists at a briefing in London on his firm’s developments.

Dr Staub was asked whether US clients are more trouble than they are worth due to issues such as FATCA. “We
still bring skills to the table that are not commonplace in the US. These
clients, beyond tax, have reasons to diversify assets,” he responded. “The US
market offers decent margins. There is a willingness there to pay for
first-class advice.”

Vontobel has had a presence in the US since the 1980s; in total, the Swiss
firm oversees a total of SFr110 billion ($118.4 billion) assets under management and about SFr22.9
billion of that sum is managed for US clients (about SFr20 billion run for
institutions such as pension schemes). The firm manages a total of SFr160
billion, including custody assets and structured products.

Dr Staub spoke shortly after the
Swiss and US governments agreed a sweeping deal to draw a line under a dispute
between the nations about Americans’ use of offshore Swiss bank accounts. Swiss
banks fall into a number of different categories depending on whether they are
deemed to be at fault or not. Some 14 Swiss banks are understood to be under
investigation. (To view a related item, click here.)

Shift

Swiss banks, which account for about
12 per cent of the Alpine state’s gross domestic product, have been under
pressure since before the 2008 financial crisis due to their account secrecy
rules, although moves to break down such secrecy have intensified in the past
five years.

Dr Staub said the Swiss banking
industry needed to realise – and it was doing so – that the world has changed.

“In
the old days, which started to end about 10 to 12 years ago, it was a very
awkward business model. You could only really deploy capital as a client into Geneva or Zurich.
It was a very benign business model….there were very liberal investment rules.
That environment has come under increasing pressure. It was fully foreseen by
us that this would happen,” he said.

He
pointed out that Vontobel had been quick to see change coming: It moved to put German clients
on fully tax-compliant accounts as early as 2000.

Despite the tighter rules and pressures on tax evasion, money still flows to
the country because of its three main pillars: advice and service; investment
performance, and a stable legal framework and protection of property rights, Dr
Staub said. “We are still confident that Switzerland is a great place to do
business in because of the excellence of the three pillars,” he said.

Vontobel
intends to grow and management is pleased at progress lately, he continued. Vontobel has a 2014 target to have SFr175 billion of total AuM; it has been growing AuM
by around 10 per cent per annum. “That’s okay for us,” Dr Staub said.

An
area of growth for Switzerland
is investment management, which is becoming more important. There are about
SFr600-800 billion of institutional assets under management in the country (pension
funds, life insurance money, etc). Vontobel has been aware of this issue for
decades, he said. “We were always more of an institutional house and we started
doing asset management in the early 80s,” Dr Staub said.

He was asked about the business generated by serving independent wealth
managers. (This is the subject of a research report being conducted by
ClearView Financial Media, publisher of this website, in association with
Coutts, the UK
private bank).

Dr Staub said some independent wealth managers were so small – only two or
three people with under SFr100 million of assets, that some consolidation is
likely.

“We would expect the market for the banks serving these people [IWMs] to
heavily consolidate. What they [IWMs] want is a global execution platform,
compliance support, custody, and other things – you can scale all that. He said
there are as many as 3,000 IWMs, currently served by around 320 banks. The
latter number is likely to fall significantly, he said.

Vontobel earns about 3 per cent of total revenue
serving IWMs and this has risen by around 20 per cent per year in recent years,
he said.

As the Swiss market has witnessed, consolidation through M&A and other
routes is happening and more is likely, he said, but Dr Staub said such action
will not be the only way the industry changes. Some firms might choose to shed
their bank licences and work as asset managers instead.

Dr Staub said are opportunities for Vontobel to pick
up teams of RMs and other assets in a consolidating market. Next year will see
more of a focus by the firm on organic growth, he said.