By the end of this blog, you will know in greater detail the benefits and challenges of establishing a Swiss bank account through an asset manager. Transparency is vital when establishing any business relationship. Because of this, we intend to paint a realistic picture for North Americans of the setup, process, and benefits of having an offshore bank account with a Swiss asset manager. For the sake of clarity, when speaking about the asset manager's role in the article, we will speak from our first-hand experience.
Before we jump into the benefits, it is important to understand the relationship framework when working with a Swiss-registered investment advisor. There are three parties involved in the business relationship; the client, the asset manager, and the custodian bank. The client is at the pinnacle of the relationship. The asset manager is the go-between for the client and the custodian bank. The client and the asset manager establish a limited power of attorney to manage the investments of the client’s account and work with the client to open the Swiss bank account (owned fully by the client). The asset manager has set up a contractual agreement with the custodian bank so that they can communicate with the bank on the client's behalf. This ensures that the client only has to communicate with their asset manager. With this structure, you get all the benefits of working with a boutique family-owned asset manager while at the same time profiting from having your wealth kept safely at an established private bank.
Benefits of an offshore bank account
Let's dive into the major benefits of working with a Swiss independent asset manager:
Geographical diversification is one that is quite important. Some countries are better at managing their debt and currency’s value (inflation and deflation) than others. We will touch on a current example of this a bit later on when talking about the difference between the U.S. and Switzerland. What is often missed is the protection of one’s assets by keeping them in another financial jurisdiction, as the laws governing banking regulation, financial services, and privacy laws differ from country to country. Further, the old-time adage of "not keeping all of your eggs in one basket" allows you to geographically diversify your holdings and cut down on the risks your domestic jurisdiction poses to your wealth. This is a big benefit to utilizing the Swiss financial industry as the laws are established to protect the clients placing the burden on the service provider to protect the client and their information.
Another benefit is having a different portfolio emphasis. Most American portfolios have high exposure to the U.S. economy (and its governing bodies), USD, and U.S. stock markets. While there are certainly benefits to being invested in U.S. markets, there is the fact that the wealth of a person can be over-exposed to one economy, being hit especially hard by market downturns. Often U.S. investors are unaware of the benefits of investments outside of the U.S. or simply do not understand them at all. Setting up a portfolio with a different emphasis can help to mitigate the risk that is posed to one’s wealth with foreign diversification. Due to something called "home bias," even professional investors are partial to the country they live in or they do not have the intricate knowledge of the forces affecting the foreign investments.
Opening a Swiss bank account allows the client to increase the layers of asset protection for their wealth. Having wealth in Switzerland significantly discourages frivolous lawsuits by devious parties seeking to disingenuously go after your assets. Financial holdings in Switzerland are much less visible due to the Swiss banking privacy laws, and the process of getting money out of Switzerland is difficult and time-consuming, making the incentive very low for greedy deviants. The caveat here is that if there is a legitimate court ruling in a U.S. court that illegal activity was committed by an individual the court orders are upheld in Switzerland.
As briefly mentioned before, Swiss accounts have enhanced privacy protection. Switzerland has the banking secrecy act, meaning only the IRS and whomever you (the client) tell about your holdings will be privy to the information regarding the funds held offshore. In Switzerland, the client’s information is treated like medical or legal information. It means that banks are required to keep the information private like a doctor or a lawyer must in the U.S. Further, the cyber security and security of the banks are to the highest of standards to ensure the client's assets remain protected and that their interests are secured.
Last, but not least, protection against a sinking domestic currency is a very valuable benefit of using a Swiss asset manager. The Swiss franc has long been a currency that holds its value over time, meaning its value increased rather than decreased. As an example of the differences between the USD and the Swiss Franc, the current inflation story tells us a lot. The USD is experiencing high inflation at 9.1%. In contrast, Switzerland sees high inflation at just above 3%.1 If you look at the history of inflation, the picture is even clearer, with inflation in Switzerland rarely rising over 1% in the last decade and spending many years gaining value with deflation and rising GDP, meaning the currency truly gained and maintained its value, in relation to the expanding economy. On the other hand, the U.S. has inflation commonly around 2% annually and has only dipped into deflation twice recently, once in 2009 when GDP was -2.5% and the other in 2015.2&3 This is quite a clear picture of the value of holding Swiss Francs and investments in the long run due to how the currency performs in both good and poor economic times.
Challenges of an Offshore Bank account
It all might be too good to sound true, and though the benefits to the client ring clear, there are some initial due diligence and challenges that need to be taken into consideration.
The first challenge is the paperwork involved in establishing an offshore account with a Swiss investment advisor, due to the reporting requirements set out by Switzerland and the SEC in the U.S.. For Americans, there is quite some paperwork to be done when opening an account outside the USA. In this process, however, we walk through it with the client and ensure everything is clear. The amount of paperwork is absolutely manageable. It is just not done in three clicks on your computer.
Another piece of information is the cost associated with Swiss bank accounts. The private banking industry provides higher levels of privacy, security, and service that are not rendered for free. Due to the complexity of investment accounts (not a retail bank account), high-level cyber security, and privacy protection service, the accounts and relationship cost a bit more than in the USA.
Another issue is finding a competent partner, asset manager, wealth manager, or financial service specialist. The due diligence is a bit more challenging when opening a Swiss account for the obvious reason of it being in another country. It is good to note here that there is no need to be physically present in Switzerland to open an account. Therefore, with the use of Zoom meetings, stable internet connections, and constant electronic communication, this process is much easier to navigate than in the past.
Finally, considering the geographical location of Europe to the U.S., the time difference and physical distance of a client's assets are quite far. However, when thinking about creating a nest egg in Switzerland, this consideration is quite logical. To bridge this gap, our goal at WHVP is to build a relationship with our clients so that there is no fear involved in communicating with us about any questions, comments, or concerns. We ensure that there is continuous communication with our clients and seek to initiate this contact. Furthermore, we take great joy in helping resolve any questions, issues, or concerns with our clients. We also work hard to keep our clients informed about our market view through a quarterly newsletter. We also use social media to keep our clients in the loop with current issues we see as relevant, should they want a daily feed of information.
We make it a priority to travel to the U.S. regularly, so our clients can gain one on one time with us should they wish. We also love having clients or people interested in partnering with us come for a visit to our offices if they make their way to Switzerland.
When thinking about opening a Swiss bank account, the focus should be long-term, as this helps to put into perspective the challenges faced in the initial stages and the lasting benefits that it can bring to you. When investing, overall portfolio stability is important. Having a portion of your wealth and investments offshore allows you to optimize your wealth structure and investment diversification. The European market and U.S. markets are not perfectly correlated. This can lower the overall volatility of one’s portfolio. Diversifying offshore can allow for your overall wealth to become more stable. As it reflects global wealth rather than domestic wealth and reduces the risks posed to your wealth from domestic issues by finding a sustainable solution in Switzerland. It is getting two birds with one stone.
If you would like to learn more or talk about any of the above with us, feel free to reach out: