“The last
two years have seen some fundamental shifts in the way non-US banks
deal with accounts held by US citizens. Two themes developed in two
different countries which in turn were reinforced by recent
legislation enacted by the US government.
Firstly, the US government’s well-documented
investigation of UBS in 2009, which resulted in the Swiss bank
handing over details of 4,450 accounts held by Americans. This led
Swiss banks to consider whether they wanted to manage accounts held
by American citizens.
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Secondly, in the United Kingdom, in his 2007
Pre-Budget Report, the Chancellor of the Exchequer,
Alastair Darling, indicated he would tax individuals who were
resident but non-domiciled for tax in the UK on their worldwide
income and gains. Alternatively they could pay a £30,000 ($43,248)
levy to continue paying tax on an arising basis in the UK. This
became law in the 2008 Budget.
The consequence for Americans was to find
themselves taxed globally in two jurisdictions. This seriously
inhibiting their investment choices but also made them even more
unattractive as clients to banks and investment managers unwilling
to invest in the required compliance and legal systems to manage
such accounts.
In addition to these two significant events,
the developed world fell into recession as a result of the credit
crisis. People are well aware of the macroeconomic fall-out from
this which is set to continue for a number of years; however fewer
people will have noticed an increasing shift in Europe of private
clients away from large banks to smaller, more flexible, boutique
investment houses.
This shift is largely due to a reduction in
trust in the large banks and their model of product driven wealth
management. Wealthy individuals now desire independent advice and
access to products that are suitable to their situation together
with longer-term and multi-generational financial planning with a
trusted adviser, rather than working with a new relationship
manager or moving bank to follow their adviser every three
years.
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By GlobalDataThis visible move has left US nationals living
abroad, or with accounts held overseas, with few service providers
as the large banks and investment houses have begun to close down
accounts and turn away new business, displaying an unwillingness to
invest in specialist staff and technology to help this client
segment.
These circumstances were further complicated
with the HIRE Act, passed into US law earlier this year. Although
the legislation is designed to encourage companies to hire
unemployed workers through various tax incentives, it also included
legislation which requires individuals to disclose foreign
financial assets in excess of $50,000.
It also imposes a withholding tax of 30% on
certain payments made to foreign financial institutions after 2012
unless the foreign financial institution agrees to disclose details
of the account owned by US nationals to the Internal Revenue
Service.
In Switzerland in particular, still smarting
from the UBS case, some private banks are seriously considering
closing accounts held by US nationals given the increasingly
burdensome reporting requirements. However, the current environment
is creating a possible new opportunity. Traditionally, Switzerland
sold the idea of Swiss private banking with impeccable levels of
service and discretion where depositors and investors could custody
assets anonymously.
However, Swiss private banks will now have a
choice: continue to market themselves in this way; or adapt and
present themselves as first rate and efficient global custodians
providing support to external asset managers and discretion,
protection and reliability to their clients.
This new model for Swiss private banking is one
that will begin to be replicated globally as increasing regulation,
following the credit crisis, makes it harder for larger
institutions to advise international clients.
The challenge for Switzerland is to adopt this
model and become the predominant banking centre for custody of
global assets, including those held by Americans, before other
jurisdictions address the situation.”
Yann Rousset is director of Maseco
Private Wealth Switzerland, an independent asset management firm
specialising in strategies for US individuals, families, trusts and
Swiss private banks with US clients
