The number of Swiss firms registering with the US Securities & Exchange Commission to manage or advise US-based clientele is growing. InvestmentEurope finds out more.
May 2017 saw a total of 93 financial entities located across Switzerland having registered with the SEC, mostly to access clients domiciled in the United States for asset advisory or management purposes.
But for Geneva-based investment adviser Lobnek Wealth Management, registered with the US regulator since 2016, the American connection started in… Latin America.
Gianpiero Sturzo, partner and chief operating officer of Lobnek Wealth Management, explains that the firm has a number of LatAm clients with US elements in their financial structures.
“Some have potential heirs who were born in the US, some have major business interests in the United States, others just end up spending a large amount of time there. To avoid potential conflicts, or to be forced to abandon some of our clients on the basis of their US links, we decided to obtain an SEC licence,” Sturzo points out.
Beyond these particular cases, other arguments put forward as reasons to obtain the SEC licence include the size of the US investor pool, the full transparency with US clients and decline in advising people with undeclared assets as well as the search by US clients for asset diversification.
“US clients have probably around 90% of their risk exposure in the US. Our international perspective allows us to provide valuable advice in terms of potential diversification.
“For this reason alone, it makes sense for us to be present in the US market.”
Diversification across asset classes, industries and geographies is also mentioned by Romain Krief, CEO at Reyl Overseas (registered with the SEC since 2010), for whom the US clientele is looking for a stable and international banking environment, which, he says, Switzerland is well known for providing.
“One of the key differences in terms of investment approach, is that the investment universe of our US clients tends to be more centred around the US as it is such a large market in itself and investments are largely denominated in USD. In contrast, European clients have a broader diversification of both assets and currency denominations, ie, USD, EUR and CHF,” Krief says.
‘UNIQUE REGULATORY ASPECTS’
According to Frank Suess, chairman of the Swiss Registered Investment Advisor Association (SRIAA) and of Zug-based wealth manager BFI Capital Group, it remains difficult to describe the US client.
“The Americans we work with in Switzerland come from a broad variety of backgrounds, professions and family planning situations. Most of them live in America. But, a large number are expats. They too are affected by the particular rules and regulations applicable to US persons.
“These rules tend to be complex. Therefore, American clients will require advisers that, beyond understanding the ins and outs of portfolio management, also have a good understanding of the unique regulatory aspects US persons face when they invest overseas.
“More so than with European clients, legal asset protection is a primary concern for wealthy American families. America is a very litigious society. Every successful entrepreneur and wealthy American needs to safeguard himself against that reality,” Suess says.
Lobnek’s Sturzo points out that a feature of US clients is their strong confidence in their advisers, when holding discretionary mandates. Whereas in Europe, he says, a growing number of clients have lost confidence in financials because of the 2008 crisis and keep the final say on their investments, even if they have limited financial knowledge.
“The client’s risk profile may be compromised in such cases, especially when the actions taken create a conflict with the contents of the investment mandate,” he argues.
US clients are attracted to Switzerland because of the country’s stable political situation and high level of skills, note both Reyl Overseas’ CEO and the chairman of the SRIAA, even after the end of the fabled Swiss banking secrecy.
“Fatca is not restricted to Switzerland. It is largely global. The IRS has successfully forced that set of rules on pretty much everyone. Today, the rest of the world, and particularly the large number of fiscally challenged countries, have found a liking for Fatca. They have copied it with the CRS legislation. So, Fatca has metastasised,” argues Suess.
“In conclusion, while for a few years, Switzerland certainly lost a bit of its appeal, new client funds are flowing back into Switzerland. Particularly the wealthiest as well as institutional investors find Switzerland attractive. Again, the primary reasons to choose Switzerland revolve around the various aspects of safety,” SRIAA’s chairman says.
However, the competition to draw US clients is tough, including competition from advisers in other countries and jurisdictions such as the United Kingdom and Hong Kong.
But Krief sees US banks themselves as the main competitor for Swiss banks marketing to American clients.
“A number of firms are competing for a portion of this huge market and we therefore position ourselves on a unique proposition, owing to the fact that we are less US-centric than our US based competitors and are able to rely on Reyl & Cie’s international presence. Reyl Group operates on four continents, including the US from its Dallas office,” he says.
Suess asserts that it depends on the client’s primary objective. He says that when the goal is wealth preservation for that “offshore nest egg”, Switzerland is the clear number one globally.
SRIAA’s chairman also boasts the country’s edges – service, privacy, investment performance, infrastructure, good education and culture, among others – and only considers London as a strong competitor.
Sturzo observes that “the UK could become a major competitor once Brexit is finalised, but Switzerland does not have to fear European competitors conquering the US market.
“It is rather Americans that should be afraid of European firms seeking business in the US,” says Lobnek’s COO.
Between the SEC-registered Swiss firms, the race to establish a footprint in the US market remains extremely competitive as well.
Service quality is key for Reyl Overseas’ Krief to differentiate from competitors.
He emphasises the importance of the company’s “pick-up-the phone, no silo” mentality. Concretely, its customers can speak to a senior contact at Reyl, as well as to their relationship manager, at any time.
A number of Swiss advisers have been listed on dedicated online platforms – such as Where Americans are Welcome, which tallies 48 Swiss SEC registered companies – to be viewed and stand out of the crowd.
Reyl Overseas has stressed an acceleration in the number of advisers registered lately, “which could be related to the fact that big players have evolved into different smaller structures.”
“With the rising awareness of the offering of Swiss SEC-registered wealth managers to meet the particular needs of US persons, we think other advisers will probably appear in future,” explains the company’s CEO.
SRIAA chairman Suess depicts a challenging sector, with a complex regulatory framework.
“This drives costs up, for advisers and for clients. Moreover, the American media and the IRS, have created a negative stigma against foreign – non-US financial services. Therefore, the level of fear versus offshore banking is high with most US persons. Many Americans are of the opinion that having a Swiss bank account is either illegal or at least morally questionable.
“On the other hand, America is a very big ‘niche’ to be in, with one set of rules, one language, and a large number of high net-worth investors. That has obviously not gone unnoticed. So, yes, it’s competitive.”
Suess estimates that the difficulty dwells in maintaining the compliance and procedural integrity of a SEC registered firm.
“At SRIAA, we have several members and a very active exchange with advisers considering registering with the SEC. Some do. Most, however, decide to join one of the existing SEC platforms, either wholly or partially. A variety of solutions exist, so that generally every adviser will be able to find a suitable avenue to deal with American mandates,” Suess says.
This article was first published in the September 2017 InvestmentEurope issue.