16 Comments on "Private Banking"

  1. Hi Streber,

    I enjoyed reading the article as its mostly new to me but I find the idea of private banking very questionable. I for one dont trust banks and there is plenty of reasons that a simple google search can point to as to why this is my standing, with fines for this that and the other which I’m sure dont come close to the profits they have accumulated during these breaches.

    Would it be true to say that you really can’t compare the performance of any of these private banking services to each other or to ETF’s/Managed funds etc due to the fact they are specifically tailored to the needs of each individual?
    You are really putting all your trust in the bank.

    When you mention being more involved in the process, does this mean you are involved in the decision making or that you will just be told what is going on, where your money is going etc, on a regular basis? This leads on to the point that if you are involved in the decision making, and the bank offers a recommendation, you again have to put your trust in the bank that you are being offered a good thing or if you are like me and dont trust the banks you have to go away and do your due diligence as best as possible and make a decision from the results of that……..so really you are using the private banking service because they will be able to offer you products/investments that would otherwise be out of your reach?

    Sorry for the long windedness of the above, it just seems to me that a lot of trust
    needs to be placed in the bank for this private banking and since the GFC I’m not a big fans of greedy banks 🙂

    • Would it be true to say that you really can’t compare the performance of any of these private banking services to each other or to ETF’s/Managed funds etc due to the fact they are specifically tailored to the needs of each individual?
      You are really putting all your trust in the bank.

      Yes, it’s not entirely fair or accurate to compare an ETF or managed fund to an individually tailored asset management solution.

      When you mention being more involved in the process, does this mean you are involved in the decision making or that you will just be told what is going on, where your money is going etc, on a regular basis? This leads on to the point that if you are involved in the decision making, and the bank offers a recommendation, you again have to put your trust in the bank that you are being offered a good thing or if you are like me and dont trust the banks you have to go away and do your due diligence as best as possible and make a decision from the results of that……..so really you are using the private banking service because they will be able to offer you products/investments that would otherwise be out of your reach?

      Being more involved can mean anything from deciding on every transaction/trade – in essence the private banker becomes more like a broker – or just dictating on a high level where your wealth should be invested. Maybe you heard about a biotech company that you believe will change the world, so you call your private banker and instruct them to invest X amount for you. But all other days of the year, you let the private banker handle everything for you.

      If you don’t trust banks, private banking is probably not right for you.

  2. Hello Streber,

    A while ago you were kind enough to answer a question I asked and I do appreciate it though I think thanking you at the time fell through the cracks.

    I’m writing now, not to ask another question but because I no longer share your good opinion of Swiss banking. I thought I’d let you know of my experience with a Swiss bank – one I don’t consider good at all.

    I’m a Canadian so I naturally worked and invested mainly in Canada, but about 35 years I opened an account with a Zurich bank and fed it small amounts over the years. It was basically my version of burying a can of cash under an apple tree in a back yard – a way of putting some money out of the hands of the government which I recognized even then was a rapacious beast that might have no qualms about devouring me some day.

    I chose Switzerland because of its reputation for safeguarding the privacy of its clients, and for decades was quite happy with the arrangement. They didn’t bother me with sales pitches, while I didn’t bother them with demands. I made a very modest return on my money while I’m sure they made a much larger one on it.

    The original account was established with Foreign Commerce Bank, which was later taken over by Banco Unione di Credito, and this latter bank was subsequently taken over by BSI AG. And that is when the baby fell out of bed.

    Last year I wrote the bank to ask a question and after some six months of being ignored even though I sent several follow-up letters, I received a demand to either put my money into a ‘segregated account’ with a Canadian money management firm or to close the account. Since I valued my privacy, which was almost the sole reason for opening a Swiss account in the first place, and I was quite certain that the money management firm would inform the Canadian government of the existence of the account, I chose the latter. I instructed BSI to close the account and remit to me the proceeds by way of the bank’s cheque, made payable to me and mailed to my address of record.

    BSI refused to do so, citing ‘internal regulations’ that permitted only a wire transfer to another bank and required me to provide them with full banking information as well as notarized copies of documents as proof of identity. No Swiss law or regulation was cited – only their own, internal regulation.

    To me this is unreasonable! The bank has the right to set terms upon which it will conduct business with anyone, but we no longer have a banking relationship since I’ve closed the account.

    I see no legitimate reason for BSI to refuse remitting the money by way of a cheque, a financial instrument that has been accepted around the world for scores of years or even centuries. Had I asked them to remit it by writing the cheque on the side of a cow and having a Swiss farmer walk on water across the Atlantic Ocean, they would have had a legitimate reason to refuse, but refusing to mail me a cheque is not reasonable.

    I know of no Swiss law that prohibits remitting the money to me by way of a cheque, and so the only reason I can come up with is that BSI intends to disclose the existence of the account to Canadian authorities in some excess of caution or to the Americans in hopes of buying itself out of trouble with US authorities. I haven’t looked into it at any length, but about 6 months ago I did come across a website showing that BSI was negotiating with the IRS over something that BSI had done contrary to US law. It appears that the depositors are now being thrown to the wolves.

    I could understand BSI being cautious if it had any reasonable grounds to think I was engaged in illegal conduct, but the length of time the account has been in existence, the small amount in it, and the type and extremely low level of activity in the account would convince even the most paranoid and suspicious tax collector or police/security officer that there was no money laundering, terrorist financing or tax evasion going on.

    Regarding Canadian tax law, I’ve always been, am now, and intend to remain in compliance, but Canadian tax law does not require disclosing the existence of a foreign account below a certain amount and I’ve always been below that amount. I see no reason for BSI to force me to disclose the existence of a foreign account, either indirectly by using the Canadian money management company or directly by forcing me to repatriate the money to a Canadian bank, when Canadian law does not oblige me to do so.

    Given the difficulty of opening a foreign account remotely nowadays, I am faced with putting the money into the Canadian bank because that is the only account I have at the moment, leaving it vulnerable to a ‘Cypriot style bail-in’ which is exactly what I wanted to avoid by having some money out of the immediate reach of government parasites in the first place.

    I have written to BSI several times, but my letters are all ignored and unanswered, both ones sent to the bank representative handling my account and ones sent to ‘Managing Director’ which is the best I could come up with since they’ve taken good care to keep any bank officer names off their website.

    I’ve recently written to the Swiss Banking Ombudsman office but was told that their case load is so heavy it will be a while before they can get to my case. This means that BSI gets the free use of my money for an indefinite period, and the excuse of a heavy case load suggests that there are a lot of Swiss banks engaged in some rather shady, devious practices, as there’s not likely another reason for a heavy case load.

    At the moment, BSI is simply ignoring my letters and using my money for its own benefit, while trying to extort the information out of me. Whether the Ombudsman will ever get around to my case, and if so, do anything is entirely unknown. What is known is that the Ombudsman has no enforcement power so the bank can safely ignore him and judging by their actions to date I expect they will.

    I’ve no way of knowing whether this is unique to BSI or whether other Swiss banks are just as shifty, but this whole affair leaves Swiss banking looking very suspect. I wouldn’t trust BSI with a used postage stamp and the Ombudsman stating that they have a very heavy caseload suggests the other banks shouldn’t be trusted either. At the moment I’m almost likelier to trust a bank in Zimbabwe!

    Should you choose to post this letter, you’re most welcome to do so as it might give other Swiss bank account holders some idea of what to expect.

    • Hi Staglander,

      I am very sorry to hear about your experience. To address your last paragraph first, your comment will remain published unedited. I strive to use the “streber.st” website to share experiences – and not just my own.

      For all the praise I give the Swiss banking sector in general, the banks often become all but friendly once you terminate a relationship. I have personally never had any problems for which a conversation involving the FINMA wasn’t enough to solve amicably, but yours is the not the first case I hear of where a Swiss banking relationship ends and the bank is uncooperative in how they disseminate the remaining funds.

      Now, just to offer you an alternate view on things:

      Cheques are uncommon in Europe, nowadays. Banks do not feel comfortable issuing them and they can probably cite AML laws for not issuing cheques, not being sufficiently assured that the the funds end up in a bank account that belongs to you.

      The bank therefore most likely has legal backing for refusing to issue a check. AML laws permits banks enormous freedoms when assessing risk. These laws may from time to time clash with other laws, but getting a bank to comply with other laws tends to require a letter from FINMA, or a court order.

      By requiring you to wire funds to a bank account in your name, they are taking huge steps to reducing the risk of the bank being responsible for facilitating some form of financial crime. This is what’s called a closed-loop: where the money goes back to whence it came.

      With the bank being under investigation by the IRS, they are likely taking every precaution to ensure there is no tax evasion or money laundering right now.

      Although its behaviour is disagreeable, look at it from the bank’s perspective. They have a client who wishes to close his account as opposed to have funds with a money management firm. This looks suspicious since it means you may have something to hide. This client then wants his money in the form of a risky, rarely-used payout method. Even without having all information available to me, I can still see how a bank manager could possibly be adamant about requiring this client (you) to wire funds to a bank account in the client’s own name. Even if there is a name mismatch on the other account and this incident turns into a money laundering case, as manager at the Swiss bank, I can put my hands up and say that it was the other bank which failed to conduct a name match. “They should have bounced the payment.”

      As for solutions, the bank might be willing to wire the funds to just about any bank account in your name and depending on the magnitude of the wealth, one possible solution could be to speaking to for example Scotiabank or RBC in Canada about opening an offshore bank account by visiting them in person in Canada.

      While that may not give you the comfort of a Swiss bank in terms of stability (as it were), it might (confirm with a qualified professional) let you keep the funds out of scope of Canadian tax law, until you find a new bank or different solution entirely.

      I hope it all works out for you in the end.

  3. Do you think there`s any value into private banking for someone that only uses ETF`s as investment?

    I`m satisfied with the market returns and don`t really change my positions, only rebalancing from time to time (usually once an year)

    • That’s very difficult to answer, but if you’re satisfied with your current solution (whatever it may be), there might not be any significant incentives to go for private banking. You lose the control you currently have over your investments, although you only adjust them once a year.

      You could try speaking to a couple of private banks and see if their past performances have been greater than your ETFs. With a private bank you get access to someone trading your money on markets and securities you wouldn’t otherwise which may give you higher yields – within your own risk tolerance.

  4. “Switzerland’s two largest closely held banks are poised to publish their earnings after two centuries of secrecy.” Both Pictet and Lombard Odier are in the Private Banking business.

    http://www.bloomberg.com/news/2014-08-22/geneva-banks-break-200-year-silence-to-unveil-earnings.html

  5. Hi Streber, as usual your articles interesting and valuable. Could you please guide me on which jurisdictions are less risky for private banking from the point of view of future exchanges of information with the United States or the European Union?

    • Hi Javier,

      The days of secretive private banking or undeclared funds are pretty much over. The banks will insist that you declare all your assets, sometimes even offering help to do this for you. They want clean money to manage.

      The US has or will have full, global EOI coverage with FATCA. Nothing escapes the eyes of the US if you are interesting to them.

      For the EU, you have to consider intra-European agreements and other forms of EOI agreement, such as OECD mutual EOI agreements. http://eoi-tax.org/ might be a good start if you want to avoid EOI treaties.

      Private banking accounts are usually in your name, meaning they are subject to the same degree (or lack) of secrecy as a personal account. You need to be a very important client to a bank for them to open a private banking account in the name of a company or through other means diffuse your identity, and not all banks offer this even to their best clients.

  6. Random tips for people who might be interested in private banking:

    – If you live outside the EU, most banks inside the EU are not going to be interested in your business unless you have previous contacts or are super convincing (Luxembourg might be an exception).

    – Don’t go meet any banks before you’ve asked for an investment proposal via email. Seeing them before this step is a waste of time and money. The banks love to give an impression that they do not send investment proposals before meeting you. This is not true. They all do, so save your time.

    – Get more than one investment proposal (I’d say at least 4). They can actually be very different from each other even if you tell the same specs to each bank you’re getting one from.

    – Pay attention to the fees. Swiss banks are going to ask 1.22% all-in fee for example by default, but you can go much lower than that if you negotiate / compare banks.

    – Really pay attention to the fees. Private banks can be sneaky. One investment proposal I saw had an all-in fee of 1%, but 80% of the funds were to be invested into funds ran by the very same bank, each fund charging 1.5% – in effect doubling the fee.

    – In my opinion there is no reason to go outside the well established financial centers. All the banks in bit more exotic locations I’ve had investment proposals from (including banks from Andorra, Malta, which aren’t even that exotic) have struck me as not very good (usually especially risk management aspect is lacking).

    – After you have become a client a lot of things the bank would’ve said no to earlier become perfectly ok. This includes things like leveraging, all kinds of structures for your holdings, opening onshore accounts for your offshore company, etc.

    – The world of private banking is very opaque and it’s difficult to really know if you made the right decision in the end. That’s just something that happens and you need to accept.

    Hope that helps.

  7. I saw you appreciate suggestions, so here are a few.

    Topics:
    – Paypal or similar popular credit card processing providers for non resident offshore companies.
    – Legal use of offshore structures and maybe some case studies.
    – Intellectual property registrations (I saw a Belgian app developing company with all their apps registered in a Luxembourg IP company. The belgium company said they were the “distributors”. Interesting…)

    Site:
    – I think the recent comments widget is more interesting than the Archives widget for example
    – Your sitemap doesn’t contain your About, FAQ, Glossary, Links, List of Banks, List of Jurisdictions pages.
    – I think a forum would be nice!
    – And a Bitcoin address for donations, you probably don’t need it but I think some readers would love to buy you a beer or more 🙂

    • Thanks a lot! I do indeed appreciate suggestions.

      Paypal or similar popular credit card processing providers for non resident offshore companies.

      I recently discussed this on the TalkGold offshore forum. I might go back to writing more hands-on articles about ecommerce, including PayPal and other forms of payments. I wrote a bit about it in the early days of the blog and the posts continue to be fairly popular.

      Legal use of offshore structures and maybe some case studies.

      The first half is already in the pipeline! Should publish in October.

      I’m thinking about how to do the second part. It’s a catch-22. If I decide to write about a client case and the structure we ended up with, I would also need to anonymise the client details so that there is no risk of recognizability. That in turn means the structure I write about is being applied to a client that’s largely fictional and so many details changed or omitted that the structure risks being wrong. It might be that writing about clients cases would do more harm than good, or be too vague to interest anyone.

      Intellectual property registrations (I saw a Belgian app developing company with all their apps registered in a Luxembourg IP company. The belgium company said they were the “distributors”. Interesting…)

      This is coming but I don’t have a time-line for it yet. I want to address international IP and trademarking but I need to figure out how.

      I think the recent comments widget is more interesting than the Archives widget for example

      Agreed. Will make some changes.

      Your sitemap doesn’t contain your About, FAQ, Glossary, Links, List of Banks, List of Jurisdictions pages.

      I’ll look into that. Those pages are drawing quite a lot of traffic and should be in the sitemap. Thanks for letting me know!

      I think a forum would be nice!

      Have thought about it and even had one lined up for launch a few months ago. It was pulled at the last minute due to time constraints and I wasn’t really sure if there was any demand for it, or the right kind of demand. I was also concerned about what the outcome likely would be: just me answering the same types of question over and over, which I don’t have time for so it would end up being a fairly deserted forum with unanswered topics.

      And a Bitcoin address for donations, you probably don’t need it but I think some readers would love to buy you a beer or more 🙂

      This is very flattering but I’m worried that even donations could be construed as payment, and I absolutely cannot take payment for this blog.

      • I hardly think being to vague will be uninteresting. If you do something like this: Mr. FictitiousName is a resident of Germany, has a German trading company and wants to… Instead of: Mr. YourRealClient is a resident of Germany, has a company in Berlin ‘New Electronics GmbH’ and wants to… I don’t see how this can reveal the identity of your real clients. Or do you think this will be to specific? I just think that case studies are really interesting because they are or at least based on real-life examples.
        I heard you say somewhere that you do blogging to think about the subject. So if you still think making a real case study is too risky, maybe you can make a case study about a fictitious client you never had with a fictitious story you never heard. So you can think about what you would do in such occasion?

        If time is the problem, an extra forum to attend is probably not the best idea. I really like the TalkGold offshore forum section. However, the advice you get is most off the time just self-advertising. I thought if you managed the forum you can simply block or warn them. However if OSP’s are not present on such forums you may get very little advice. And you run into problem of answering all questions or having an empty forum.
        Another thing I like about a forum is that you can simply open up a topic for each weekly post. They tend to have more comments/discussions than just comments on an article.

  8. Is there any advantage in opening a private banking account offshore other than asset protection? Because we have enough private banking options in my country. Or do they tend to have higher returns or more risky/unethical options for higher returns?

    • If we exclude asset protection, the reasons for picking a private bank in another country are about your own personal preference and the availability of services. It comes down to the things you mention: higher returns, riskier products, ethical limitations (or lack thereof), access to more or specific (regional) markets/investment opportunities, and so on.

      Another big factor can be the financial stability of both the bank and the jurisdiction itself.

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