Switzerland: Another reason why family offices are flourishing

Switzerland might still be the world’s biggest depositor of very rich people’s money, but for how much longer? A new study suggests the number of private banks in the country will shrink by 30% in the next three years. The diminishing size of the country’s private banks are of course due to many reasons, but the super rich aren’t depositing their money in the country as much these days, preferring in many cases to set up onshore family-office structures, or give it to local multi-family offices.

It has been happening for sometime, but offshore banking in Switzerland is now in many cases seen as more of a hassle than it’s worth, particularly among the very wealthy in western Europe and North America. Many governments in these countries have crack down on offshore money and next generation wealth doesn’t see the point of depositing money in Switzerland, preferring in many cases to remain transparent with their tax affairs in their home country.

The 1970s was the acme of Swiss private banking. That’s when Europe’s millionaires use to drive across the border with briefcases stuffed full of dollars, or their local currency, and deposit it in no questions asked numbered accounts. But those that did that are getting old and dying off, being replaced by a generation increasingly being brought up with an attitude that it’s uncool not to pay taxes.

Many Swiss private banks haven’t done themselves any favours either by the fact that they charged high fees for their services, despite not offering superior investment performance. For years, the very wealthy use to be willing to pay these fees as a kind of “hush money” for the banking secrecy that existed in the alpine nation. That’s increasingly not the case, especially because banking secrecy is under the billystick across the globe these days.

The Swiss banks most affected are expected to be the smaller ones, says the study. No surprise here – they don’t have the economies of scale of the big ones that can use their balance sheets to offer the super rich deals their family offices might not be able to source.

But, if Swiss private banks aren’t reaping all the new money the super rich are making, where’s it all going? Family offices would appear to offer some explanation.