Peter Schmid, the head of UBP in Zurich, tells finews.asia why all the doomsday scenarios for offshore banking were wrong, and why he opens a client account himself every now and then.
Peter Schmid, Zurich as a financial centre is slipping in key rankings, a trend attributed to the loss of banking secrecy as well as new tax transparency rules. Have you seen this in your own experience as head of a private banking unit that has offshore business?
When Switzerland’s tax dispute with the U.S. flared up in 2008, everyone predicted that the Swiss financial marketplace and private banking would suffer. In fact, the opposite has happened – assets under management in Switzerland have increased. While a strong market performance has certainly contributed, banks have also been able to bring in more new money than was lost through the tax regularization process. And these client assets are fully tax-compliant.
Other financial centres, such as Hong Kong and Singapore, have grown much faster.
That’s true, but this also mirrors population trends in these regions, namely their rapidly rising standards of living and the increasing wealth creation in the region.
How has Union Bancaire Privée (UBP) fared in Zurich?
In 2004, UBP in Zurich managed approximately 4 billion Swiss francs in assets. We’re now at 25 billion francs.
Thanks to the acquisition of ABN Amro and Coutts, no doubt.
Yes, these successfully integrated acquisitions have played their part. But our organic growth has been strong as well.
How has the current year been unfolding?
We are very pleased with how things have been developing so far. Returns have been excellent since the start of the year. There have been relatively broad regional differences in inflows. Particularly in Europe, the growth curve has leveled off substantially in comparison with previous years.
How are you handling this?
UBP isn’t out to increase inflows come hell or high water. Our focus is on high-quality growth with HNW clients looking for added value. We sometimes turn down prospective clients who are not in our target markets.
What criteria do you consider when hiring relationship managers?
This is a topic of utmost importance to us, and we discuss possible new hires on a weekly basis. Although the quality of a manager’s client portfolio and relationships certainly plays a key role, the individual must also be a good match with our corporate culture.
«We want long-termers»
We work in a business that thinks long term, which is why it is positive for the relationship manager and the bank to focus on long-term cooperation.
You’ve stated that growth in UBP’s European client base has slowed. Which regions are still going strong?
Inflows are relatively dissimilar. They depend on the networks of our relationship managers, our recruitment process, and recommendations by existing clients. Asia, the Middle East and Eastern Europe offer good business growth potential at the moment.
Do you notice any offshore competition from US states in which existing trust laws continue to protect anonymous bank accounts?
We concentrate on our own business. Switzerland has decided to pursue a strategy of fiscal transparency, and it’s working out well for UBP.
«Someone will always be better than us»
It’s apparent from our figures over the past few years that the cultural strengths and global expertise of Swiss private banks are still very much in demand. Of course there will always be some other financial centre that has an unfair advantage over us. But that shouldn’t cause us to lose focus.
The introduction of the global standard for the automatic exchange of information will no doubt heighten competition even more for Swiss banking on the international stage.
That’s true. But if we as a bank continue to focus on our clients and achieving their investment goals, and if we continue approaching the market proactively, I don’t see this as a problem for Swiss banking.
Swiss offshore banking has been forced to narrow its market focus over the past few years. How has this trend been handled at UBP?
Regulatory pressure has compelled us to direct our efforts towards fewer markets as well. It’s simply no longer possible to serve clients from 150 different countries.
«Private bankers will have to beef up their expertise»
At UBP in Zurich, in addition to Switzerland and traditional EU countries we focus on Eastern Europe, Latin America, and the Mediterannean. We’re also developing our business with external asset managers. I imagine relationship managers have had to broaden their expertise accordingly.
«Preparing private bankers for the new paradigm»
At UBP, we’re following a two-pronged approach. The first is to train and license relationship managers for their specific markets. The second consists of so-called transformation projects, which prepare relationship managers for the new private-banking paradigm by focusing on active market development and proactive management of client relations.
How is relationship manager travel handled?
Any travel by our client relationship managers must be authorised, and they’re only permitted to travel abroad if they’ve mastered the requisite level of market-specific training. Each market head also monitors the relevant cross-border rules and consults with our compliance team.
The introduction of MiFid II has also brought about changes in private banks’ revenue models, from brokerage income to advisory fees. Banks now need an advisory agreement before they can sell even a single product. How has this been implemented at UBP?
We saw this change coming early on and last year began transferring our execution-only clients to advisory contracts or converting them to portfolio clients. In Zurich, we only ever open these types of account now.
«Some clients are better off with an online bank»
In our view, this makes perfect sense; clients who eschew advisory services and want only to make trades are better off with an online bank. I expect that, In Zurich, by the end of the year, we'll have advisory or portfolio management contracts with 80 percent of our clients.
How does this affect the fees clients pay?
We offer various pricing schedules, aligned with our clients’ needs. Some are based on a flat fee, while others depend on the number of transactions or the performance of the corresponding client portfolio. A fee-based model certainly tends to be more expensive, but in return the client receives a commensurate level of service and advice.
As the head of UBP Zurich, do you devote yourself primarily to regulations and compliance?
While I do spend some of my time on these matters, I still also serve a dozen or so clients myself. And I think it’s important that I do so. I can’t constantly be lecturing my relationship managers on FATCA or MiFID II or make them attend training courses if I don’t know how to open an account myself.
Peter Schmid is one of Zurich’s most experienced private bankers. His career started at Schweizerishe Bankverein, which is now part of UBS, in St. Gallen. After a detour through consultancy and information technology, he returned to UBS, where he held several high-level posts in wealth management. In 2011 he joined Merrill Lynch as CEO for Switzerland. Following a stint at Julius Baer, Peter Schmid took over the general management of Union Bancaire Privée’s Zurich branch.
