Offshore Tax Expert Says Private Banking Is Changing

by Jason Gorringe, Tax-News.com, London

02 November 2001

Eminent international tax expert Professor Barry Spitz says that the time-honoured Geneva model of private banking is rapidly disappearing, first for business reasons, and secondly due to the impossibility of providing any effective measure of secrecy.

Professor Spitz says the essential aspect of the relationship between private bankers and their clients was always that the banker would keep the client's affairs secret and that staff members would be required to sign a declaration of secrecy. If numbered accounts were used, their purpose was to limit those who knew the identity of the client.

“While the core activity of private banking is and will continue to be asset management for private clients, the new trend is to concentrate more on investment advice and portfolio management, due to the low risks and high returns that can be generated,” Spitz says.

“Many of the Swiss private bankers have converted their partnerships into private or publicly-traded corporations in order to have limited liability and to be able to benefit from financing opportunities on the capital markets.”

Spitz says that in the past few years many private banks have begun to focus more on the management of assets for institutional investors with relatively less attention being paid to private clients. But the greater demands of institutional clients are putting pressure on private banks' fee structures and forcing them to enhance their technical expertise. Private banks are becoming active on the stock exchanges and many are involved in underwriting and placement.

“In addition to catering to institutional investors, private banks are establishing investment funds,” Spitz says. “The investment fund business has attracted new clients to private banks who either wish to invest in specialised funds or whose assets are not substantial enough to justify the structuring of individualised portfolios.”

Professor Spitz says however that the biggest changes in private banking will be those connected with secrecy. Even in Switzerland, he says, there are specific circumstances in which the duty of secrecy of a banker is discharged. And the recent terrorist attacks have resulted in more restrictions on bank secrecy. The level of secrecy in the Swiss banking industry, says the Professor, is now not very different from most developed countries. Tell that to the EU!

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