With pressure on fee income from lower trading volumes and the continued strength of the Swiss franc, the Swiss private banking industry has been quietly (and less quietly in certain cases) removing non-essential employees and cutting costs. A recent ruling from the Swiss Federal Tribunal will only add to the pressures on fee income.

The ruling issued at the end of October states that commissions paid to banks when they invest client funds in mutual funds or structured products provided by third parties or associated companies must be returned to those clients - unless the clients specifically agree that the bank can retain them.

This puts a requirement for fee transparency on Swiss banks that has not been present before. This development has been welcomed by the Swiss Association of Assets Managers as it places the banks on a level playing field with independent asset managers who have had to declare these fees to their clients since 2006.

The tribunal cited potential conflicts of interest between banks and clients who have given the bank a discretionary mandate as the reason for this ruling which will affect some hundreds of millions of fees in Switzerland alone, according to sources cited in Le Temps newspaper in Geneva.

The Swiss regulator FINMA has required that discretionary mandates stipulate the nature and level of these commissions since 2009 as well as to whom they are paid. The decision does not affect commissions in cases where clients give their own instructions to the banks, according to the Swiss Funds Association.

In reality, different institutions already treat these commissions in different ways – but the playing field has been levelled and transparency increased, all of which will mean that banks will have to increase their fees for discretionary management to cover the loss of income.

That in turn will focus the clients’ minds on what they are getting for the fees that they are paying. With increasing taxation and now fee transparency it is only a matter of time before clients focus on that one issue that should be dear to all their hearts – investment performance.