Bank secrecy can no longer provide the keys to wealth for Switzerland's banking sector; new ways must be found to attract clients, a conference in Geneva has heard.

A wet Geneva morning did not deter some 100 Geneva-based bankers from attending the recent Breakfast Briefing on the world of Swiss private banking in an environment where the main selling point cannot be secrecy, or the fact that clients can hide money in the Alpine state’s bank accounts.

This is not to say that there is no banking secrecy in Switzerland (as your correspondent has already been mis-quoted as saying in the local press). Secrecy will remain, and the duty of client confidentiality will remain a feature of Swiss banking. What we mean by a post-secrecy world is one in which local Swiss courts no longer refuse to order the transfer of bank account details for cases of tax evasion overseas on the basis that tax evasion is not a crime in Switzerland.

Wendy Spires, head of research at WealthBriefing, opened the conference and introduced the panel, inviting Ago Cluytens, a Geneva based marketing strategist, to open the debate. Cluytens began by reviewing recent developments in international financial centres, noting that, despite some reductions in their ratings the recent performance of Geneva and Zurich has been stronger. Switzerland has excellent infrastructure and a pool of talented people he added, and a post-secrecy world does not have to be one in which the clouds of doom and gloom prevail. Switzerland has an image of stability and of being free from corruption, which are appealing to many and the currency gives an image of strength.

His prescription for future success? “Remember that trust is more important than performance. Find what you do well and focus on that, and seek out new niches and new markets that you can service with excellence building on early successes.”

Business models under the microscope

Next to speak was François Reyl, chief executive of the Geneva-based banking group Reyl & Cie. Reyl began by referring to the need for Swiss firms to re-adjust their business models to reflect the current environment. Bank secrecy has been compromised by data theft and various legal challenges and inter-government negotiations amidst the external environment of the euro crisis and a moral crisis in international banking, he said. Swiss banking needs to develop a tax-compliant value proposition, he said, adding that “Made in Switzerland” remains an attractive proposition. In his view, the focus needs to move to onshore services with better reporting and transparency, and products that work for foreign tax systems should also be developed. Swiss banks need to offer more than simple asset management services and should instead cater to whole spectrum of wealth, taxation and inheritance needs.

“A banker should be a trusted advisor,” Reyl said. He also believes that there is opportunity to reach out to clients offering more services, including corporate services for their businesses, corporate finance and other added value services. Within all of this, however, the focus has to remain on preserving and growing the family’s wealth, in his view.

Secrecy: the former core USP

It was then your correspondent’s turn to address the floor. I began: “Secrecy used to be the core USP of Swiss private banking: let us be very clear that those days are over. Some institutions targeted US un-declared funds simply because they could charge 2 per cent on the assets for burying them. Those days are no more. If the industry is to survive, something has to change.”

Feeling that I had got the attention of those present, I outlined three areas in which I believe the Swiss banks need to develop clear competences: performance, transparency and quality of pro-active service. Observing that 90 per cent of fund managers under-perform their benchmark over five years and that there is no "genetic" advantage in asset management that belongs to the Swiss nation I questioned the expertise and capacity of the country’s asset managers to provide performance that clients will be happy to pay for. Inasmuch as transparency is concerned, my point was the difficulty clients have in understanding how much they are paying for their account. When you are living in a post-secrecy world where performance matters, people also want to know what they are paying for what they are getting.

Finally, I addressed the issue of the quality of relationship managers and the fact that few banks allot any resources to training these people – this despite the surveys all indicating that soft skills training is what they want most. “You need to invest in your bankers” was my conclusion.

Middle Eastern Clients

The next person to speak was Heiner Weber, head of the Geneva branch and Middle East desk head at Falcon Private Bank.Weber began by comparing Swiss financial services for GCC clients with medical services. “The GCC has outposts of the Mayo clinic and every major health provider. Clients go to these and then come to Switzerland or go to the US to get confirmation of their health and any procedures that they should undergo. It is the same with private banking. The GCC clients like Switzerland,” he said. “It is a tax-neutral market and clients see Switzerland as safe, secure and trustworthy. The image is very positive.”

Weber commented on the aggressive marketing of Singapore in the GCC, with bankers telling investors that their money is no longer safe in Switzerland due to such things as data theft, but he believes that, with explanation and the embedded cultural sensitivity of the seasoned Swiss bankers, trust can be maintained.

Jean-Luc Freymond, chief executive of SAGE, the IT company which sponsored the event, was last to speak. He believes that technology and interactive client-institution relationships are the key to future success in the wealth management business. IT can be employed to develop more and more sophisticated risk models and back-tested portfolios which can be demonstrated to the client with a set of portfolios and predicted outcomes. This type of model can be an aid to future success as it facilitates client choice and client understanding, and provides the banker with a needs based portfolio construction tool, he said.

The Q & A session that followed featured a discussion of Switzerland as an international tax-compliant centre for US declared clients who cannot get much international advice in the US, discussions of client trust and banker ethics and segmentation issues.

It is clear that, whatever the post-secrecy world holds for Switzerland, innovation is the only way forward. Fortune will favour the brave and the bold – so long as they are prepared.

There are several Breakfast Briefing and WealthMatters events coming up and they are free to attend for members of the WealthBriefing network. Click here to see our roster of events.