MATTHEW FEARGRIEVE: Switzerland Must Try Harder!
Readers of this blog could be forgiven for overlooking this week the breaking news that Credit Suisse has re-entered the ETF space after selling it seven years ago to BlackRock (remember that?) with what finews.com reported as being a “range” of ETFs. Three, actually; two of which will be ESG-based (natch) sporting sustainable benchmarks (“sustainable” in the eco-sense, that is):
The in-out nature of Credit Suisse’s positioning on ETFs is remarkable, an “ETF hokey-kokey” as Portfolio Adviser put it today:
On closer inspection, this re-entry by Credit Suisse looks distinctly half-cocked: they will morph three of their ninety plain-vanilla index trackers into these ETFs. Credit Suisse’s Head of EMEA Michel Degen nodded towards the growth of digital sales platforms as a rationale for the resurrecting the bank’s ETF offering, as an attempt to attract inflows from the expanding fintech space.
The reticence of Swiss financial services providers, when it comes to retail financial products, should not be a source of surprise. Switzerland has not truly moved on from the secrecy regime on which it thrived prior to the UBS affair in 2009, the denouement of which was the Swiss government acquiescing (a little unwisely, one feels) to the release to the US feds of information pertaining to 52,000 accounts held in Switzerland by US taxpayers.
Before UBS, the model of banking in Switzerland was a straightforward one: we (the banks) agree to hide your dirty money in exchange for non-negotiable fees and a lavish lunch once a year when you visit us in Geneva or Zurich. This model was of obvious appeal to, say, a Nigerian warlord swapping the heat of his homeland for the Alpine uplands each summer, travelling only with his mistress and an empty suitcase. Not for nothing are the biggest luxury goods outlets in Geneva and Zurich located in the banking district.
The secrecy regime in Switzerland has long fostered a culture in which no one sues anyone, a deep-seated convention that is still pervasive. It is against this backdrop of passivity that the country’s attitude to retail baking and investment must be understood. After decades of passive, hush-hush banking for shady UHNW clients, the spotlight of the UBS affair came as a shock to the Swiss banking elite, many of whom simply retired. Emerging from behind them were the ranks of younger bankers, who were left facing the brave new world of transparency like rabbits in the headlights.
The wholesale, merchant banking model that Switzerland had to offer suddenly had to be dragged, kicking and screaming, from “secrecy and lunches” to competitively-priced, performance-oriented, tax-transparent financial products. You can imagine how long that has taken. And you can understand that retail banking (financial services and products for retail customers) — which was never, ever a priority, nor even an afterthought for the Swiss banks — continues to lag behind in Switzerland.
Trawl any Swiss city for an ATM and you will search long and hard. Call your bank after 7pm or at the weekend, and you will be met with an answerphone. Go online and transfer money from your savings account to your checking account: you will wait 24 hours (or the next business day) before the money hits; and you will pay for the “service”. Ask your bank for a paper statement, there will be a charge. Transfer any amount of money overseas from Switzerland and there will be a charge. Want a mortgage to buy a house? You will need a doctorate in finance and economics to understand what’s on offer. Have savings in a Swiss bank? Prepare to pay for the privilege: negative interest rates were invented in Switzerland, and are really quite popular (with the banks). Have a pension portfolio with a Swiss provider? It will be tame in its risk rating, underwhelming on its returns, narrow in its scope (Swiss bluechips only) and aggressive on fees.
Switzerland is no world-beater when it comes to retail banking or retail financial products. And in terms of asset management, the country has always been primarily an advisory and distribution centre, rather than a place where assets are actually managed. Swiss and global investors alike will not be expecting these Credit Suisse ETFs to set the world alight.
Matthew Feargrieve is an investment funds consultant, and worked in Switzerland for several years. You can read more of his blogs here:
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