Why Switzerland Is Still an Important Haven

SWISS BANKING AND SWISS INVESTMENT MANAGEMENT

The Swiss are famous, as everyone knows, for their fine chocolates, cuckoo clocks, fairy-tale scenery, charming Alpine villages, and banks. Mostly, they have been known for their secret banking, ever since the Bank Secrecy Act was passed in 1934. Switzerland has had a lot to offer foreign investors in the form of sophisticated banking, with a wide array of banking services, . nancial accounts, investment knowledge, and personalized service. Switzerland’s financial community has attracted approximately one-quarter to one-third of the world’s private assets as a result of its banking and investment expertise. Today, its main focus is investment management of high-net-worth individuals from around the world, the crème de la crème of the banking world. Other countries, such as Singapore, are competing with Switzerland for the same business and have had some success; by doing so, they help to keep capital within their own region, and certainly under their control.

Switzerland has been under attack for decades by the high-tax countries and some international organizations that would like to break Swiss banks open like a child’s piggy bank. These culprits include the United States, Germany, France, the OECD, the European Union, and a few others that do not favor financial privacy, the cornerstone of personal sovereignty. What they do believe in is transparency for everyone—except perhaps themselves. And, they also support the concept of tax “fairness” for all, as if there is really any fairness in taxes. Over the decades, Switzerland has compromised some to reduce outside pressures, but the benefits of Swiss banking have remained largely intact through time—that is, until very recently. I pointed out a few of the potential threats faced by the country in my book, Secrets of Swiss Banking, which was written in 2007. Since then, the great Union Bank of Switzerland (UBS) banking fiasco, with its business problems in the United States, hit the headlines. This mammoth bank found itself in a precarious position and was forced to cooperate with the United States or get out of the country. Well, unfortunately for its U.S. customers, it evidently found that “giving up” some of its customers who held bank accounts in Switzerland to the U.S. government was more palatable than giving up its
U.S. operations, which had grown significantly over the years and now supported 30,000 U.S. employees out of 80,000 worldwide. The bank’s operations in the United States had obviously become substantial, and a few of its customers were about to find themselves given up as sacrifices. UBS agreed to this plan in theory but has been slow to fully cooperate, as the Justice Department finds itself having to sue the bank to get the names of 55,000 American depositors who the Department suspects are cheating on their taxes, as if that were the only reason to have an offshore bank account. There are many legitimate purposes for banking in another country, and doing so—which is still perfectly legal—does not automatically imply tax evasion. Anyone who can read graffiti should already be offshore. So far, the United States is still waiting for all of the names. It may be very disappointed if and when it gets them.

Meanwhile, Switzerland, and particularly Swiss banking, has begun to have something of a public relations challenge. Many clients of UBS, not just Americans, were bailing on the bank, worried that they could be next. After all, it isn’t just the American tax authorities who chase potential “tax cheats.” But the UBS problem morphed into something bigger. Swiss bank secrecy has been compromised, and now you will find much stronger bank secrecy in Belize, Nevis, the Cook Islands, Panama, and Hong Kong than you will in Switzerland. The process of tearing down the walls of bank secrecy has stopped short of eliminating financial privacy altogether, so that privacy still exists for legitimate clients. Switzerland won’t protect the proceeds of criminal activity, however, and since these developments of the past two years, Swiss banks have fiatly been turning Americans and Canadians away, including asking them to take their business elsewhere, even when the client was not a problem, which most of them weren’t. Now, having said all that, Swiss banking has had a fine reputation for decades, and it is trying to maintain that reputation against the tide of change and bad press. Big money from around the world is still enjoying the benefits of Swiss banking, although there is no guarantee that Swiss bank secrecy will be secret forever. And, if Switzerland ever does join the EU, which seems unlikely but which could be coming, bank secrecy will be finished—the cornerstone that allowed Switzerland to gain the reputation as “bankers to the world” will be gone forever.

One area in Switzerland today that is still open to North Americans is investment management, and if you have at least a cool million to put under Swiss asset management, there are still a few banks that would like to talk with you. Although, in Switzerland, a million dollars is not a lot of money, for that level, they will give you respect. After all, money is money. But, before you do that, look into the many benefits of Swiss financial-related insurance products that offer the opportunity for deferring taxes (and possibly avoiding some), excellent investment returns, maximum asset protection, and financial privacy. The 140-year-old Swiss insurance industry is rock-solid, with approximately 20 companies, and no insurance company has ever failed. These companies offer a wide array of insurance products to fit all types of people and their requirements. Switzerland is the most stable nation in the world and is politically neutral, having not been to war since the days of Napoleon Also, it is the world’s oldest democracy, with 700 years of history.

SWISS FINANCIAL-RELATED INSURANCE PRODUCTS

The Swiss Portfolio Bond

The Swiss portfolio bond, known as an insurance wrapper, is a variable endowment policy customized to the needs of the client that combines the best of everything this financial center has to offer. That includes Swiss banking and Swiss investment experience, which is employed to maximize your holdings and estate. There are other offshore jurisdictions that offer Swiss-type insurance products, but none are finer than those available in Switzerland and in Liechtenstein. The Swiss portfolio bond, like the other Swiss insurance products, provides the foreign policyholder maximum asset protection, including financial secrecy, not just because of the Bank Secrecy Act, but also because the assets are technically held by the insurance company and you become a policy or bondholder. This insurance contract creates the ideal umbrella under which to safely hold assets, conduct Swiss banking, and grow your investments without any interference or invasion of privacy from your own government or anyone else.

Historically, your investments will outpace your domestic portfolio, as the Swiss are shrewd investment managers. They are conservative in their approach, with long-term capital appreciation and preservation in mind at all times. The fact that most investments are denominated in Swiss francs, which have appreciated greatly against the U.S. dollar for decades (although another strong currency or currencies may also be employed) helps the overall portfolio appreciate even more. When compounded over time, especially when taxes can be deferred, the dynamic is something of financial physics, or, as Benjamin Franklin said, “Money makes money, and the money that makes money makes more money.” This Swiss portfolio bond is a very fiexible structure and will also shield your holdings from the potential of future forced repatriation of your assets by your own government.

The Swiss portfolio bond establishes a legal relationship between the insurance company and the client by use of a contract called a policy or bond. The client decides the type of investments he or she is interested in, and the insurance investment managers provide their expertise and advice to help maximize those decisions. Thereafter, the portfolio is professionally managed, although you may direct investments, including the purchase shares of stock, bonds, unit trusts, cash deposits, mutual funds, money market funds, and so on. In addition, any investment where value can be established, as can be accomplished in a liquid market (ifie., one where the security or asset can readily be traded on an exchange), can also be incorporated into the portfolio. Other assets can be valued through an appraisal by a reputable, certified appraiser or certified public accountant. Real estate, art, and stock in a closely held company are a few examples. Your investment manager will likely suggest investment hedges in the event of possible changes in the economy or investment trends, such as investments that should protect you during infiation. Shares in different types of commodity funds, a basket of strong currencies, perhaps gold and silver bullion or shares in solid mining companies, or other types of investments that will help balance your investment portfolio and protect it from the unexpected could be included in the mix. The insurance company will establish bank and brokerage accounts in Switzerland or Liechtenstein as needed to facilitate your financial transactions and investments, and these are protected within the policy. Liechtenstein mirrors Switzerland in attractiveness and benefits and is often used in concert with Switzerland to the advantage of the client and to further enhance asset protection or product options, depending on the circumstances.

The Swiss portfolio bond can also hold a separate life insurance policy and provides the ability to separate distributions from the person’s estate and directly designate a beneficiary, thereby circumventing domestic probate. Whew! Within a few days of proof of death—therefore, the insured must be a natural person—the insurance company will quickly disperse the portfolio holdings to the named beneficiaries. Typically, family members are beneficiaries, but beneficiaries are not limited to family and can be any individuals named by the insured. Another nice feature is the ability to name a legal entity or entities as beneficiaries, such as a corporation, trust, pension fund, foundation, establishment, or charity. This is an excellent way for beneficiaries to keep their proceeds offshore and not have to bring them home. The beneficiary is in control of the legal entity named as beneficiary. The legal entity beneficiary can have financial accounts established in advance and ready for funding, too, so that there is no delay in receiving proceeds when the time comes.

The Swiss portfolio bond incorporates the best of everything the Swiss financial community has to offer, and it’s rolled up in one nice neat package. The most significant drawback may be the initial investment requirement, which is likely to be a minimum in the range of US $1 million. Once the first premium is paid, you are ready to begin building your fortune. Additional infusions of capital and assets may be made at any time during the term of the policy and in specified increments based on the contract. The good news is that if the initial investment requirement in a portfolio bond is too steep, many of the same benefits can be achieved with a Swiss annuity, and certain insurance companies today will start you out with an initial investment of only US $50,000—so let’s have a look.

The Swiss Annuity

The Swiss annuity is truly one of the best estate-planning structures available anywhere in the world, and, with a modest $50,000 initial investment, your future and that of your family will be much more secure. The annuity allows you to begin building your investments over time, through appreciation of the underlying investments and the appreciation of the currency in which they are denominated, and, typically, the Swiss franc has served best for this purpose for decades.

In the past 25 years, the franc has appreciated against most currencies, and, in that period, it has experienced an appreciation of 212 percent against the U.S. dollar, or basically a 5 percent annual compounded rate of growth. Although the franc is no longer backed by gold, Switzerland’s conservative monetary policy and fiscal practices have contributed to keeping infiation close to only 1 percent annually. This, combined with the appreciation of the investments themselves, creates higher profits than would normally be attained domestically. There’s a quantum leap effect, too, when the profits can be tax deferred, and, as these dynamics are in play and are permitted to build for the longer term, the outcome is that your nest egg or your retirement funds will have increased quantitatively. Albert Einstein said, “The greatest principle in the universe is the power of compound interest.” That belief holds true here.

The annuity anticipates longevity, and, coupled with a life insurance policy that covers you and your heirs in the event of unexpected or sudden death, it’s a double whammy of protection. Your estate is well insulated in any