“Our bank is not a tax adviser” is no longer a sufficient defence in today’s interconnected financial world. Neglecting tax implications costs investors billions each year, as scrutiny rises and portfolios become more global. Swiss wealth managers should evolve and integrate tax implications in their strategic decision-making.
“We estimate that up to 3 billion Swiss francs are overpaid each year by investors because their tax situation is not integrated into investment decisions,” says Romain Faraut, director of the Swiss market at wealthtech firm Croesus.
Meeting regulatory expectations
Around the world, regulations are being adopted to require that financial products offered to investors are suitable for their specific circumstances. In Switzerland, articles 10 and 11 of the Swiss Federal Act on Financial Services (FinSA) stipulate that institutions “must check whether financial instruments are appropriate for [their] clients before recommending them” and “shall perform an appropriateness or suitability review.”
This legal framework entitles investors to expect a certain degree of diligence in the consideration of their tax situation — especially in discretionary and advisory relationships.
Clarifying levels of tax responsibility
While banks may not offer formal tax advice, their degree of responsibility varies depend on the nature of the client relationship:
- Discretionary mandates: the bank exercises full control over investment decisions. This autonomy brings a heightened duty to consider tax implications, as choices directly affect clients’ after-tax outcomes.
- Advisory mandates: although clients retain decision-making power, banks are still expected to assess and flag potential tax consequences within their recommendations.
- Execution-only services: even when banks merely carry out client instructions, tax matters can lead to disputes. That said, they can cleverly leverage this to draw investors towards more personalised services, such as advisory mandates, thereby turning a constraint into a commercial advantage.
The price of tax oversight
A case reviewed by the Swiss Banking Ombudsman highlights the risks of neglecting tax suitability. Recently, an elderly client residing abroad had her portfolio fully liquidated and reinvested into an internal fund by her Swiss bank under a discretionary mandate. The resulting capital gains triggered a heavy tax bill in her country of residence.
Initially, the bank denied responsibility, citing its non-advisory position regarding tax matters. However, during mediation, it agreed to cover half of the tax liability. The case serves as a clear warning: tax suitability must not be overlooked, even when not contractually defined.
Why tax suitability adds strategic value
As tax regimes evolve and investor expectations grow, incorporating tax considerations into portfolio decisions is no longer optional. A robust tax-aware strategy:
- Enhances post-tax returns
- Builds long-term client trust
- Mitigates the reputational and legal risks
A targeted approach that respects each client’s situation, reporting requirements, and tax exposure is now a defining feature of premium wealth management.
"The objective is not to provide tax advice, but to exclude products that could have adverse tax consequences based on the client’s residency. It is not about having a single product list, but about taking each client’s tax situation into account,” explains Nabil Hatimy, director and head of client delivery and partnerships at the regtech Indigita SA.
Leveraging technology to drive compliance and efficiency
To stay ahead, Swiss banks are turning to technologies and partnerships that bridge compliance and client personalisation. By integrating fiscal data from Indigita into its systems, Croesus enables wealth managers to proactively understand the tax impact of investment decisions across jurisdictions, making tax efficiency a scalable, value-added activity.
“The fiscal consideration of a large number of portfolios from international investors has always been a tedious, complex, and costly activity. Now, we are removing this hurdle and switching the odds around by allowing international, tax-suitable portfolio personalisation to become a value-adding task,” adds Hatimy.
“Croesus Central is already available to Swiss professionals, enabling integrated, automated, and immediate tax analysis of securities and fiscally suitable portfolio management,” adds Faraut.
“As the regulatory environment intensifies and client expectations rise, wealth managers who embed tax suitability into their core practices will not only protect themselves, they will lead,” he concluded.
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