In today's climate of heightened tax transparency and increasingly intricate global tax regulations, prioritising tax-suitability in portfolio management is not just prudent, it is essential for safeguarding clients' financial well-being. Failing to do so can erode their wealth, their trust, and potentially lead to financial losses for both the client and the institution in question.
Tax considerations - it’s time for action
Swiss wealth management has historically overlooked tax considerations, but this approach is no longer sustainable. As a former and experienced wealth management professional deeply involved in the Swiss financial landscape, I have observed firsthand the negative consequences of neglecting tax implications. It is time for a call to action.
This article outlines the key reasons why, in the broader context of the European wealth management market, Swiss portfolio managers in particular must include broader tax considerations in their investment strategies. We explore the undeniable benefits of a tax-conscious approach, both for clients seeking to maximise their after-tax returns, and for financial institutions aiming to strengthen their position in a competitive market.
Adapting to tax transparency
Switzerland, once synonymous with banking secrecy, has undergone a profound transformation in recent years. The country has embraced international tax cooperation, actively participating in the automatic exchange of information. This shift has created unprecedented transparency, requiring financial institutions to adapt their practices to meet global tax standards.
In this new era, neglecting tax considerations in portfolio management carries substantial risks both for the wealth managers and their clients, who may face unnecessary tax burdens, diminishing their after-tax returns. In some cases, these oversights can escalate to disputes and even litigation, potentially involving ombudsman services.
A recent case handled by the Swiss Banking Ombudsman highlights the potential consequences of a client not taking into account the full tax considerations of their portfolio – a client residing outside Switzerland entrusted her wealth management to a Swiss bank. Without the client’s knowledge, the bank liquidated their entire portfolio and reinvested the proceeds into an internal fund, generating significant capital gains. As the client resided in a jurisdiction where capital gains were taxable, they incurred a substantial tax liability.
Initially, the bank declined to compensate the client, asserting that it wasn't obligated to consider individual tax circumstances. However, following mediation, the bank agreed to cover 50% of the taxes owed due to the portfolio restructuring.
This case underscores the critical importance of integrating tax considerations into wealth management strategies. A proactive approach to tax-suitability not only enhances after-tax returns for clients, but also cultivates client trust and mitigates legal and reputational risks for financial institutions.
The competitive edge: tax-suitable personalisation
While international clients are increasingly seeking tax-suitable portfolio management, surprisingly few firms have prioritised this need, creating a key differentiator for those who act now. Achieving true tax-suitability for international clients involves a level of personalisation that goes beyond traditional portfolio management.
Tax-suitable personalisation means tailoring investment strategies to each client's specific tax residency and circumstances. This approach requires a deep understanding of international tax regulations and the ability to integrate this knowledge into investment decision-making.
Technological empowerment to tax-suitability
Technological advancements have made it possible to achieve tax-suitable personalisation at scale. Sophisticated portfolio management solutions, such as Croesus Central, are leading the way by providing insights into tax trends, identifying potential tax liabilities, and forecasting tax implications across multiple jurisdictions. By integrating tax data from specialised partners like Indigita, these platforms enable wealth managers to optimise portfolios while considering the tax implications for clients in numerous countries. This data-driven approach facilitates informed decision making, optimises client outcomes, and streamlines portfolio management processes.
However, it is crucial to emphasise that while technology provides valuable data and insights, it doesn't replace the human element in wealth management. The final decision-making power rests with the portfolio manager, who brings their professional judgment and experience to tailor investment strategies to each client's specific needs and preferences.
To illustrate the practical application of these technological advancements, let's explore how Croesus Central empowers wealth managers with data-driven insights. This solution uses a system of tax ratings, ranging from -2 to +2, to assess the tax suitability of diverse financial products for clients in different jurisdictions. These ratings, derived from comprehensive tax data from 80 countries, offer a clear and concise assessment of the tax implications associated with various investment options.
The platform utilises a comprehensive rating system to evaluate the tax implications of various investments. This system provides a clear indication of potential tax burdens, ranging from highly tax-inefficient options that could lead to significant liabilities, to highly tax-suitable choices designed to minimise them. Essentially, the rating system provides a quick and easy way to understand the tax impact of any given investment within the specific tax context of the client.
By integrating these tax ratings into its portfolio rebalancing engine, our solution empowers wealth managers to make informed decisions about asset allocation and security selection.
The platform can automatically identify tax-inefficient investments and suggest fiscally advantageous alternatives, ensuring that portfolios are aligned with the client's tax residency and individual circumstances. It is then easy for the professional to accept or reject the suggestions provided by the system.
This approach achieves an effective combination of leveraging technology to enhance efficiency and personalisation while preserving the essential role of the wealth manager in nurturing client relationships, building trust, and providing customised advice. By strategically integrating the power of data-driven insights with human expertise, Swiss wealth managers can confidently navigate the complexities of international taxation and achieve optimal outcomes for their clients.
The time to act is now
Swiss wealth managers should act now to embrace tax-suitable portfolio management. By leveraging cutting-edge financial technology and global tax intelligence, Swiss banks and wealth managers can ensure compliance with tax regulations, maximise after-tax returns, and offer a personalised, transparent client experience. As tax policies continue to evolve, embracing tax-suitable portfolio management will be a defining characteristic of success in the future of wealth management.
Today, the Swiss wealth management sector stands at a crossroads. To maintain its esteemed position in the global financial landscape, it must embrace a new era of client-centric approach, including tax-conscious portfolio management. The time to act is indeed now.
Interested in reading the European WealthTech Landscape Report 2025? You can read the report online here.
About The European Wealth Landscape Report 2025
The European WealthTech Landscape Report 2025 is a new WealthTech Landscape Report from The Wealth Mosaic, focused on the wealth management sector in Europe.
With the rapid pace of change in financial services, understanding technology's impact on this sector is more crucial than ever. This Europe-focused Landscape Report features a series of insightful articles that explore the trends, challenges, and innovations surrounding technology adoption in wealth management. Contributions come from a range of organisations, including AWS, Croesus, Deloitte, ERI, EY, Fincite, Finfox, First Rate, Infront, Intellect Design Arena, Moneyfarm, Raise Partner and WealthOS.
The articles you will find within the report provide valuable perspectives on how technology is transforming the wealth management industry. They discuss various aspects of technology adoption, from the latest innovations to how firms can leverage technology to enhance client engagement, streamline operations, and comply with regulatory demands.
We trust you find this report invaluable to your business needs and supportive of your understanding of the fast-moving technology marketplace surrounding the European wealth management market.
Click here for more information.
About The WealthTech Landscape Report Series
Our goal with our WealthTech Landscape Reports (WTLRs), is to collate relevant, insightful content and comments from both wealth managers and vendors operating in a specific region. Each WTLR is founded on a curated directory of hundreds of relevant technology and related solution providers to the business needs of the wealth management community in focus. The directory is supported by a rich variety of thought leadership articles and interviews with industry participants from both buy and sell side, plus a section of Solution Showcases. We also look at country, regional, and sectoral trends.
If you are interested in contributing to our editorial projects, don't hesitate to get in touch.
Discover our latest reports!
