CHAPTER 10

Wealth Management: A Comparison

of Switzerland, Singapore,
and Hong Kong
Francis Koha and Peggan Tanb
aSingapore Management University, Lee Kong Chian School of Business, 50 Stamford Road, Singapore 178899, Singapore
bDBS Bank, 12 Marina Boulevard, Level 6, DBS Asia Central, MBFC Tower 3, Singapore 18982, Singapore

10.1INTRODUCTION
Wealth management is generally defined as the provision of investment services by
financial institutions to high net worth individuals (HNWIs). HNWIs are clients with
investible assets of more than a million US dollars.They are normally served by relation-
ship managers from Private Banks. Other clients with less investible funds are served by
premier banking or retail banking units within a consumer bank.
Private banks provide a host of services which includes asset management, client advi-
sory, and wealth planning to both onshore and offshore clients. An offshore bank is a finan-
cial institution which is located outside the country of residence of the depositor. It is
estimated that HNWIs hold about one-third of their wealth in offshore banks. Switzerland
has USD 2.8 trillion in assets under management with USD 2.1 trillion coming from off-
shore wealth. It accounts for about 34% of total global wealth. Singapore is said to be the
fastest growing wealth management center in the world, with USD 550billion of assets
under management of which about USD 450billion is offshore wealth (CNBC, 2013).
The longer-term outlook is for wealth to grow faster in Asia-Pacific, estimated at
9.8% p.a. than Europe at 6.2% p.a. (see Figure 10.1). Hence, more and more European
Private Banks have been looking east and setting up operations in Singapore and Hong
Kong. In recent years, some reports have mooted the possibility for Switzerland to lose
its current pole position as the mecca of private banking, with Singapore advancing
as the premier offshore global banking center. This chapter discusses the key factors
favoring wealth management in the three financial centers focusing on the economic-
social-political and legal/tax environments.

10.2SWITZERLAND
Switzerland has been one of the most stable and developed market economies in the
world. The financial sector is a major pillar of the economy and contributes significantly
to the countrys Gross National Product. Swiss banks contributed 9.3% to the overall
Handbook of Asian Finance, Volume 1 2014 Elsevier Inc.

http://dx.doi.org/10.1016/B978-0-12-800982-6.00010-X All rights reserved. 195
196 Francis Koh and Peggan Tan

Europe

Asia-Pacific

Figure 10.1High net worth individual (HNWI) wealth forecast 20102015 (by region).
Source: CapgeminiRBC Wealth Management, World Wealth Report 2013, p. 7.

Swiss economy in 2011 (Swiss Bankers Association, 2012a). The growth of the financial
sector in Switzerland can be attributed to a few key factors. Firstly, Switzerland has a
strong and stable economy with stable economic growth while maintaining a low rate
of inflation. Secondly, it is geographically well-located, being a close neighbor of many
countries in the European Union (EU) while being politically neutral. Consequently, it
has evolved historically as a banking center for wealthy individuals to place their funds
for professional management.
Further, the Swiss education system, which has vocational training and an appren-
ticeship system, annually grooms a large pipeline of young bankers. Many banking
professionals begin their apprenticeships after high school and are comprehensively
trained in banking which lasts three or more years, in programmes accredited by the
Swiss Bankers Association. At the tertiary level, students can choose to read practice-
oriented diplomas or enroll in degree programmes at universities and technical colleges
(MarketLine, 2012). Through various talent development pathways, Switzerland has put
in place a sustainable pipeline of wealth managers.
Switzerland has a very established legal framework regulating financial institu-
tions and has a regulatory environment helpful for business. From the taxation angle,
Switzerland does not tax its residents excessively. There are Swiss cantons that are
known to offer generous tax concessions to wealthy individuals (Groux and Jesswein,
2011). The legal and business environment encourages HNWIs to move their residence
to Switzerland.
However, the 2008 global financial crisis caused numerous countries to step up
efforts to combat tax evasion. Switzerland, in particular, faced immense pressure from its
European neighbors. Subsequently, Switzerland went on to conclude a large number of
bilateral withholding tax agreements with many countries, including United Kingdom
 Wealth Management: A Comparison of Switzerland, Singapore, and Hong Kong 197

and Austria. Under these agreements, Switzerland forwards the tax owed directly to the
country involved without releasing a clients information (Swiss Federal Department
of Finance, 2013). The withholding tax arrangement was preferred over agreements for
exchange of information, which would compromise client privacy.
Yet, Switzerland faces many uncertainties in the near and medium term. As
Switzerland is economically and geographically linked with countries in the European
Union, the unresolved sovereign debt crisis in the Euro zone and an on-going, pro-
longed economic slowdown have direct negative impact on the Swiss economy. In
May 2012, the International Monetary Fund (IMF) warned that the Swiss economy
is threatened by the Euro zone debt crisis, and faces the risk of a recession if the crisis
becomes more severe.
Since the 2008 global financial crisis, the Swiss private banking industry has been
operating in an increasingly difficult environment, especially the issues of increased reg-
ulatory pressure and banking secrecy. Further, many Swiss banks had to pay hefty fines
to the US government because of alleged illegal banking transactions, suspected money
laundering or gross violation of cross-border banking rules (Barrett and Novack, 2009).
This has led to increased regulation, loss of business reputation and higher compliance
costs, issues which have plagued the Swiss banking industry.

10.3SINGAPORE
The active promotion of Singapore as an international financial center gained trac-
tion in the 1960s. With excellent infrastructure, a well-educated workforce and an
efficient legal system, many financial institutions were attracted to establish operations
in Singapore. This growth was also helped by the surge in the increase in wealth and
millionaires in the region. Over the years, with consistent promotion by the Monetary
Authority of Singapore, Singapore has established itself as a leading financial center of
international reputation. With its strategic location, excellent infrastructure and leisure
attractions, many leading global financial institutions and companies have set up their
Asian offices in the city-state (Koh, 2012). According to Singapores Department of
Statistics, the financial sector generated total revenue of about USD S$30billion which
forms about 12% of Gross Domestic Product in 2011.
Singapore has grown to become a major wealth management center offering both
onshore and offshore banking services. There are at least 40 financial institutions offer-
ing private banking services. According to the Monetary Authority of Singapore, total
assets managed exceeded USD 1 trillion as at 2011. This represents a 5-year average
growth rate of about 11% p.a. Private Banks, as a sector, have assets under management
of about USD 500billion.
According to the World Banks 2012 Doing Business Report, Singapore was glob-
ally ranked first out of 183 nations in terms of the ease of doing business. Singapore
also has well-crafted regulations to protect investor rights. With pro-business policies in
198 Francis Koh and Peggan Tan

place, Singapore has continued to attract foreign investment and business entrepreneurs
providing sustained economic growth and stability.
Socially, Singapore offers an excellent expatriate lifestyle with world-class infrastruc-
ture and a convenient transport system while having a secure and safe environment to
live in.The government consistently invests in education and the development of human
resources. In addition, it has a far-sighted game plan to build a competent workforce and
a pipeline of wealth managers across all levels. In 2003, the Wealth Management Institute
(WMI) was established with the support of the Monetary Authority of Singapore,
Temasek Holdings, and the Government of Singapore Investment Corporation (GIC),
to offer superior wealth management training. In collaboration with the Singapore
Management University (SMU), WMI offers the MSc in Wealth Management Program.
Besides this Masters degree, WMI also offers other programs leading to the award of
Certificates in Private Banking and Trust Services.
Legally, like Switzerland, Singapore has strict bank secrecy regulations which protect
client privacy. The Monetary Authority of Singapore takes a proactive approach to over-
see a regulatory framework which facilitates, accommodate, and promote the growth of
wealth management. Singapore has a competitive tax regime, with one of the lowest per-
sonal and corporate tax rates in Asia. Any income received in Singapore from outside the
state is not taxable, and estate duties have been removed facilitating wealth succession.
However, the growth of wealth management services in Singapore has led to a
number of challenges. With the arrival of more private banking units in Singapore and
the increased number of high net worth clients, there is a severe shortage of competent
wealth managers. Instead of in-house training and development, banks tend to choose
the quicker route of poaching experienced staff from other banks. The aging popula-
tion and low birth rates of Singaporeans have added to the current and future human
capital problem. Banks also face a very competitive environment to offer suitable prod-
ucts and services to their demanding clients.
With the accelerated growth of offshore banking services, there is an urgent need
for Singapore to remain a competent, clean and trusted financial center and avoid
reputational risks from accepting funds from dubious clients. Recent legacy problems
in Switzerland have motivated some clients to transfer their funds to be managed in
Singapore. Some wealthy Asians, with accounts in Switzerland, now view Singapore as
a feasible alternative. The challenge for Singapore is to adhere strictly to a gold standard
in monetary transactions and strenuously avoid accepting funds from suspicious sources,
including funds linked to undeclared taxes or money laundering. In recent years,
Singapore has signed many bilateral agreements with other countries to implement the
international standard for the exchange of information (Jek and Tan, 2010).
Another challenge for Singapore wealth managers relates to the current low interest
rate environment and the slow economic recovery in developed markets. These have
affected the rate of investment returns to clients. Clients are also increasingly more
 Wealth Management: A Comparison of Switzerland, Singapore, and Hong Kong 199

risk averse during uncertain periods and commit much less of their investible funds,
resulting in lower revenue for banks.The outcome is that banks have very high cost-to-
income ratios which have risen from an average of about 64% in 2007 to 80% or more.

10.4HONG KONG
In contrast to Singapore and Switzerland, the development of Hong Kong as a private
wealth management center is largely market-driven. The Hong Kong government has
adopted a relatively laissez-faire approach, leaving the growth of the industry to market
forces and the effort of the market participants (Jek and Tan, 2010). However, because
of its proximity to China, Hong Kong remains well-positioned to be a hub for North
Asia. According to Meyer (2009), the growth of China will generate an enormous
demand for sophisticated financial services which Hong Kong firms can provide ... and
will cement the citys rank as (one of) the three great global International Financial
Centers (IFCs).
Hong Kong, like Singapore, has a competitive tax regime, strict regulatory envi-
ronment, bank secrecy rules, and extensive social network of capital. Meyer (2009)
explained that the network includes not only commercial and investment banks, but
also the insurance companies, private equity and hedge funds that thrive in Hong Kong,
as well as the huge trading firms and regional offices. The continued strengthening of
the financial linkages between China Mainland and Hong Kong ensures the latters
continued success into the longer term.
However, Hong Kong has its share of challenges as a wealth management center,
including the high cost of doing business. One key drawback is its linkage to China, a
double-edged sword, as some Chinese HNWIs viewed it negatively. Although China
has consistently sought to remove any doubts of latent political risks linked to the
status of Hong Kong as a sovereign state, this remains a lingering issue into the longer
term.This issue has required the need for repeated affirmation by senior Chinese leaders
(Meyer, 2009). On this important issue, Singapore is a normally preferred over Hong
Kong to manage the assets of HNWIs from North Asia.

10.5A COMPARISON OF SWITZERLAND, SINGAPORE,

AND HONG KONG
In 2012, Credit Suisse published a comprehensive study on the competitiveness of
Switzerland as a financial center. The study examined Switzerlands current position
and compared its strengths and weaknesses with other international financial centers.
Thestudy noted that in recent years, gross margins (of the wealth management sector)
have come under pressure as investors have moved toward lower-margin assets, transac-
tion volumes have declined and interest rates have fallen to historic lows increasing
200 Francis Koh and Peggan Tan

challenges due to government efforts to enhance transparency in taxation matters

(Credit Suisse, 2012, p. 6). Credit Suisse identified 17 key success factors for financial
centers under 5 broad categories:
(a) People (openness to new talents; competitive income; education infrastructure; and
quality of life).
(b) Business Environment (extent of bureaucracy; openness of entry; and capitaliza-
tion of banks).
(c) Market Access (equity exchanges, commodity and derivative markets, security
markets, and trade and insurance services).
(d) Infrastructure (political system; rule of law; legal framework).
(e) Competitiveness (safe haven; use of English; appropriate regulation).
Tabulating the scores of the 17 success factors for Switzerland, Singapore, and Hong
Kong, an interest picture emerges. Switzerland has scores broadly in line with Singapore
and Hong Kong (see Figure 10.2) but Singapore is marginally ahead.
Singapore was analyzed as having similar strengths as Switzerland but has an edge
over Switzerland because of its location in Asia. Singapore was complimented for
having a strong economy, well-developed infrastructure, responsive tax e nvironment,
an industry-derived code of conduct, and nurturing professional competencies.
Consequently, Singapore enjoys three advantages over Switzerland: faster pace of
wealth accumulation, absence of legacy issues like taxes, and facing relatively less
political pressure from neighboring countries. As expected, Hong Kong was analyzed
as benefiting from the rapid growth of the economies of the Greater China region.
Hong Kong also gains from the overseas expansion of Chinese businesses abroad and
the offshore Renminbi market.
The Credit Suisse Study is useful in documenting what has been the perception in the
industry that Switzerland leads in private banking but is facing serious and real competi-
tion from Singapore and Hong Kong. In particular, implementation of the new Swiss tax
agreements with countries in the EU will result in short-term asset outflows and struc-
tural revenue loss. The total funds outflow and revenue loss has been estimated at about
47billion CHF and 1billion CHF, respectively (Carlos, 2012). However, the losses are
short-term, one-off, and not likely to be devastating. Thus, there is no reason to believe
that these new tax agreements and regulations will be catastrophic for the Swiss banks.

10.6VOICES OF PRACTITIONERS IN SINGAPORE

Focused interviews were conducted with various private bankers in Singapore to obtain
their views of the wealth management scene in Singapore. The discussions focus on:
(a) contemporary issues facing private banks;
(b) challenges for Singapore to be a leading wealth management hub; and
(c) the competitive advantages of Switzerland over Singapore.
 Wealth Management: A Comparison of Switzerland, Singapore, and Hong Kong 201

Singapore Hong Kong Switzerland

FACTORS
1. People
Open immigration for highly qualified 7 7 7
people
Competitive income (and capital gains) tax, 7 7 6
particularly for high earners
Strong university and business school 6 5 6
infrastructure
Good quality of life and real estate 5 5 7
2. Business environment
Limited bureaucracy for establishing new 9 9 7
financial/investment companies and banks
Open policy for non-bank financial 9 8 8
companies, i.e., hedge funds, private equity,
infrastructure funds and real estate
Well-capitalized banks with limited 6 6 6
systemic risk
3. Market access
Liquid and deep debt and equity exchanges, 6 6 5
open for foreign IPOs
Exchanges for derivatives and commodities 7 7 6
Global products in FX, fixed income and 7 8 6
equities independent of and not correlated
with domestic banks
Trade and insurance hub linked to bank 7 8 7
trade finance
4. Infrastructure
Stability of macroeconomic and political 6 6 7
system
Strong rule of law for protecting asset 9 8 9
ownership
Strong legal framework for mutual funds, 6 6 7
investment funds and ETFs
5. General competitiveness
Safe-haven status 7 5 8
English as the main language, or widely 9 8 7
used
Clear and appropriate regulation, and 6 6 7
measured enforcement

Overall Score 119 115 116

Figure 10.2Seventeen success factors for international financial centers. Source: Credit Suisse,
Switzerland as a Financial Center, September 2012, p. 9.
202 Francis Koh and Peggan Tan

Many respondents interviewed concurred that the main drivers shaping Singapores
wealth management landscape are its political stability, geographical location, and the
stringent regulatory framework which engender trust. One private banker specifically
mentioned that Singapores location in Asia is a safe haven, away from any fallout ema-
nating from the European crisis. With the ongoing crisis in Europe, some European
HNWIs are considering or have shifted their assets into Asia as a form of geographical
diversification. They also want to invest in Asias growth as well as to protect their assets
and real purchasing power over time.
Another banker analyzed the growth of private banks in Singapore from push and
pull factors. The push factors include the global financial and economic crises in USA
and Europe. These factors are aggravated by the unfriendly tax and regulatory regula-
tions introduced by US and Europe authorities, creating severe difficulties for HNWIs
to manage their assets. The commonly cited pull factor relates to the ambience and
location of Singapore in the midst of Asia, especially its proximity to growth countries
in Southeast Asia. Additionally, Singapore has a time zone which straddles the US and
Europe, allowing it to efficiently service clients and manage their investments in both
continents.
The most pressing challenge in Singapore cited by the respondents is the issue of
talent shortage.With the exponential growth of millionaires in Asia, there are not enough
senior client advisors. Hence, there is a merry-go-round as private bankers are lured to
move from one bank to another. Another challenge for Singapore b ankers is to keep up
with the constant changes in the regulatory framework within the wealth m anagement
industry. With the global spotlight on tax evasion, there is a tighter c ontrol of money
inflows into Singapore which impacts revenue.This imposes a conflict between increasing
near-term revenue generation and incurring potential longer-term reputation risks.
There is a consensus that there is relatively more old wealth in Switzerland com-
pared to Asia. More wealth in Europe has passed from one generation to the next.
Hence, the Swiss wealth management market is more stable and robust. On the other
hand, wealth in Asia is relatively new, and a large part of the investible wealth comes
from the nouveau riche like successful entrepreneurs. As such, clients in Asia normally
tend to be more hands-on: they want to know specific products recommended and
make more decisions. On the other hand, European clients are more inclined to entrust
their relationship manager with discretionary mandates. With these fairly distinct dif-
ferences between the wealth markets in Singapore and Switzerland, it would seem that
the two markets are complementary. Thus, the challenge lies in the ability of the private
bankers to manage the different types of clients from Europe to Asia.
There were diverse views on how fast and far Singapore will grow as a wealth
management hub. Some private bankers felt that there is a potential for Singapore to
overtake Switzerland as a wealth management hub but not in the near futureperhaps
in another 10years or more. The impetus is the rapid growth of wealth in Asia. In
 Wealth Management: A Comparison of Switzerland, Singapore, and Hong Kong 203

addition, with the many initiatives implemented by the authorities to promote wealth
management, Singapore, it can be a strong magnet for the inflows of funds. In recent
years, there are more Family Offices established in Singapore as well as external asset
managers (Hubbis, 2012; Camden, 2012). However, there are also many skeptics who
view Singapore merely as a regional player for the foreseeable future.

10.7CONCLUSION
While Switzerland may be facing an erosion of business in wealth management resulting
from legacy issues and the weak economic prognosis in Europe, Singapore, and Hong
Kong are charging ahead, attracting more new funds from within and outside of Asia.
Against this backdrop, Singapore is likely to grow further and be a big significant wealth
management hub in Asia, serving both Asian and non-Asian clients. However, in the
foreseeable future, Switzerland will continue to retain its position as the premier global
wealth management center, especially in serving European clients. We conclude that
Singapore will not replace but be able to complement Switzerland to serve high net
worth individuals from around the world. The challenge for Singapore is having more
competent managers who can provide suitable wealth solutions for global clients in an
increasingly complex and uncertain economic as well as legal environment.

REFERENCES
Barrett, W., Novack, J., 2009. UBS Agrees To Pay $780 Million. 18 February. <www. Forbes.com>.
Camden Research, 2012. Growing Towards Maturity: Family Offices in Asia-Pacific Come of Age.
Singapore.
Carlos, E.A. etal., 2011. The Future of Swiss Offshore Private Banking. Booz & Company.
CNBC, 2013. Singapore Will Replace Switzerland as Wealth Capital, April 22, 2013. Singapore.
Credit Suisse, 2012. Switzerland as a Financial Center. Credit Suisse, Zurich, Switzerland.
Credit Suisse Research Institute, 2012. Global Wealth Report 2012. Singapore.
Groux, S., Jesswein, K., 2011. The continuing role of Switzerland and the Swiss franc in international
finance. Proceedings of the Academy for Economics and Economic Education 14 (1), 1115 (Orlando,
Florida, USA).
Hubbis, 2012. The Guild to External Asset Management. Singapore.
Jek, A.L., Tan, D., 2010. The growth of the private wealth management industry in Singapore and Hong
Kong. Capital Markets Law Journal 6 (1), 104126.
Koh, F., 2012. Wealth Management in SingaporeCurrent Landscape and Strategic Challenges. In: Frick,
R. etal. (Eds.), Asset Management. Haupt Verlag, Bern, Switzerland, pp. 7990.
MarketLine, 2012. Country Analysis ReportSwitzerland. In-Depth PESTLE Insights. New York, USA.
Meyer, D.R., 2009. Hong Kongs transformation as a financial centre. In: Schenk, C.R. (Ed.), Hong Kong
SARs Monetary and Exchange Rate Challenges: Historical Perspectives. Palgrave, London, U.K.
Swiss Bankers Association, 2012a.The Economic Significance of the Swiss Financial Centre. Basel, Switzerland.
Swiss Bankers Association, 2012b. The Importance of the Swiss Banking Sector. Basel, Switzerland.
Swiss Federal Department of Finance, 2013,Taxation of Savings Agreement with the EU. Available at: www.
efd.admin.ch/themen/steuern
Tan, C.H., 2011. Financial Services and Wealth Management in Singapore. Ridge Books, Singapore.