Growth of new hubs challenges Swiss private banking stalwarts

Emerging financial centres across the fast-growing regions of Asia and the Middle East are expanding faster than traditional heartlands, but it is too early to write off the Swiss.

The global financial landscape is undergoing a dramatic transformation. Dubai and Singapore are rapidly ascending as major hubs, while Europe grapples with political uncertainty and economic stagnation. In this dynamic environment, wealthy families have much more diversity in their choice of centres. Yet most still keep some of their family assets in Switzerland, with its storied history of financial expertise and unwavering stability.

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“The economic environment differs in each continent: good in the US, slowing in Asia and challenging in Europe. But Switzerland stands out as a stable, robust and experienced place to keep money,” says Cynthia Tobiano, chief executive at big brand French financial player Edmond de Rothschild Holding. “And when you think about it, there are only a handful of similar locations.”

Rather than a new cohort of financial centres – Dubai, Singapore and Hong Kong – replacing the established regional hubs, commentators need to address the world order in a much more systematic way, she believes.

“People view this as a decline of the old guard and the emergence of a new generation,” says Ms Tobiano. “But these new hubs are just playing catch-up.”

Migrating millionaires

In order to fully understand the evolving dynamic, says Ms Tobiano, it is important to observe the ongoing migrations of wealth individuals and families.

The UK was set to lose 9,500 high net worth individuals in 2024, more than double the previous year’s outflows, according to the Henley Private Wealth Migration Report. The UAE, on the other hand, has attracted 6,700 wealthy migrants, increasingly comparing taxation, investment opportunities and personal safety, bolstered by inflows from the UK and Europe, cementing its position as a key destination for global wealth.

Such dramatic migrations can increase the focus on hubs like Dubai and Singapore, currently growing faster than Switzerland. “If you put yourself in the shoes of an ultra-high net worth client, it’s not as important a question anymore because everything is becoming global,” says Ms Tobiano. “It is no longer a question of ‘do I put my wealth in Singapore or in Switzerland?’ It is now about ‘how do I diversify my wealth so that it is protected?’”

Private bankers, she says, must keep an eye on what happens across the Atlantic Ocean and how that affects Europe. “In the US, there are questions surrounding [Donald] Trump’s impact. Firstly, is he going to execute any of his proposed initiatives? And if so, how will they impact inflation and interest rates? So you do have that complex interest rate game in the middle,” says Miss Tobiano.

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Switzerland clearly faces some unique challenges. Once a pillar of Zurich’s banking industry, Credit Suisse has faced a series of crises that culminated in its acquisition by UBS in 2023. Julius Baer, known for its elite wealth management services, has faced reputational challenges tied to compliance lapses. And recently, Swiss prosecutors charged Lombard Odier with money laundering.

Switzerland’s two major financial centres, Geneva and Zurich, both remain in the top 20 global financial centres in the twice-yearly updated Global Financial Centres Index (GFCI) published by Z/Yen, a financial services sector think tank.

However, both centres have shown a drop in rankings during 2024 – Geneva by six places and Zurich by one place, reflecting a falling brand value in the minds of financial sector professionals responding to the GFCI survey.

“This, in itself, is indicative of a wider trend to favour US and major Asian centres over Europe, including London,” says Mike Wardle, chief executive of Z/Yen. “With the erosion of the Swiss unique selling point of financial secrecy, Switzerland faces challenges in redefining its offering to international financial market.”

Global competitors

Switzerland will have its “work cut out to remain competitive”, particularly in the fields of green finance and fintech, where other centres are “strongly focused”, believes Mr Wardle. Asian and Middle Eastern centres have shown “rapid” development over the last 10 years. “These centres, and other younger, dynamic centres, are linked to growing domestic economies and developing trade and have made a major impact on the global stage,” he says.

The country’s location at the heart of Europe means that it is right in the centre of a stagnating market. In addition, the EU has shown protectionist tendencies, which makes it more costly to offer cross-border wealth management, according to Tobias Straumann, professor of Economic History at the University of Zurich.

“The EU wants to make Switzerland more dependent upon EU rules and regulations, but my hunch is that Swiss voters will reject the institutional agreement concluded at the end of last year,” he says. “Therefore, there will be no room for a bilateral service agreement, which would fully open the European market to Swiss banks.”

The European Union and Switzerland recently finalised a series of sectoral agreements to strengthen their relationship. On paper, the deal will grant Switzerland greater access to the EU’s single market while obliging Bern to adopt current and future EU laws governing the free movement of people. But Swiss voters will have the final say in a referendum.

Cold War barriers

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A new Cold War between the US and China could also pose problems for Switzerland. “Dubai and Singapore have much more opportunities. In a way, they have the same position as Switzerland used to have in the 20th century,” says Mr Straumann.

After the end of the original Cold War in the early 1990s, the US did not accept the special regulatory advantages of the Swiss financial centre, he says. Indeed, the 2008 financial crisis proved to be the “final nail in the coffin”.

Since then, Switzerland has had “no regulatory competitive advantage”, and as a new Cold War emerges, Singapore and Dubai will become even “more important as neutral and stable hubs”, he believes.

Nonetheless, says Mr Straumann, Switzerland will keep a special international position.  “Political, fiscal, and monetary stability is still exceptional.” Some investors will always bring “a fraction” of their fortune to Switzerland to diversify their portfolio. “An account in Switzerland is like holding gold, i.e. an insurance policy,” he says.

Most major players still talk about Switzerland’s private banking history, dating back to the 18th century, when institutions such as Pictet and Lombard Odier pioneered wealth management services. Even today, these firms cater to the world’s ultra-wealthy. During the mid-20th century, several leading international banks expanded into Switzerland, including Citi.

“Switzerland is still the traditional private banking hub,” says Laurence Mandrile, private banking lead of Switzerland and Monaco at Citi. “The service quality is something that our clients refer to a lot,” she adds. Core values of quality of service and stability remain “key” for Citi’s Swiss clients, she believes.

The landlocked nation is also one of few countries with a triple-A credit rating. “If you think about wealth management and the clients we serve, we do have a big team covering the Middle East, Latin America, and some smaller markets, but the Middle East clients like a triple-A safer, more stable country as a booking centre, because they don’t necessarily have that geopolitical stability at home,” says Miss Mandrile.

The country’s strong experience and traditions also play a pivotal role in Switzerland’s standing in the financial world. This is backed by strengths in education, particularly high-quality universities, which allow knowledge to be passed to new generations of wealth management experts, she says.

“It’s quite easy for family offices to settle here and hire good quality people, who know the place,” she explains, claiming that numbers of family offices set up in Switzerland continue to increase, despite stiff competition from rival centres.