By Stephen W. Bedikian, Associate Wealth Advisor
In American popular culture, ownership of a Swiss bank account has historically been associated with extreme wealth and privacy. Often films portrayed the need for privacy as related to espionage or criminal activity. The numbered Swiss bank account was the ultimate in concealment – so secret even bank staff didn’t know the identity of the account holder.
Recently, interest in opening a Swiss bank account has revived. More wealthy Americans are considering opening Swiss bank accounts fearing U.S. risks. Current U.S. trade policies and our enormous federal government fiscal deficits have prompted concerns about long-term financial stability. But would opening a Swiss bank account provide you with a greater degree of risk protection?
Investors should understand these accounts’ actual benefits – and also consider whether there are other options that could serve the same role.
Today’s Swiss Bank Account
The perception of impenetrable secrecy – and potential avoidance of U.S. income taxes – associated with Swiss bank accounts seems to have lingered despite significant changes in the regulatory environment. Although U.S. disclosure laws have existed for decades, it wasn’t until 2009 that the government began to aggressively enforce them with a prosecution of Swiss lender UBS that resulted in a $780 million fine. Numerous Swiss banks subsequently reported U.S. citizen account holder information to the U.S. government and paid large penalties.
The Bank Secrecy Act, in effect since 1970, requires a U.S. citizen with a financial interest or signature authority for a non-U.S. account over $10,000 to file a Foreign Bank Account Report (FBAR) with the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Treasury, each year.
In addition, the Foreign Account Tax Compliance Act (FATCA) was passed by Congress more than a decade ago. It requires U.S. taxpayers to file a Form 8938 report with their tax return when their foreign assets reach a certain threshold, based on filing status and the residency of the tax filer(s). Reportable assets include stocks, investment funds, and currencies. The penalties for failing to file or underreporting assets are tough – up to $100,000, or 50% of the account value, plus potential criminal charges. And yes, Swiss banks can be required to file reports on their U.S. citizen account holders with FinCEN.
Investor Concerns
Would you still want to open a Swiss bank account if the secrecy is a thing of the past? You should begin by determining which specific concerns you’re seeking to address. Here are a few examples:
Will the U.S. dollar lose its reserve currency status and continue its recent decline in value relative to other major currencies?
Are most of your assets in U.S. stocks and bonds and you’re looking to expand international diversification?
Do you need asset protection from a specific type of liability or bankruptcy risk?
Are you seeking to stash cash under the proverbial mattress in a country perceived as safe and stable?
The Benefits of a Swiss Bank Account
- Stability. Switzerland was last invaded during the Napoleonic Wars. The Congress of Vienna (1814-15) re-established Swiss independence, with European powers agreeing to recognize permanent Swiss neutrality. It’s been more than 200 years since the country has been involved in a foreign war; this provides the perception that it is a physically and politically safe place to store your money.
- Currency Diversification. If you hold your assets in dollars, you can continue to hold dollars in a Swiss bank account. Or you can hold assets in other currencies like Swiss francs, Euros or British pounds. If you believe that the reserve currency status of the dollar will erode over time and some type of devaluation will occur as a result, then holding assets in foreign currencies can potentially reduce some risks.
- Asset diversification. Many U.S. investors are heavily invested in domestic stocks. The S&P 500 has dramatically outperformed international stocks for the past 15 years and many investors’ allocations to international stocks have shrunk. In the MSCI World Index, for example, U.S. stocks represent over 70% of the value. Not surprisingly, the Magnificent 7 stocks are all in the Top 10 holdings of this index.
To help achieve greater diversification, an investor could hold stocks of Swiss companies, denominated in Swiss francs, and held in a Swiss investment account.
But are you primarily concerned with currency and asset diversification? Most investment firms like Fidelity support purchases of foreign currencies and stocks traded on many foreign exchanges. Purchasing shares of a Swiss company like Nestle that is traded on the Swiss exchange and holding your shares in Swiss francs may require just a few clicks in your existing U.S. account.
Opening a Swiss Account
For investors who still want to hold some money in an alternate, “safe” jurisdiction, the process of opening an account is fairly straightforward. You will need to provide identification like a passport, proof of address, and proof of assets like pay stubs, income statements or investment records. The bank may conduct additional due diligence.
There are many Swiss banks that offer accounts for non-Swiss foreign nationals. The two largest Swiss banks merged last year; successor bank UBS is now by far the largest Swiss bank with over $5 trillion in assets under management. Minimum deposit amounts will vary by bank and the type of services you require.
Is opening a Swiss bank account a good option for you? If this is something you’re considering, have a conversation with us about the nuts and bolts – and whether a foreign bank account may be the right fit for your financial situation.
Sources:
https://www.occ.treas.gov/topics/supervision-and-examination/bsa/index-bsa.html
https://www.irs.gov/businesses/corporations/foreign-account-tax-compliance-act-fatca
Disclosure:
Halbert Hargrove Global Advisors, LLC (“HH”) is an SEC registered investment adviser with its principal place of business in Long Beach, California. HH may only transact business in those states in which it is registered, notice filed, or qualifies for an exemption or exclusion from registration or notice filing requirements. Registration does not imply a certain level of skill or training. For information pertaining to the registration status of HH, please contact HH or refer to the Investment Adviser Public Disclosure web site (www.adviserinfo.sec.gov). Additional information about HH, including our registration status, fees, and services can be found at www.halberthargrove.com.
This blog is provided for general information purposes only. No portion of the content serves as the receipt of, or as a substitute for, personalized investment advice from HH or any other investment professional of your choosing. It should not be construed as a solicitation to offer personal securities transactions or provide personalized investment advice. The information provided does not constitute any legal, tax or accounting advice. We recommend that you seek the advice of a qualified attorney and accountant.
Different types of investments involve varying degrees of risk, and it should not be assumed that future performance of any specific investment or investment strategy, or any non-investment related or planning services, discussion or content, will be profitable, be suitable for your portfolio or individual situation, or prove successful. The views contained herein are not to be taken as advice or a recommendation to buy or sell any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without previous notice. There is no guarantee any forward-looking statement will come to pass. All opinions or views reflect the judgment of the author as of the publication date and are subject to change without notice. All information presented herein is considered to be accurate at the time of writing, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. This material should not be relied upon by you in evaluating the merits of investing in any securities or products mentioned herein. In addition, the Investor should make an independent assessment of the legal, regulatory, tax, credit, and accounting and determine, together with their own professional advisers if any of the investments mentioned herein are suitable to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. It should be noted that the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yield may not be a reliable guide to future performance. Any reference to a market index is included for illustrative purposes only as it is not possible to directly invest in an index.
