Zurich, Switzerland

Swiss Retrocessions

By Helen Burggraf, Guest author for US Tax & Financial Services

Americans, Brits and others with Swiss bank accounts prior to 2012 are being warned that time is running out for them to get back any hidden commissions they may have paid.This comes in the wake of a recent Swiss Supreme Court ruling which updated four earlier decisions, and which, some say, has shone a timely spotlight on a littleknown virtual pot of unclaimed cash…

An unknown number of individuals from the US, UK, Canada, and Europe are at risk of losing out on commission rebates – known in Switzerland as “retrocessions” – that Switzerland’s courts have repeatedly said they are entitled to receive. There are two reasons these individuals stand to lose out on money they’re entitled to receive. The first is because there’s a 10-year statute of limitations on such claims, and the types of commissions in question were outlawed in 2012.

The second is that these “retrocessions” have not yet been distributed because no one has been given the job of telling the would-be recipients that they are in line to receive them.

The amounts of money that such individuals are at risk of losing varies. But it can be equivalent to as much as 2% per year, in some cases, of the value of the assets that they were advised to invest in the relevant accounts, according to published reports.

In Switzerland, the term “retrocession” is used to refers to basic commissions that banks and wealth management firms received in exchange for recommending that an individual open a particular account. It also refers to various maintenance commissions, kickbacks, trailer fees, and so on, according to a Switzerland-based claims management company spesialising in handling retrocession claims.

In other words, an individual from another country (say, an American) who invested USD 2m in a Swiss bank account in 2010 could be due a “retrocession” refund of up to USD 40,000 per year, plus interest of 5% from the date each “retrocession” was received by the bank, according to a Geneva-based firm specialising in banking litigation matters.

The exact amount that the individual mentioned above would receive in a retrocession payment, “would depend on the turnover of the investments in which they invested, and the type of investment products they selected,” one banking specialist mentioned.

Global move towards greater transparency

The move by the Swiss courts against hidden sales commissions and fees was an early example of what has been a global shift in financial services towards greater transparency over the past 15 years.

A key element of this shift saw the gradual acceptance of the idea that commissions could influence a bank’s presumed objectivity in recommending a particular course of action, and their clients should, therefore, be aware of them.

The move away from commissions in Europe was reinforced with MiFID II in 2018, which banned discretionary wealth managers and independent advisers from accepting commissions, although it permits “restricted” advisers to still accept them.

New Swiss Supreme Court ruling

The issue of the unclaimed retrocessions sitting in Swiss banks dates back to 2006, when the first of what was to become a series of Swiss court rulings on the matter was issued.

But the topic hit headlines yet again in May, after the Swiss Supreme Court published another decision involving retrocessions.

Like all earlier decisions, the court reiterated that Switzerland’s banks are obliged to refund retrocessions as long as the client’s claim for restitution is within 10 years of the date that their agent received his retrocession money.

The original Swiss Supreme Court ruling that first established the tenyear statutory limitation period for making a retrocession claim against the banks was handed down in 2017.

Experts note that under the law, Swiss banks today may still receive retrocessions and retain them – but only if they obtain a valid waiver from their clients.

The most recent Swiss Supreme Court ruling specified that such an “advance” waiver would only be permitted if it would enable the client to estimate the anticipated scope of their retrocessions going forward. While the law is clearly on the side of individuals who are owed retrocessions by their Swiss banks, this process may be daunting for the clients themselves who may anticipate delays in communication or a tedious process.

Taking the banks to court is an option, of course, but this avenue can be expensive and diffcult for the average investor on their own.

Unclaimed retrocessions said to potentially total USD 16.2 bn

In a Financial Times article last June, it was reported that the number of unclaimed retrocessions still sitting in Swiss Banks could be as high as CHF15bn (USD 16.2bn) for what was then three-and-a-half years still within the 10-year limitation period (this assumes that Swiss banks earned about CHF4.2bn annually) back in the days when the amounts of the retrocessions were being set.

The problem is that the possibility of recovering retrocessions has not been widely publicised to investors and the clock is ticking.

If you had a Swiss bank account and/or investment account you opened before 2012, and possibly still have it, feel free to get in touch with Darlene Hart at US Tax & Financial Services Group.


Guest Author Helen Burggraf

 

Darlene F. Hart

Darlene F. Hart

GGI member firm
US Tax & Financial Services Group Ltd.
Advisory, Tax
London, UK, Zurich, Switzerland
T: +44 20 7357 8220
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Darlene F. Hart is the founder of US Tax & Financial Services (est. 1986). With offices in London, Zurich, and Geneva, and clients in over 30 countries, the firm provides US tax advice and planning, and compliance services for individuals, partnerships, corporations, trusts, and estates around the world. Darlene continues to help private clients get compliant with their US tax obligations and also advises banks, financial institutions, and trust companies. Darlene works mainly from the office in Zurich.


Published: GGI Insider, No. 110, November 2020 l Photo: Taljat - stock.adobe.com

 

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