* Managers took about 7 bln Sfr in commissions and kickbacks
in last 5 years
* Banks, asset managers could face fee clawback
* Transparency could eliminate some fees
By Martin de Sa'Pinto
ZURICH, Nov 12 Swiss asset managers may have to
repay a chunk of at least 7 billion Swiss francs ($7.4 billion)
earned in commissions and other kickbacks after a top court
ordered UBS to return management fees which had not
been agreed with a client.
The Swiss Supreme Court's ruling last month paves the way
for clients to reclaim commission payments charged without their
permission, and is another blow to the country's asset managers,
which in the past could charge high fees in return for secrecy.
Revelations in U.S. courts of Swiss bankers helping U.S.
clients to dodge taxes, German criminal investigations and the
discovery of dictators' loot stashed in Swiss accounts have
already eroded the secrecy premium once paid by customers of the
country's $2 trillion offshore industry.
Ratings agency Fitch said the landmark case could set a
precedent for all banks in Switzerland to repay finders fees and
Fitch added that banks may increase their management fees to
make up for the shortfall in revenues.
Data from the Swiss National Bank and the University of
Zurich show commission payments and other inducements - known as
'retrocessions' - made up 36 percent of the 3.6 billion francs
in revenues raked in by Swiss asset managers in 2008.
Over the past five years the amount of retrocessions taken
in by the country's 2,500 independent asset managers totals
around 7 billion francs, ac cording to Reuters calculations.
Asset management is a costly affair in Switzerland, where
clients had previously been willing to accept higher charges
than those charged elsewhere in return for prized Swiss secrecy,
said one asset manager who asked not to be named.
"There is virtually no financial product, service or
commission rate in Switzerland that cannot be acquired at a
lower cost elsewhere by the client that has the freedom and
ability to look for it," he said.
"In an environment of low investment returns, these fees
cannot be hidden or disguised as in the past."
Martin Straub of Zurich-based Envisage Wealth Management
calculates that for a 1-million-Swiss franc portfolio returning
6 percent annually, an industry average 0.4 percent retrocession
rate would cost the client 250,000 francs over 20 years.
IN A SWEAT
Vito Roberto, a professor of law at the University of St.
Gallen, said the ruling would have a profound effect on smaller
asset managers who have not agreed fee waivers with clients.
These managers may have to return commissions received in
the last five years - a substantial part of their revenue -
Roberto said, adding that it will also be challenging and costly
for them to calculate the payment due to each clients.
Roberto said the ruling will have limited impact on larger
banks, as it affects only a fraction of their revenue.
UBS said the judgement would require further analysis, and
added that it has informed clients since 2009 of the range of
distribution fees received from product providers in their
annual statement of assets.
A key concern for the supreme court was a potential conflict
of interests when institutional asset managers such as banks
bought in-house products for client portfolios, triggering other
charges beyond asset management fees, such as distribution fees,
that accrued to the institution itself.
In such cases institutions could be tempted to choose the
products that generate higher fees over those most suited to the
client. The ruling means customers must now be informed of these
fees, which must be repaid unless the client agrees to waive
Credit Suisse said it was assessing the possible
effects of the judgement but declined to comment further.
Vontobel said the decision was unlikely to affect
it, since it had fully transparent client agreements in place.
"The basic problem with retrocessions is that they were for
a long time not disclosed and not transparent. Some may well be
justified due to the costs of analysis, selection, marketing and
distribution of funds," Envisage's Straub said.
"When all is transparent, value added services tend to
remain and these can then be correctly compensated. Raising
disclosure and transparency will likely make many (other) types
of retrocession simply go away of their own accord."
($1 = 0.9489 Swiss francs)
(Reporting by Martin de Sa'Pinto; Editing by Louise Heavens)