Liechtenstein — the country of the high standards of private banking and wealth management services
When it comes to Liechtenstein, people usually think of a rich boutique state in the middle of nowhere in the Alps. Despite this stereotypical thinking, more and more wealthy people from Russia and other countries far from Liechtenstein have become clients of financial and fiduciary service providers. What attracts them to this small country, sandwiched in the Rhine Valley between Switzerland and Austria?
Natalia Soloviova, consultant and partner of Heritage, consulting and law firm, Russia, being a student at the University of Liechtenstein conducted a series of interviews with the representatives of the Liechtenstein financial and fiduciary industries to become familiar with the advantages the country can offer for wealthy clients in comparison with other jurisdictions.
Natalia Soloviova: Why do wealthy clients choose Liechtenstein for financial and fiduciary services? What are the main advantages over other jurisdictions?
Simon Tribelhorn, CEO of Liechtenstein Bankers Association:
The main advantages of Liechtenstein are the political and financial stability of the country and its financial sector. The banks’ Tier 1 capital ratio, which is a key measure of a bank's financial strength, is more than 20% on average. It is quite unique when it comes to banking in Europe and worldwide. What is special for Liechtenstein banks is access to two markets: the European market due to the membership of the EEA and also the Swiss market as we have Customs and Currency Treaty with Switzerland. As we have a small home market we have always been involved in the international cross-border activities and we have special expertise in that area. Our banks have subsidiaries throughout Europe and in Asia and clients from all over the world. We are very integrated, always internationally thinking and externally oriented. We also have a good international network and close relationship to other intermediaries abroad. That is something that people like about our services and that distinguishes us from other financial centres.
This year Liechtenstein celebrates as a sovereign state its 300 years anniversary. We have a long history as a country and it reflects a long-term business approach of those who are working in Liechtenstein. We are able to look back 300 years and the same way look into the future. Liechtenstein exists over generations and wants to position itself as a financial centre for generations. It comes also from the princely family who is always thinking in the long run. The culture of the princely family, this long-term orientation spirit is transported into the financial sector which is focused on the long-term investments, long-term asset management, and succession planning. The future financial security is very important, we have a high density of insurance companies because we want to make sure that our assets will be there for the next generations and that is very much part of our thinking.
Andrea Bruellmann, Financial Markets and Products of Liechtenstein Bankers Association:
It would be very important to say that Liechtenstein is not just a financial centre. The industrial sector is very important and contributes much more to the economy than the financial sector. There we have a handful of big companies like Hilti, the biggest one with 20000 employees worldwide. When we talk about statistics and come up with the industrial sector people have big eyes because they think that around 90% is the financial sector. It always changes the perception of the country once you can say that we also have an industry like Hilti because they know what it could be (drilling machines and other industrial tools). The financial sector, of course, is very important too. The banking industry is presented by 14 licensed banks. The biggest bank is LGT Bank which is owned by the princely family and has around 60–70% of the assets on the management of all the banks. But most of the banks in Liechtenstein are the niche banks. If we compare the number of banks presented here to the number of inhabitants we can see that there is quite a number of banks and the financial sector is quite important for the economy. The whole financial sector contributes about 24% of GDP. As well as the whole economy, the financial sector itself is very diversified with different stakeholders, fund service providers, asset managers, banks, insurance companies, fiduciaries. It is the broad range of niche players in Liechtenstein and it is very dense.
We have to implement a lot of regulation and it is the price that we should pay to be able to say that we have the same standards like European banks and we follow obviously global international standards as we are also active in Asia. That is the advantage of being small because we always have to adapt to these standards and be cross-border. That thinking makes us unique. If you have a big home market like in the US you do not have to comply to the same extent because you can always do business and it is sufficient. As for us, we always have to be proactive and we have to show that we are in line with all the standards otherwise they do not want to do business with us. We always have to be flexible and have to adapt to make sure that we still up to speed because if we do not comply with all the standards we cannot do any business.
Ivo Elkuch, Managing Director of the Liechtenstein Institute of Professional Trustees and Fiduciaries:
Liechtenstein has a very long tradition in structuring and preserving wealth, and our main advantages are security in law and security in economic circumstances. The country has got an AAA rating from Standard & Poor's which means that it is a trustworthy country with stable finances and legal security. Our company law is from 1926 and does not change every month or every year. People can be assured when they set up a structure here that it will be the same circumstances 20 years later. Of course, we have to adjust our laws but the main circumstances are the same. We are thinking in generations and if we look back we have a long tradition. At the same time, if look forward we offer solutions that will last very long and we have similar conditions that you will expect in 20 or in 40 years. But it is not only the law it is also people who are working here, trustees and other financial intermediaries specialized in wealth preserving and protection. People are well trained, they can offer insurance, funds and banking services at a very high level. Also, we have not only the strong financial sector but also the strong industrial sector which is much bigger than the financial sector. This way, we can profit here from the stable economy, well-trained people, location in the middle of Europe, high quality of living, moderate taxes, and everything else you need for living, working, doing business and preserve wealth.
Peter Krenn, Deputy CEO / CSO of Bendura Bank:
The main drivers that we experience from our clients’ side why they choose Liechtenstein are, first of all, the political stability and the very low economic risk that is reflected by triple-A national rating for the jurisdiction itself. In terms of currency stability, we are tied to the Swiss franc and as such to the Swiss monetary union. We have additional legal certainty by the fact that we are actually implementing the EU regulations as a member of the European Economic Area. It gives the clients and introducers a lot of possibilities to use Liechtenstein as a renowned jurisdiction for structuring purposes. That is of the particular interest when we speak about the fund industry. Also, Liechtenstein has almost more than 100 years specialized in wealth structuring and is the only continental European jurisdiction implemented trusts in its own legislation, something that is Anglo-Saxon jurisdictions are familiar with. Besides that, we have a very common tool of foundations for wealth structuring and succession planning. That gives us a whole spectrum for the continental and non-continental European clients to have tools in place that clients would understand and accept. With this flexibility of the jurisdiction that allows clients to use it for wealth structuring and succession planning also comes the flexibility of the financial market meaning that also the banks are willing and able to offer the needed services. To give a concrete example, the popular instrument when it comes to the succession planning is so-called “discretionary foundation” where the distributions of the foundations are made at the discretion of the foundation council. And while it is something that widely common and accepted in Liechtenstein you will find it hard to find an appropriate Swiss bank willing to open an account to such a structure simply because it is not as common and widely known as it is here.
NS: For what services customers go to Liechtenstein intentionally? What is the most in demand among customers today?
Our core business is private banking, assets management, wealth management and there we see a huge trend towards sustainable finance among wealthy clients. If clients are interested in sustainable finance then Liechtenstein will be a location of choice for them when they are looking for a stable environment based on the Swiss franc. Tax optimisation, tax evasion, this is not an issue in Liechtenstein anymore because we have the automatic exchange of information in place. So, this is not the right reason if people want to come to Liechtenstein and open a bank account due to the tax reasons because this is not in the interest of our intermediaries and not the interest of the country itself. We have implemented a tax conformity strategy in 2010 and then in 2013, the government in line with all the stakeholders decided to conclude various agreements on the automatic exchange of information. With Russia, it is in place and it has been exchanged from September 2018. Twenty years ago, nobody asked about taxes at all but now it is one of the first questions to make sure that everything is correct. Service providers always have this in mind and will advise actively on this issue. If you want to have a structure lasting very long you have to look at all the impacts and all the factors, and foreseen clearly possible problems in the future and have an answer on this.
Wealthy people do not want to put every egg in the same nest, so people who are securing their wealth have a good possibility to put some of their fortunes into Liechtenstein. We have solutions for structuring the wealth of families, for structuring relationship and for trading as well. For succession planning, foundations and trusts are the most successful products, insurance products are also possible. In each case, we have to look at every situation of every single person or family and look at what is better for them. People from commonwealth countries prefer trusts while people from the rest of Europe know what the foundation is but they have no clue what the trust is. It is quite a challenge to explain people from the civil law countries what trust is. However, The Hague convention of recognition of trusts has changed a lot, at least in the mind of governors or administrations. If somebody does not know the trust maybe it will not be comfortable to use them and then a foundation will be the better solution. But what to choose depends on the business and cannot be made by computers because you have to analyse what clients want, their wishes in the long run also, what is perspective and after that, you can tailor products.
NS: What criteria can customers use to choose the best on the market? How can customers be sure that financial and fiduciary products they get in Liechtenstein are the superior quality?
In the Liechtenstein Institute of Professional Trustees and Fiduciaries we have 400 members and often get a question “To which shall I go?”. As we represent all our members, we cannot answer this question directly but we have high criteria to make this job. A trustee license is very hard to get and this guarantees the good quality of our members by itself. Further depends on the needs. Some want to have all in all in one house, so there are bigger members who have also in the house or very close insurances and other products. Other prefer small ones which are flexible. This is what we cannot take away from the clients — freedom to choose the right member. It is kind of listening to the market to find who will best fit your needs. But I can assure that every member has the knowledge to advise the clients wisely. All trustees have a high level of expertise. There are a lot of rules they have to follow: the trustee law, code of conduct and other special rules for trustees. Moreover, they are under the supervision of the Financial Market Authority and our supervision, every trustee has to be a member of our organization.
Usually, our distribution model works through recommendations. First, the personal recommendations of current clients who are already satisfied with services. They drag new potential and eventually onboarding clients. And second, it is the institutionalized recommendations, so-called “introducers network”. Introducers are driven to cooperate with one bank or the other by the name, the brands, the reputation of the bank and the range and quality of services. They look most at the flexibility of the bank and its reliability. There is to some extent the trade-off between brands perceived stability. On the one end of the scale, there are very renowned brands like the market leader in Liechtenstein in the private banking industry which is also rated with a very high rating. These huge financial institutions may be less flexible, slower when it comes to all procedures starting form onboarding a client. On the other end of the scale, you would have financial institutions with no brand name possibly but they are trying to distinguish themselves more through the level of service that they can offer. Bendura bank is somewhere in the middle between these two extremes being the fourth biggest financial institution out of 14 in Liechtenstein. There is quite a strong separation between 3 banks in the country covering approximately 85-90% of the market and the remaining banks which cover the rest, and out of these remaining banks we are a market leader and that is exactly what put us in the middle of this scale.
NS: Do financial and fiduciary providers offer integrated approach in providing different services and in what way?
Simon Tribelhorn, Andrea Bruellmann:
Even we are quite small we can cover many different types of services. We can cover fiduciary services, all kind of banking services apart from investment banking and it is rather unique in such a small place that you can basically offer such a big range of services to clients in one place. You can go to family office and they will liaise with the specialists and bring everybody to the table. That is something that makes us unique. We know each other and it is easy to get in touch with somebody or to involve somebody if it is necessary and we need special expertise. It makes it easier when you have a good relationship among each other, know already the parties before, and have also close link to the Financial Market Authority. We can go to them and present a case. The openness to speak about new ideas is also something that makes it attractive to clients. You can come with new ideas say: “I have a new idea, what do you think about it?”. People here are open, they listen to you and they try to assist you. That is something that makes it easier to provide integrated services because parts really work together.
Since decades we are dealing with international clients as our home market is too small. We are very accustomed to complex needs. Therefore, our members, the bigger ones, have all competencies in their house and others have at least a network of specialists they can ask and integrate. After having a discussion with the clients, they can provide experts who will be taken into account.
As for the banking sector, we are definitely willing to go the extra mile for the client but the limitations that we reach are usually set up by the regulation or by law. But we can offer, for example, a fund solution when we as a bank recognize that the actual instrument that a client is looking for is not an instrument out of our sphere but the instrument that fund management company would offer. We have two fund management subsidiaries so we can easily recommend one of them to a client. We can obviously introduce other service partners when it comes to, for example, the incorporation of companies, setting up of structures, or tax planning. We have a large network within Liechtenstein and also beyond the borders where we usually recommend three to five partners so that the client can make his own research and comparisons and come up with his own decision. We guide him as much as we can and as much as the law allows us to do it. It is at the client’s discretion and duty to have certain things arranged prior to coming into the banking sphere which is usually one of the last steps when the structure is being set up.
NS: How the CRS and Automatic Exchange of Information initiatives influence the clients’ profile and expectations from the Liechtenstein financial and fiduciary sectors?
We are one the first mover in installing automatic exchange of information we are one of the first countries to install the rules of the CRS. For the customers, the main aspect that it costs more because if there are more rules there are more things to do. But it is not a problem if the whole world has similar rules. If we are playing the same game at the same level it is good for the reputation and our recognition is better. It is even more secure to manage wealth here. In early times, we have been called a tax oasis, but this is not a case anymore. Normally we have a good reputation now.
In 2009 Liechtenstein has published so-called “Liechtenstein declaration” in which it committed itself to abide by the white money strategy. Another milestone was definitely the implementation of the CRS. Liechtenstein was one of the early adaptors of the CRS and all the tax relevant information has been reported to the jurisdiction of the clients. The tax haven is something that is completely out of range at the moment and it is not demanded anymore.
When we look at the figures of the time when Liechtenstein as an early adaptor has introduced and adapted the CRS (2017–2018) we will see that even in that time the banks have succeeded in attracting additional funds, additional assets from the clients and therefore there is no perceivable negative influence of the CRS. In addition, from 2009 with the publication of the “Liechtenstein Declaration” proclaiming the white money strategy, adoption of the CRS it is just the next logical step, and clients have already been prepared for this step, they have been expecting it: where it was necessary they have declared their companies and funds, paid the respective taxes, restructured their assets to be compliant with the home jurisdictions. But certainly, that is also something that has been accelerated by the implementation of the CRS. By now Liechtenstein has concluded the CRS bilateral agreements with around 100 other jurisdictions, and most of them been relevant in terms of assets that are been managed out of Liechtenstein. And the number is constantly growing, so this trend is definitely going to be even stronger in the future and it is clearly inevitable. It is the future that the clients have to be fully transparent, every single action that our clients take needs to be understandable, well documented and compliant in every single way.