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Distribution in Switzerland: Challenges & Solutions

By Daniel Haefele
Posted: 30th January 2013 09:43
Distribution to Swiss Investors becomes more difficult and more expensive in the light of the new regulations.  Outsourcing legal representation to a high-quality local service provider and access to an extensive distribution network are key. 
Currently Swiss (financial) intermediaries are being affected by a wave of new regulations which create new challenges for the internal organisation and are linked to higher costs. As a result of the financial market crisis Swiss Government reacted as did all their colleagues in Europe, asking for more stringent supervision, more substance and more transparency on financial intermediaries. In the same time the Swiss Federal Court judged in a landmark case that banks have to pay back part of the trailer fees received from product providers in the last 10 years to investors.  It is hard to gauge in advance what the Financial Services Law planned for 2015 will cover in the end; however it is clear that the leeway asset managers have enjoyed in previous years will become very limited. 
With the entry into force of the new CISA and its ordinances on 1 March 2013, the good old private placement rule more or less disappears and becomes regulated as “Distribution to qualified investors”. Collective Investment Schemes (CIS), whether UCITS or AIF, distributed to qualified investors domiciled in Switzerland, will have to appoint a legal representative and a paying agent. At the time of writing, it’s still not absolutely clear what tasks the Legal Representative has to execute and what his responsibilities will be.    
We know today that under the new regime, funds only distributed to qualified investors will have to be notified to FINMA and that all fund documents have to be amended with the information for Swiss investors. Banks won’t qualify any longer automatically as representatives and will need special authorisation from FINMA.  
Still unclear is whether or not distribution agreements between the fund manager and the qualified investor have to be signed by the legal representative and whether fund documents may also be made available in English to qualified investors. However, adapting most of AIFMD, the new Swiss regulation will add cost and complexity.
FINMA authorisation will now be needed for all Swiss domiciled asset managers managing foreign collective investment schemes.  This new ruling, entirely copied from AIFMD, will have a major impact on the hundreds of small entities managing EU-based or offshore CIS.  By outsourcing the fund management to fully regulated asset managers at the domicile of the fund and acting as investment adviser only, they can delay the problem.  But two years down the road, the new Swiss Financial Service Law will end all non-regulated financial services.  Therefore, the wiser decision would be to go for FINMA asset manager authorisation.  This will secure the asset manager‘s existence in the long run. 
All of these points create a more competitive environment and will lead to shrinking margins, particularly for the “professional investors” who are the targets of foreign asset managers.  Adapting to the above challenges with fewer staff and adapting at the same time to AIFMD, MIFID II, RDR, FATCA and at least two bilateral tax agreements, will keep Swiss financial intermediaries busy.
As retrocessions are being phased out, the classical B2B-distribution channels will introduce new fix access and/or services fees, fund research will try to select from a smaller universe of providers introducing “guided architecture” or “preferred provider” offerings, giving distributors a chance at least to comply with new suitability and appropriateness requirements. 
For 2013 it’s therefore important for asset managers looking to distribute into Switzerland to understand that in fact nobody has time or is really keen to speak to them.  Everything which helps the Swiss financial intermediary to use his time efficient will benefit the fund provider.  Having all legal documents ready, factsheets and other information translated in the language of the investor and the funds available at banks and platforms becomes an important competitive advantage.  High quality service and communication to distributors and qualified investors will become the key to successfully keeping up existing or building new distribution.  Since there is such a high amount of foreign assets managed in Switzerland many providers are also obliged to observe various foreign regulations (RDR, FATCA, MIFID II).  This makes the setup and maintenance of a distribution network very expensive.
From a business perspective it is therefore advisable to start giving serious thought to which activities can be executed by in-house, additional staff and which functions should be outsourced to specialised companies.
This will be true for the legal representation and the distribution of collective investments in Switzerland.  Doing everything in-house does probably not pay off any longer.  The core competence of asset managers is the management of the entrusted client assets.  Most of the operative and regulatory responsibilities can confidently be outsourced to a specialised provider. 

Daniel Haefele is CEO of ACOLIN Fund Services. ACOLIN’s service range includes fund registration, legal representation in Switzerland, and access to a network of European distributors. Daniel was founder of Fondvest AG, a fund-based asset management company which he sold to UBS in 2001.
Daniel can be contacted by email at

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