Kick backs paid out by Swiss banks to assets managers must be transferred to the clients. Also kick backs from funds providers received by the banks are belonging to the clients. This was stated by the highest court in Switzerland in a leading case. Many private banking clients even do not knows about the existence of such kick backs.

Due to a new leading case in Switzerland assets managers are obliged to transfer all kick backs, commissions etc. received by the Swiss banks after each transaction, to their clients. Approximately 50% of the commissions earned are currently transferred as incentive for more transactions to the asset manager.

Most part of the asset managers assumed a renouncement by the client in 81% of the cases. Therefore, the asset managers collected the kick backs on their exclusive benefit. The majority of the clients are even not aware about the existence of such kick backs. By virtue of the verdict stated in the recent leading case the tacit renouncement assumed by the asset managers became illegal. It still became illegal if it corresponds to the intention of the bank to transfer the kick backs to the exclusive benefit of the asset manager.

Without a written and quantified renouncement stated by the investor it is forbidden for asset managers to collect the kick backs and finder's fees. A tacit behaviour by the client can not be assumed as a renouncement. All kick backs and commissions collected during the last 10 years must be delivered to the client.

In the leading case the client had no idea about the amount of the kick backs paid out. Nevertheless, the court protected the pretension of the client on the kick backs.

Prof. Dr. Daniel Fischer and Enzo Caputo, acting for the law firm Advokaturbüro Fischer & Partner in Zurich (www.swiss-advocate.com) stated that many international private banking clients called the law firm for more information on the subject. The clients are asking if they are entitled to become back such payments. The lawyers specialised in private banking services are convinced that it is worth in any case to analyse the asset management agreement, the bank account documentation and to take an overview on the account statements. It is convenient for each client to analyse his singular case and to ask for the kick backs paid out during the last 10 years. In case the Swiss bank account in Switzerland is not declared to the tax authorities in the country of residence of the client, there are still suitable procedures and good solutions protected by the Swiss banking secrecy laws ensuring the recovery of the payments of the kick backs and commissions. Subsequent that leading case, it is no more understandable if such large sums are not recovered. Es wäre nicht verständlich, wenn solche grosse Summen nicht eingefordert werden. The court decision was highly appreciated by both Zurich based lawyers as an efficient instrument to combat malpractices as „churning“. Churning means: the asset manager triggers useless transactions with the sole intent to generate commissions and kick backs. It is imperative for the benefit of the fine art of Swiss private banking to keep transparency. The leading case was an important contribution, Fischer and Caputo says.

Enzo Caputo, attorney at law

(Decision 4C.432/2005 as of 22. März 2006)