The Federal Court ruled that owing to a potential conflict of interest between a bank and a client who had given it a large discretionary mandate, periodic commissions for distribution (i.e, commissions d’état / Bestandespflegekommissionen) received by the bank from third parties including companies in the same group, were, unless agreed otherwise, subject to Art. 400 of the Swiss Code of Obligations. Nevertheless, the Client is obliged to pay the expenses incurred by the bank in accordance with Art. 402 of the Swiss Code of Obligations.
Skandinaviska Enskilda Banken S.A.’s, Luxembourg, Geneva Branch (“SEB Geneva”) internal organisational system has been designed to ensure that any compensation or consideration it receives, and in particular fees received in connection with financial product distribution, does not negatively impact the quality of its wealth management services. To this end, financial product selection is handled by a department that is independent of the front-line units; in addition, it is based on a systematic investment process. This ensures that investment decisions are made in the clients’ interests and are in no way influenced by any form of consideration that the bank might receive from third parties.
In addition, SEB Geneva takes account of the overall mix of both revenue streams from and fees paid to counterparties when setting its pricing policy, irrespective of the contractual basis under which it has undertaken to provide banking services to its various clients.
The total percentage value of distribution commissions received by SEB Geneva for private clients with discretionary management agreements has always been below 0.1% of the bank’s AuM in 2012.
Paying out to clients the total commissions received from counterparties would lead to costs related to dividing up the commissions. It would also necessitate passing the overall distribution costs incurred along to clients pro rata. In line with Art. 402 of the Swiss Code of Obligations, these additional administrative fees would be borne by our clients. The resulting fee increase would be well above the percentage of commissions received by the Bank.
That is why Clause 10 of our Individual Discretionary Management Agreement with clients states that any compensation received may be kept by the Bank, as follows:
“The Customer hereby acknowledges and by signing the contract expressly confirms
- having received information on inducements from third parties in the discussion between the Bank and the Customer;
- that the inducements of third parties covers part of the costs arising for the Bank in connection with the management of the Assets of the Customer.
The Customer and the Bank agree that credit entries, retrocessions, finder’s fees, rebates and kick back fees as well as any other fees from third parties shall remain the property of the Bank.”
In addition to this provision in the Individual Discretionary Management Agreement, a document entitled “Information concerning Retrocessions” which explains our business policy in this regard, is available in our other offices as well as on our website and forms an integral part of clients’ contractual relationship with the Bank.
For these reasons, the Bank has no plans to reimburse these commissions.
For further information on this matter, clients may contact their private bankers.
You can download the press release from the Tribunal Federal (only available in French).