May 24, 2010 - Phil Hodgen

How U.S. laws slowly increase economic isolationism–an example

Bank Julius Baer is in “kick out the Americans” mode. For those of you outside the event, here is how it works. I saw two of these today.

Bank Julius Baer had a bunch of independent Swiss financial advisors who managed money for individuals. The financial advisors would use Bank Julius Baer as a trading and custody platform. This is a business model followed in the U.S. by Fidelity and Schwab, to name two big players.

Now the American customers in these relationships are getting letters from Bank Julius Baer telling them this arrangement must cease–the Bank will only do business with SEC-registered advisors where U.S. customers are concerned. There are only a few such Swiss firms known to me. Thus as a practical matter these customers must close their Swiss accounts and return the funds to the USA.

This is another example of U.S. laws affecting foreign business decisions. American customers carry too much regulatory risk and overhead. They are not worth it. Out they go.

For those of you who sit and crow “Yeah, well, they are all a potful of pirates and they deserve it” step back. Be openminded. Be agnostic. Be imaginative. Ask “If this continues, what are the implications?” How can you exploit non-tariff trade barriers such as these for fun and profit?

If you are a Swiss asset manager do you run and get the necessary U.S. securities licenses? If you are a U.S. asset manager do you revamp your systems so you can manage assets in custody at Bank Julius Baer? Are these knee-jerk short-term responses unlikely to pay off over the long haul? Yep. 🙂

What macro bets do you make? That is a more interesting thought.

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