For many years Switzerland and, to a lesser extent, Liechtenstein have been seen as the ultimate safe havens for financial assets, with globally mobile Ultra High Net Worth Individuals and family offices placing their investment assets with a range of institutions in the perceived belief that their international wealth would be safeguarded across generations.
But at what cost? Court rulings in Switzerland and Liechtenstein have made clear that any fees that have not been transparently disclosed to investors belong to the investors themselves. This covers anything that is not included in the well-advertised annual management fees (i.e. introduction fees, finder’s fees, trailer fees, distribution fees, stock maintenance commissions, kickbacks etc).
These fees are collectively known as ‘retrocessions’. Retrocessions can be recovered, following a legal process, by individuals, companies, trusts and foundations that have or have had an investment account of any type in Switzerland (in the last 10 years) or Liechtenstein (in the last 30 years). Please note that as a result of a recent ruling by the Princely Supreme Court in Liechtenstein, with effect from May 31 2023, claims can no longer be asserted, at which point any affected Investors are unable to reclaim the illegally withheld retrocessions for the previous 30 years. However, if held via a fiduciary, the fiduciary still carries the potential liability for the previous 30 years.
Retrocessions are not refunded automatically, and there are a range of challenges and pitfalls to overcome:
• As the contract documents signed (as a routine part of the account opening process) often contain waivers, specific expertise is necessary to reclaim retrocessions.
• Every day, large sums are lapsing in favour of the banks and asset managers due to the ongoing limitation periods (10 years retroactively in Switzerland and 30 years in Liechtenstein). Here it is important to take the right formal steps and to do so quickly.
• It is extremely hard to find a specialist Swiss or Liechtenstein litigator who
a. has actual experience of this area
b. has a track record of success in this field
c. does not charge on a time spent basis
d. will take the case
e. is unconflicted
Foreign claimants have to lodge Security for Costs with the Courts.
How can family offices reclaim their asset?
In the same way as family offices use experienced lawyers to handle their tax affairs, they can also engage a specialist third party expert to reclaim retrocessions, such as Liti-Link, a Switzerland-based claims management company (see table above right). The Liti-Link solution is very easy, with only basic details required and just a five-page on-boarding document. Liti-link does not charge an upfront fee and is only paid a percentage of a successful retrocession claim.
Care is needed, however, when a fiduciary services business is engaged to work with the family office, as some fiduciary firms will simply ask for an indemnity in order to avoid acting. It is important to note that fiduciary duty cannot be discharged via a waiver from a client. Unclaimed retrocessions represent an asset of the structure. It follows, therefore, that the director or trustee of a structure that holds, or has historically held, an investment portfolio managed and / or custodied in Switzerland or Liechtenstein must act. Failure to recover an asset is a clear breach of fiduciary duty, and is broadly indefensible. UK case law is clear (Re Brogden (1888) 38 CH D 546) – there is a clear responsibility to reclaim any and all assets owing to a structure unless it is uneconomic to do so.
