Contract provisionsTypes of contract
Describe the various types of private banking and wealth management contracts and their main features.
Private banking and wealth management contracts may take different forms, depending on the activities performed by the bank or the independent asset manager.
Asset management contracts are usually defined as mandate agreements where the client grants the bank or the independent asset manager a power of attorney to manage his or her assets on a discretionary or non-discretionary basis. Such contracts, when concluded with a bank or another entity subject to FINMA supervision, are to comply with certain regulatory and self-regulatory requirements (see question 39).
Independent asset managers or banks may also render purely advisory services on the basis of advisory mandate agreements. In this context, the client is advised in his or her own investment decisions or benefits from recommendations in relation thereto. This type of agreement is not subject to specific regulatory provisions per se and essentially obeys to the general provisions of the Swiss Code of Obligations applicable to mandate agreements.
In the absence of an asset management or advisory agreement, banks usually have an execution-only relationship with their clients. Their activities are thus limited to the execution of clients’ instructions.
In practice, Swiss banks and asset managers provide in their contractual documentation that the relationship is governed by Swiss law. In an international context, such a choice of law is valid under PILA, provided that the contract is not characterised as a consumer contract (ie, a contract pertaining to goods or services of ordinary consumption intended for personal or family use that is not connected with the consumer’s professional or business activity). Should this be the case, the contract must be governed by the law of the state of the consumer’s habitual residence if:
- the financial intermediary has received the request as regards the conclusion of the contract in that state;
- the contract was entered into after an offer or advertising in that state and the consumer undertook the necessary steps for the conclusion of the contract in that state; or
- the consumer was solicited to go to a foreign state to conclude the contract.
Only private banking and wealth management contracts related to services of ordinary consumption may be considered as consumer contracts, which considerably limits the scope of application of the above principle. According to certain Swiss scholars, private banking and wealth management contracts do not fall within this definition.Liability standard
What is the liability standard provided for by law? Can it be varied by contract and what is the customary negotiated liability standard in your jurisdiction?
Under Swiss law, whoever causes damage, either intentionally or by negligence, may occur civil liability based on both tort or breach of contract. The claimant is to prove the existence of:
- an unlawful act, respectively, a breach of contract;
- a causal link between the unlawful act, respectively, the breach of contract and the damage; and
- a fault of the defendant. In case of breach of contract, the fault of the other party is presumed and must be rebutted by the latter.
Notwithstanding the above, parties may contractually limit their civil liability within the limits set forth in article 100 of the Swiss Code of Obligations. Under this article, an agreement according to which liability for unlawful intent or gross negligence would be excluded is null and void. In addition, a waiver of liability for simple negligence may be considered to be null and void at the discretion of the judge if, inter alia, the liability arises out of the conduct of a business that is carried on under an official licence (eg, banking licence according to Swiss case law). By contrast, a bank may exclude its liability in the case of simple negligence committed by its representatives or agents. As a result, banks usually provide in their general terms and conditions that they may be held personally liable only in the event of wilful misconduct or gross negligence.Mandatory legal provisions
Are any mandatory provisions imposed by law or regulation in private banking or wealth management contracts? Are there any mandatory requirements for any disclosure, notice, form or content of any of the private banking contract documentation?
From a contractual law perspective, the Swiss Code of Obligations provides for a right for either party to a mandate agreement to terminate the contractual relationship at any time with immediate effect. Such a provision is of mandatory nature may not be contractually varied.
On the topic of the retrocessions paid by third parties within asset management activities (ie, inducements), the Swiss Supreme Court held, in a landmark decision in 2006, that inducements are subject to a statutory restitution duty and are, as a matter of principle, payable to the client of the receiving financial intermediary. Nonetheless, an arrangement whereby the client agrees that a financial intermediary may retain inducements is valid, provided the client was duly informed of the existence and calculation formula of such retrocessions, and the client expressly waived his or her statutory restitution claim. In a subsequent decision rendered on 30 October 2012, the Swiss Supreme Court ruled that the distribution fees that the promoter of a financial product pays to the distributor could be characterised as retrocessions, and therefore be subject to the same legal regime. As a result, banks and independent asset managers intending to retain inducements received from third parties are to ensure that the contractual documentation governing its client relationships meets the requirements set forth by the Swiss Supreme Court. In this context, and from a regulatory perspective, the level of information (ex ante disclosure) that needs to be provided to clients is detailed in FINMA Circular 01/2009 on ‘Guidelines on asset management’ and in the guidelines of the relevant professional organisations. Asset managers must typically advise their customers of any conflicts of interest that might arise as a result of accepting third-party inducements. Among other duties, they are to inform their clients of the calculation parameters, as well as of the spread of inducements they might receive from third parties (prospective information duty), and of the amounts of any inducements effectively received in the past (retrospective reporting, upon request of the client). It is worth noting that the above case law principles will be included in the new FinSA. Under the new regime, the disclosure duty will apply irrespective of the presence of a mandate relationship (ie, including in case of execution-only transaction).
For the rest, banks are subject to the Portfolio Management Guidelines issued by the SBA and recognised by FINMA as the minimum standard in accordance with Circular 01/2009. Simply, both Guidelines:
- provide that asset management agreements are to be in writing (including any equivalent electronic form);
- impose on asset managers certain duties of care, loyalty and information in relation to their clients, as well as a duty to comply with a fit and proper test; and
- require that the agreements specify the terms of the remuneration of the service provider.
In practice, the Guidelines enacted by SROs for independent asset managers contain similar provisions.Limitation period
What is the applicable limitation period for claims under a private banking or wealth management contract? Can the limitation period be varied contractually? How can the limitation period be tolled or waived?
The applicable limitation period for claims depends on the type of civil liability the bank or the independent asset manager may face.
As a rule, the general limitation period for the initiation of proceedings in contractual matters is 10 years. That being said, claims for interests are time barred after five years. As far as asset management agreements are concerned, it worth noting that the Swiss Supreme Court has clarified that the statute of limitations applicable to claims based on the restitution of inducements (see question 39) is 10 years after the receipt by the service provider of the inducements in question.
With respect to tort or unlawful enrichment, the statute of limitations is one year from the date on which the concerned person gained knowledge of the damage or, respectively, of its right to ask for restitution, but, in any event, 10 years from the day when the harmful act took place.
Under Swiss law, the limitation period may be varied provided that, inter alia, a potential reduction of the period does not unfairly jeopardise the rights of the creditor. Further, subject to certain exceptions, one may waive in advance the applicable limitation period.
The running of the statute of limitations is interrupted by:
- debt enforcement proceedings;
- an application for conciliation;
- the commencement of a court action or raising an objection before a court or arbitral tribunal; or
- a petition for bankruptcy.
Where a claim is interrupted, a new limitation period starts to run. By contrast, the limitation period does not start running and, if it has begun, is suspended, inter alia, for as long as the claim cannot be brought before a Swiss court.