HOW SWISS PRIVATE BANKS CAN SURVIVE IN HIGHLY REGULATED MARKETS Thesis submitted in accordance with the requirements of the University of Liverpool for the degree of Doctor of Business Administration by Andreas Svoboda December 2016 Acknowledgements Undertaking the DBA has been a life-changing experience and there are a number of people who I would like to acknowledge. Firstly, I would like to express my sincere gratitude to my advisor Prof. Robin Luo for the continuous support of my DBA study and related research, for his patience, motivation and immense knowledge. His guidance helped me throughout the research and writing of this thesis. My sincere thanks also goes to all the different teachers of this DBA course for their insightful comments and encouragement, as well as the difficult questions that allowed me to widen my research from various perspectives. My final thanks go to my family: my parents for supporting me spiritually throughout writing this thesis. Lastly, I would like to express my thanks to the person who is always by my side and who has never stopped believing in me and my ability to pursue this endeavour – my wife Yami. 2 Abstract HOW SWISS PRIVATE BANKS CAN SURVIVE IN HIGHLY REGULATED MARKETS by Andreas Svoboda The viability of Swiss banking secrecy has been and is being challenged. Politically the America pushes the lifting of the Swiss banking as of tax evasion. Macro-economically, it is observed that the number of Swiss private banks declined by 24% from 2005 to 2013 and the speed of consolidation in the market increased in 2014 (Collardi, 2015). Therefore, how the Swiss banking sector maintains its competence and financial status without the viability of banking secrecy is without doubt worthy to be researched. The whole thesis devotes to explore over the following two research questions: Is the Swiss banking secrecy still viable? Ways forward without the viability of Swiss banking secrecy. In particular, the second research question accounts for the main body of the study. It has been broken up into three sub-research themes, which illustrate from perspectives of products offered, commissions taken as well as location. Methodologically both quantitative analysis and qualitative case study were carried out to achieve convincing findings and actionable knowledge. It can be concluded that viability of banking secrecy is still viable but only for the privacy purpose. And it is believed to disappear in the near future. The findings reveal that Swiss private banks should shift their products strategies 3 from in-house labelled products to open platforms; commission policy should be taken transparent and the function of relationship managers should be enhanced. Furthermore, possible actionable knowledge plans are being suggested. The novelty of the thesis lies in, that it explores the problem from a new perspective. It concentrates on the actionable variables instead of focusing on financial performance indicators. Nevertheless, it provides an actionable guidance for the Swiss banking sector on how to maintain or improve the financial performance without the viability of banking secrecy in the near future. 4 Table of Contents 1 Introduction .......................................................................................................................... 10 1.1 Research interest and choice of topic .................................................................. 10 1.2 Background information .......................................................................................... 12 1.3 Objectives of this research ....................................................................................... 21 1.4 Significance of the research ..................................................................................... 29 1.5 Innovation of this research ...................................................................................... 31 1.6 Boundaries of this research ..................................................................................... 33 1.7 Structure of the thesis ............................................................................................... 33 2 Literature review ................................................................................................................. 35 2.2 Private banking ............................................................................................................ 35 2.3 Location (Switzerland) .............................................................................................. 43 2.4 Major financial indicators ........................................................................................ 61 2.5 Proposed ways of cost savings and attracting new money/clients ......... 80 2.6 Summary ......................................................................................................................... 90 3 Research design and methodology ............................................................................... 92 3.1 Research questions ..................................................................................................... 92 3.2 Development of hypotheses .................................................................................... 94 3.3 Insider role and bias ................................................................................................. 106 5 3.4 Limitations of the research design ..................................................................... 108 3.5 Research methodology ............................................................................................ 109 3.6 Sampling strategy ...................................................................................................... 117 3.7 Designing and formulating the questionnaire ............................................... 121 3.8 Actual survey sending and results ...................................................................... 124 3.9 Data clean and store ................................................................................................. 126 3.10 Action research ...................................................................................................... 141 4 Data and Quantitative analysis .................................................................................... 143 4.1 Introduction................................................................................................................. 143 4.2 Inferential statistics .................................................................................................. 143 4.3 Variables ....................................................................................................................... 144 4.4 Hypotheses testing.................................................................................................... 156 4.5 Validity........................................................................................................................... 178 4.6 Ethical issues ............................................................................................................... 180 5 Case Study: A qualitative approach and detailed qualitative analysis on two private banks ................................................................................................................................ 181 5.1 Introduction................................................................................................................. 181 5.2 The context of the case study................................................................................ 182 5.3 The interview process ............................................................................................. 184 5.4 Documentation ........................................................................................................... 187 5.5 Discussions and conclusion of the case study ................................................ 190 6 6 Conclusion ............................................................................................................................ 197 6.1 Findings of the study ................................................................................................ 197 6.2 Recommendations and Actionable knowledge plans .................................. 202 6.3 Limitation and open areas to be researched .................................................. 204 References ..................................................................................................................................... 206 Appendix I ...................................................................................................................................... 241 7 List of Tables Table 1.2 - Number of private banks in Switzerland (2005-2013) .................. 17 Table 1.3 - Comparison of Swiss private bank income 2010 vs 2013 ............ 19 Table 2.1 - Segmentation of private banking clients and their needs ............. 41 Table 2.2 - Overview of personal expenses in some Swiss private banks (2015) ..................................................................................................... 62 Table 3.1 - Advantages and Disadvantages of neutral networks ................. 113 Table 3.2 - Summary of the actual response rate ........................................ 126 Table 3.3 - Data entry example in Excel ...................................................... 127 Table 3.4 - Open question data store and coding ........................................ 128 Table 3.5