Executive Summary
Ask a Swiss private banker about cross-border tax complexity and a Swiss cantonal bank's product team about portfolio customization, and you will get two entirely different conversations. One is about Passive Foreign Investment Company (PFIC) exposure and US reporting obligations. The other is about ESG screens, concentration limits, and the gap between a fund menu and a bespoke mandate. Nobody in either conversation is likely to mention the other. That is the mistake this paper argues Swiss institutions are making: these are not two problems. They are the same problem, wearing different clothes, and the market best positioned to solve it, more than any other in the world, is the one having both conversations without connecting them.
Switzerland has been the world's largest cross-border wealth hub for decades. In 2025, Hong Kong overtook it for the first time: USD 2.94 trillion against USD 2.95 trillion (Boston Consulting Group 2026). Switzerland's scale remains enormous by any measure: roughly CHF 2.4 trillion (approx. USD 2.8 trillion, at prevailing exchange rates) in cross-border private-client assets (Swiss Bankers Association 2025). That scale means Swiss institutions carry both problems at once, often within the same building, sometimes within the same client relationship, and address them with entirely separate teams, tools, and vocabulary. Both come down to the same missing capability: the ability to build a portfolio security by security, rather than fund by fund. This paper makes the case for why Switzerland is positioned to lead on solving both at once, and what it costs an institution to keep treating them as unrelated.
The Problem
Switzerland's role in global wealth management is not incidental. Swiss banks held CHF 9,284.0 billion (approx. USD 10.7 trillion) in total assets under management in 2024, of which 45.5% belonged to foreign-domiciled clients (Swiss Bankers Association 2025). Within that, cross-border wealth management for private clients alone reached CHF 2,427.0 billion (approx. USD 2.8 trillion) in 2024, up 10.0% year on year (Swiss Bankers Association 2025). Switzerland's international wealth management scale remains substantial: at USD 2.94 trillion, its booked cross-border assets are still roughly three times the UK's and nearly double the US's (Boston Consulting Group 2026). The lead is no longer a given. It has to be earned on something other than scale alone.
That scale is precisely why Swiss institutions carry a disproportionate exposure to the two problems this paper addresses. On the tax side, Switzerland is home to nearly 32,000 American citizens on a permanent-residence basis (Swiss Federal Statistical Office 2024), alongside a further, larger population of US persons who bank in Switzerland without residing there. Swiss banks have implemented Foreign Account Tax Compliance Act (FATCA) reporting since 2014, and a dedicated ecosystem of Swiss SEC-registered advisors has emerged specifically to serve this population. Public data do not support a single authoritative AUM figure for US-linked assets in Switzerland, but one available proxy is instructive: advisor filings in the SEC's Investment Adviser Public Disclosure (IAPD) database suggest Swiss-based advisors report on the order of USD 50 billion in assets tied to US clients. That figure reflects only one specific channel, SEC-registered wealth managers providing portfolio management to individuals and small businesses, and excludes US-linked assets managed through other structures entirely. It is a floor, not a full accounting, but it confirms this is a specialized, ongoing segment of the Swiss market with a durable regulatory footprint.
On the customization side, Switzerland's private and cantonal banks have built exceptional infrastructure for cross-border servicing, relationship management, and discretionary mandates. What most have not built is the infrastructure to construct a bespoke index exposure at the cost structure of a passive product rather than a fully bespoke one. That capability gap sits alongside the tax gap, largely unaddressed.
These two problems are usually treated as unrelated, because they show up in different conversations, with different clients, and different urgency. They are not unrelated. Both are the same missing capability wearing different clothes.
The tax problem. A US-linked client holding a foreign ETF or mutual fund is, by definition, holding a PFIC. The tax consequences are severe enough that the only durable fix is structural: eliminate the fund wrapper and hold the underlying securities directly. No amount of fund selection solves this; the problem is the wrapper itself, not the manager inside it. The exposure does not end there. The same US-linked clients are also subject to ordinary US capital gains tax on every realized gain in the portfolio, and an advisor who rebalances, transitions, or harvests losses without factoring in the client's US tax status can produce a materially worse after-tax result than intended, even when every individual holding is otherwise perfectly compliant.
The customization problem. Independent of any US tax exposure, European wealth managers now name direct indexing and personalization as leading product-innovation priorities, alongside ESG solutions and platform upgrades (Celent 2025). Yet demand has outpaced delivery. A recent survey of US financial advisors found that while 74% consider direct indexing an essential offering for high-net-worth clients, only a third currently use it (FTSE Russell 2025). Adoption in the US, where direct indexing has grown to more than USD 864 billion in assets, still reaches only 18% of advisors, and the picture in Europe starts from a materially lower base (Cerulli Associates 2024). The gap is not appetite. It is infrastructure: most institutions have a fully bespoke mandate on one end and a fund menu on the other, with very little in between.
The Scenario
Consider a mid-sized Swiss private bank managing international equity allocations for two client types side by side. For its US-linked clients, it defaults to a small set of pre-approved non-US equity funds, chosen for broad diversification rather than for any client's specific tax profile, and rarely revisited once selected. PFIC exposure is not necessarily part of the relationship manager's day-to-day mandate, since it sits at the intersection of Swiss portfolio management and US tax specialization, two skill sets that are not often housed in the same role. For its non-US clients who ask for an ESG-screened or sector-excluded international allocation, the bank routes the request to its discretionary mandate desk, where it takes weeks to construct, carries a meaningfully higher fee, and is only offered to relationships above a high minimum.
This is not a hypothetical pattern. It is the same adoption gap described above, playing out institution by institution: demand for personalization outpaces the infrastructure to deliver it profitably below the threshold of a fully discretionary mandate. Neither client above is badly served in an obvious way. But neither is served with the precision they are actually asking for, and increasingly, they know it. The same clients asking for ESG screens and PFIC-aware structuring are also the ones with the means and the sophistication to notice when a competitor down the street can offer both. The fund menu was chosen for convenience, not fit. The mandate desk exists, but it is expensive and slow enough that it is reserved for relationships that can justify it, leaving a wide middle tier of clients with neither a compliant nor a customized solution, and an institution with no story to tell them about why not.
The Solution
Both problems disappear once a portfolio can be constructed security by security rather than assembled from pre-built wrappers. A directly held, security-level portfolio is PFIC-compliant by construction for the US-linked client, and infinitely adjustable for the client who simply wants a specific exposure. It is the same underlying mechanism solving what looks like two different client conversations. Swiss institutions that can offer this to both audiences are offering something structurally different from a fund menu, not a better fund, but a different way of building the portfolio entirely.
The Implication
The question for any Swiss institution, private bank or cantonal bank alike, is not whether it is exposed to one of these problems. Most are exposed to both, whether or not they have named it that way, and neither compliance-only fund selection nor a slow, expensive mandate desk is a durable answer to either. The clients most worth keeping, US-linked and non-US alike, are also the ones most likely to notice when a competitor down the street can offer both. The institutions that close this gap first will set the standard the rest of the market gets measured against.
Tessellare will soon begin a pilot program with a small number of Swiss institutions to bring this capability to market from its home base: custom indexing construction that resolves both the cross-border tax problem and the customization gap through the same underlying infrastructure. Switzerland is the natural place to begin. It is where both problems are most concentrated, and where the credibility of a Swiss-domiciled provider matters most to the institutions being asked to trust it with client relationships built over decades. We are currently selecting partners for this pilot. If your institution is navigating either of these problems, or both, we would welcome hearing from you about joining.
About Tessellare
Tessellare is a Swiss-based portfolio technology company, purpose-built for the complexity of international cross-border investing, with tax optimization built into its core. Unlike US-centric direct indexing platforms, Tessellare is designed from the ground up for non-US equity indices and the regulatory and domicile realities of global wealth management.
Sources
- Boston Consulting Group. 2026. Global Wealth Report 2026: The Great Reordering. Industry report. Boston Consulting Group (BCG).
- Celent. 2025. Dimensions: European Wealth Management IT Pressures & Priorities 2025. Industry report. Celent.
- Cerulli Associates. 2024. U.S. Direct Indexing Assets and Advisor Adoption Data. Industry research. Cerulli Associates.
- FTSE Russell. 2025. Direct Indexing: A Critical Tool for Wealth Managers. FTSE Russell / London Stock Exchange Group (LSEG). lseg.com press release.
- Swiss Bankers Association. 2025. Banking Barometer 2025. Industry report. Swiss Bankers Association (SBA).
- Swiss Federal Statistical Office. 2024. "Population Statistics on US Citizens Resident in Switzerland."