Here is a list of sensible pieces of advice for whoever made it big in the cryptospace and is looking to cash out part of their gains in the traditional banking system.
I compiled this list after helping a few bitcoin whales open their accounts in Private banks in Switzerland, and finding out it was much more difficult than I would have thought initially, despite my contacts and experience.
First, just a quick intro about me. I manage the portfolio of a large multi-family office in Geneva Switzerland and invest the wealth of private clients in traditional markets (Equities, Fixed Income, and Gold mainly). I manage over $400m worth in diversified assets. I am 37. I consider myself very lucky because my hard work has paid off so far in my career, and because I love my job and my family life.
So here we go:
- The struggle with compliance officers is real.
Compliance officers are very distrustful when it comes to bitcoin and they go the extra mile to make everyone's life difficult. Things are moving slowly, but since bitcoin was used for fringe markets at the beginning (this business is now moving to monero), there is a natural suspicion around how the bitcoins were first acquired by the owner.
- If you mined your bitcoins back in the days, you will have a hard time to prove it. So it really helps if your background is in IT, and you can argue that you were an early adopter simply based on your interest for the whitepaper.
- If you bought your bitcoins and don't have a receipt, you are going to have difficulties. Compliance officers think it is easy to show a proof of payment, but anyone who actually bought bitcoin below the dollar back in 2010,2011, know it is almost impossible to provide. Of course there are solutions to this problem (pm if needed)
- If you made your wealth daytrading, it might be easier, because you should have a record for your trades. However remember you will have to face people who do not know the crypto market at all. People who are not tech savyy and highly suspicious, so it is good to have someone who knows all about it, to help you defend your story.
- Being introduced by a private banker or an established financial advisor helps a lot
When you are in the private banking business for years, (like me 😉 and when you are regulated, you have built a trust relationship with the banks. It means that you have contacts, and behind each new client that you introduce, you put your name, reputation and credibility that you have built over the years. I have first hand experience of who the compliance teams are, which contacts should be activated and which banks have a softer attitude regarding bitcoins compared to others.
If you approach banks directly, there is a high chance you will be rejected. Banks call it a "walk-in", and they literally hate it as it raises red flags on so many levels. Not only it is depressing to go from banks to banks and be rejected, but it is also very time consuming. Some banks are kind enough to say no upfront. Some others will have you come to their premises to avoid cross-borders issues, fill a mountain of papers to open the account, then your case will be assessed in front of the compliance department committee for account opening, without a guarantee that it will be accepted. Maybe you will get a "no" 3 weeks later, and have to start from scratch again with another bank.
- Being tax compliant is a must.
Gone are the days when Swiss banks would open accounts for non-tax compliant individuals. Just simply forget it, it won't work. It does not mean that there are no solutions. Legal loopholes such as Monaco residency, or Swiss lump-sum taxation ("forfait tax") of resident aliens do exist, even though I am not going to talk about it in this thread. Some countries like Switzerland have a century-old track record of protecting private property, and no capital gain on stocks or bitcoins. If you are a US citizen, either abandon your citizenship if you can or pay your taxes. IRS has its hand everywhere and you cannot game the system. I can't say too much about that in this thread, so pm me for more details. I can just say that people who live more than 183 days in the US are considered US persons, and the same FATCA headaches apply to them.
- Choose your advisor wisely
Private bankers are just salesmen at the end of the day. They are salaried by the banks. They depends on compliance officers to approve their new clients. They have year-end objectives as regards to how much new money they will bring to the bank, and many bankers do not managed your assets directly (it is outsourced to another department inside the bank). Their goal is to maximize the banks' profits, not yours. However, a regulated external asset manager is independent and will work his ass for you. If the performance is not good some year, the client is unhappy. 2 years in a row of bad performance and the client is gone. Make sure your financial advisor is regulated, that he is humble and his lifestyle is in control. Make sure he has a family to sustain, or a mortgage to pay because you know he will be dedicated to you. Eventually, make sure he does not have a power of attorney on your account, just an advisory or a discretionary mandate. For your custodian bank, discuss with him, and go for a sound bank. You do not want to be deposited at DB during the next economic downturn. Pick an advisor who understand your lifestyle. Can someone who has never invested in bitcoin really understand your libertarian mindset, your passions, or your life goals ? Don't chose a veteran banker, who doesn't really care about you and will retire in 2 years. Pick someone you can trust, has a lot of motivation, experience, and who may look after you and your finances for the coming years.
One of the biggest mistake new clients do, is being way off in terms of negotiating the fees. Some are just happy to have an account opened, only to realize after a year or so that they gets slaughtered on every trade. Some are just outright paranoid and want the cheapest fees and they forget that quality has a price. So let me explain. There are 3 ways an asset manager gets paid in this business: Management fee, performance fee, small rebates paid by the banks on every transactions. You have to find a balance between the 3 sources of revenue, so that you have a nice deal, and the portfolio manager is happy too. At the end of the day everyone has to pay its bills. Performance in this business can never be guaranteed, (escape whenever someone promise yearly performances that aren't realistic), and you cannot expect an asset manager to live on performance fee alone. 1. Performance fee alone = the asset manager might take too much risk on your portfolio to pay for himself 2. Rebates alone = the asset manager might overtrade your portfolio to pay himself or buy inefficient product to cash in more commissions. 3. Management fee alone = lack of incentive for the asset manager to look at your portfolio, except if the mgt fee is decent.
- tldr; opening a bank account in a private bank and partially cashing out is not as simple as you might think. It is easier if you are taken care of by a professional. It's definitely not the end of the process, rather the beginning. Some clients stay seriously invested in crypto, even with an account in a Swiss Private bank. I know you hate Fiat. I do not like Fiat either, but at the end of the day, a bank account is convenient, especially if you don't have to deal with all the crap you have gone through in retail banking.