A diversified portfolio can still depend on one legal and custody infrastructure. Here is how Swiss investors can think about that hidden concentration without building an unnecessarily complicated offshore structure.
Modern investors have become very good at diversifying what they see.
A single global ETF can provide exposure to thousands of companies across dozens of countries, currencies and industries. Add bonds, a Pillar 3a account, occupational pension assets and perhaps real estate, and the resulting household balance sheet can look impressively diversified.
Yet the financial infrastructure underneath those assets can remain surprisingly concentrated.
An investor might hold American, Swiss, Japanese, Chinese and European companies, all through a single brokerage account whose custody and settlement architecture ultimately depends on a small number of institutions and jurisdictions.
For normal market volatility this is usually irrelevant.
For the type of disruption experienced by Russian investors after 2022, the distinction can become central.
The question is therefore not whether everyone should open accounts in Zurich, London, New York, Singapore and Hong Kong.
For most households, that would create more complexity than resilience.
The useful question is more modest:
At what point does concentration of financial infrastructure become material enough that a second custody route is worth having?
Diversifying investments and diversifying infrastructure solve different problems
Suppose an investor owns a global equity ETF containing 3,000 companies.
He is well diversified against the failure of any single company.
Now suppose that ETF, his individual shares and his cash investments are all held through one brokerage relationship.
He remains exposed to:
- that broker’s operational systems;
- that broker’s compliance policies;
- the legal entity carrying the account;
- and potentially a common custody network.
This does not mean the assets are unsafe.
It means the investor has solved economic concentration while leaving operational concentration largely untouched.
The two risks should not be confused.
The nine layers hidden behind a portfolio line
When a Swiss investor sees:
Alibaba — CHF 25,000
the economic interpretation is easy.
The legal interpretation can be far more complex.
Nine layers can potentially matter:
1. Investor residence
Which laws apply directly to the investor?
2. Broker legal entity
The brand displayed on the application is less important than the actual regulated entity with which the account agreement is concluded.
3. Custodian
Who safeguards the security?
4. Sub-custodian
Does the broker or bank use another institution in the local market?
5. Central securities depository
Which infrastructure ultimately records and settles the security?
6. Exchange
Where does the security trade?
7. Security domicile
Which law governs the instrument itself?
8. Issuer jurisdiction
Which government regulates the underlying company and its ability to move money?
9. Wrapper or depositary
If the exposure comes through an ADR, ETF, certificate or structured product, which additional legal entity sits between the investor and the underlying asset?
None of this makes international investing undesirable.
Modern finance works precisely because these layers function seamlessly almost all of the time.
But the seamlessness can make them easy to forget.
What Swiss custody genuinely protects
FINMA explains that securities held in custody accounts—such as shares and fund units—belong to the client and are segregated from the bank’s bankruptcy estate. They are therefore treated differently from ordinary bank deposits if the institution fails. Eidgenössische Finanzmarktaufsicht FINMA
That is an important protection.
But notice what it addresses:
insolvency of the Swiss custodian.
It does not guarantee that a foreign exchange will remain open.
It does not guarantee that a foreign central securities depository will settle transactions.
It does not prevent the issuer’s home country from imposing capital controls.
And it does not ensure that a foreign sub-custodian can ignore local restrictions.
This gives us one of the most important distinctions in the entire series:
bankruptcy protection is not the same thing as geopolitical market-access protection.
An asset can be safely segregated from the bankruptcy estate of your bank and still become temporarily impossible to transfer.
Booking location matters—but only for one part of the chain
Take a Hong Kong-listed ordinary share.
A Swiss investor could potentially hold it through:
- a US/global broker;
- a Swiss bank;
- a European broker;
- a Singapore bank;
- or a Hong Kong institution.
The company exposure may be identical.
The intermediary exposure is not.
Route 1 — A global or US-carried brokerage account
A global low-cost broker offers enormous advantages: broad market coverage, excellent execution, inexpensive foreign exchange and low recurring costs.
That remains a powerful proposition for ordinary long-term investing.
But if the account is legally carried or the relevant custody service is provided by a US entity, US regulations applicable to that intermediary matter even when the beneficial owner lives in Switzerland.
OFAC’s general guidance confirms that US-incorporated entities and their foreign branches must comply with applicable US sanctions. OFAC
The practical lesson is therefore not “avoid American brokers.”
It is: know which legal entity holds your account and assets.
The brand name does not answer that question.
Route 2 — A Swiss bank or broker
A Swiss institution creates a different first layer.
For example, Swissquote currently offers direct access to Asian markets including the Hong Kong Stock Exchange, allowing a Swiss account holder to purchase Hong Kong-listed securities without first buying their US ADR equivalent. Swissquote
That can simplify the structure:
Swiss investor
↓
Swiss broker/bank
↓
foreign custody infrastructure
↓
Hong Kong market
↓
issuer
Compared with a US ADR, the investor has removed the US-listed depositary receipt layer.
That can be meaningful.
But it is essential not to overstate what has happened.
The Hong Kong share still depends on Hong Kong infrastructure.
The Swiss institution may still use foreign sub-custodians.
And the issuer remains subject to its home legal environment.
Swiss booking changes one jurisdiction. It does not Swissify the underlying asset.
Route 3 — Singapore custody
Singapore offers another interesting possibility because it combines an internationally regulated financial centre with deep Asian market access.
DBS describes direct custody operations in Singapore, Hong Kong, mainland China, India and Indonesia, plus global custody through an agent network. DBS Singapore
For a sufficiently large Asian portfolio, this can produce genuinely different intermediary infrastructure from a Swiss or US brokerage relationship.
But Singapore does not exist outside the international legal system.
SGX’s Central Depository rules explicitly allow the use of foreign depositories, sub-custodians and custodians for foreign securities. They also recognise the role of applicable legal and governmental requirements. SGX Rulebooks
A Singapore custodian can therefore diversify the custodian jurisdiction.
It cannot relocate a Chinese company out of China.
How much diversification is actually achieved?
Consider three accounts:
Portfolio A
US/global broker
→ Alibaba BABA ADR
Portfolio B
Swiss bank
→ Alibaba 9988 Hong Kong ordinary share
Portfolio C
Singapore bank
→ Alibaba 9988 Hong Kong ordinary share
At first glance, three jurisdictions appear to have been diversified.
But look at the common exposures.
Portfolios B and C still depend on the same underlying issuer and Hong Kong market infrastructure.
All three ultimately depend on Alibaba.
All three remain sensitive to China-related geopolitical developments.
The investor has therefore diversified intermediaries without fully diversifying market risk.
That may still be valuable. It simply needs to be described accurately.
Why two brokers can be rational
Maintaining more than one custody relationship can protect against relatively mundane problems before we ever reach geopolitics:
- technical outages;
- cybersecurity incidents;
- account verification problems;
- temporary compliance reviews;
- disputes;
- transfer delays;
- changes in product availability;
- operational errors;
- broker-specific restrictions.
These are not theoretical impossibilities.
A second functioning account can be useful even if no government ever imposes another financial sanction.
Yet redundancy is not free.
It creates:
- additional statements;
- additional logins;
- tax administration;
- transfer costs;
- fragmented performance information;
- potentially higher custody fees;
- estate-planning complexity;
- more institutions holding personal data;
- more operational work for the investor.
This leads naturally back to a recurring Guidefinances principle:
complexity should earn its place.
When one broker may be enough
For a modest portfolio consisting primarily of diversified global ETFs, creating multiple international custody structures can easily become overengineering.
Imagine a CHF150,000 or CHF300,000 portfolio.
The investor might spend significant money and administrative effort maintaining three broker relationships to protect against a risk whose financial consequence would remain manageable.
The additional complexity can become larger than the problem.
When a second custody relationship becomes more relevant
Now consider a household with several million francs of financial assets, substantial individual Asian shareholdings and significant reliance on those assets for future liquidity.
The calculation changes.
If CHF1 million of the household balance sheet depends upon one foreign market and one intermediary chain, the value of redundancy becomes easier to justify.
There is no universal threshold.
What matters is:
- portfolio size;
- concentration;
- liquidity requirements;
- geopolitical exposure;
- complexity tolerance;
- and the cost of maintaining an alternative.
This is a resilience decision rather than a return forecast.
A diversified household may already have more jurisdiction diversification than expected
Another reason not to overengineer custody is that household assets are naturally distributed.
A Swiss household may already have:
- Swiss bank cash;
- occupational pension assets;
- Pillar 3a investments;
- property in Switzerland;
- a global brokerage account;
- insurance contracts;
- perhaps securities at another institution.
When viewed at household level, the investor may already possess considerable institutional diversification.
This is why Guidefinances consistently prefers looking at the whole balance sheet rather than optimising each account independently.
The relevant question is not:
How diversified is my brokerage account?
It is:
What proportion of my family’s economic security ultimately depends on the same failure mode?
ADRs: an extra layer can be useful—or unnecessary
Depositary receipts are not inherently bad structures.
They can offer:
- superior liquidity;
- convenient trading hours;
- easy access through an existing broker;
- USD settlement;
- established investor reporting;
- efficient market-making.
Those conveniences have real value.
The issue is whether the extra layer solves a problem the investor actually has.
Alibaba illustrates the decision clearly because its US ADS and Hong Kong ordinary shares are normally fungible. Alibaba Group
If the investor values US-market liquidity and simplicity, the ADR can be perfectly rational.
If a Swiss investor intends to hold the company for many years and already has practical access to Hong Kong, the ordinary share removes one piece of US-specific infrastructure.
Neither choice creates geopolitical immunity.
The decision is about which infrastructure the investor wishes to use.
ETF domicile creates another jurisdiction
Funds introduce yet another layer.
Suppose two ETFs track nearly identical Chinese equity indexes.
One is US-domiciled.
The other is an Irish UCITS ETF.
Their portfolio holdings may overlap heavily.
Yet the investor owns two legally different funds.
Fund domicile can influence:
- tax;
- withholding;
- estate considerations;
- regulatory protections;
- distribution eligibility;
- fund-level responses to sanctions;
- custody arrangements.
At the same time, both funds still require their custodians to access the underlying Chinese or Hong Kong securities.
An Irish wrapper therefore provides a different legal structure.
It cannot magically keep Shanghai or Hong Kong trading when those markets themselves are unavailable.
Asset diversification, jurisdiction diversification and liquidity diversification
These three concepts should be separated.
Asset diversification
Own many companies, sectors and asset classes.
This protects primarily against company-specific and economic risk.
Jurisdiction diversification
Avoid having all important financial relationships dependent on one legal or intermediary system.
This addresses certain operational and legal risks.
Liquidity diversification
Ensure that some assets remain readily accessible even when other investments become difficult to sell.
This protects the investor’s financial plan.
The third is arguably the most important during a crisis.
An investor does not necessarily need every asset to remain perfectly liquid.
He needs enough liquidity elsewhere that temporary impairment does not force destructive decisions.
Financial neutrality is not sanctions avoidance
The phrase “staying neutral between the US and China” needs careful definition.
A private investor cannot declare himself neutral in the diplomatic sense.
He cannot instruct a Swiss bank to ignore Swiss law, a US broker to ignore US law, or a Chinese custodian to ignore Chinese law.
Nor should portfolio architecture be used to evade restrictions once they apply.
Instead, we can define operational financial neutrality much more modestly:
Build a portfolio that does not depend unnecessarily on one broker, one currency, one market, one legal wrapper or one financial infrastructure remaining continuously available.
That is not sanctions avoidance.
It is redundancy.
The difference is important.
China can be a counterweight without becoming a sanctuary
China’s economic scale means that the world financial system is already becoming more multipolar.
International investors hold large amounts of mainland securities through Stock Connect, Chinese investors hold growing amounts of Hong Kong securities, RMB turnover is increasing, and China’s role in global trade remains enormous. HKEX
That makes China an increasingly important financial pole.
Yet multipolarity does not mean an investor can escape regulation by moving assets from one pole to another.
China has its own counter-sanctions legislation and regulatory powers. The State Council of China
A position in Singapore can still depend on Hong Kong.
A Swiss broker can still need a Chinese sub-custodian.
An American ETF can still own mainland securities.
A multipolar world can therefore produce more routes.
It can also produce more overlapping rules.
Guidefinances Custody & Jurisdiction Mapper
Take your five largest foreign positions and complete:
| Layer | Your answer |
|---|---|
| Investor residence | |
| Broker legal entity | |
| Custodian | |
| Sub-custodian | |
| CSD / settlement system | |
| Exchange | |
| Security domicile | |
| Fund / depositary domicile | |
| Issuer home country |
Then mark every country involved.
If an ADR is present, add the depositary.
If an ETF is present, add the fund domicile and the fund’s custody chain.
Then ask:
Which layers are repeated across most of the portfolio?
That is where hidden infrastructure concentration lives.
The objective is to identify unnecessary single points of failure.
Guidefinances Checklist — Geopolitical Investment Risk : Portfolio Assessment
Score each major foreign position from 0 to 2:
0 = low dependency
1 = meaningful dependency
2 = high dependency
Assess:
- capital controls;
- sanctions exposure;
- foreign ownership restrictions;
- currency convertibility;
- ADR/depositary dependence;
- transferability;
- custodian concentration;
- market-access alternatives.
The total is not a prediction of loss.
It simply highlights where further investigation is worthwhile.
Guidefinances Tool — Portfolio Immobilisation Stress Test
Calculate:
Potentially immobilised assets ÷ total investable household assets
Then repeat under three assumptions:
- inaccessible for 1 year;
- inaccessible for 3 years;
- inaccessible for 5 years.
Finally ask whether accessible cash, bonds and other assets can still cover expected spending.
This is more useful than assuming an inaccessible investment is economically worth zero.
The asset may recover.
The financial plan still has to survive while you wait.
A simple resilience hierarchy
For most investors, the sensible order is:
First: diversify companies, countries and asset classes.
Second: keep sufficient liquid reserves.
Third: understand the legal structure of large foreign positions.
Fourth: if the portfolio is large enough, consider a genuinely independent second custodian.
Fifth: only add further complexity if it solves a clearly identified problem.
This order matters.
Opening a Singapore custody account while holding 50% of the portfolio in a single Chinese technology company would be a sophisticated solution to the wrong problem.
Guidefinances view: robustness without financial paranoia
International investing depends on an extraordinary network of exchanges, clearing houses, custodians, banks and regulators that works extremely well almost every day.
The correct lesson from Russia is therefore not to distrust that entire system.
Nor should investors retreat into domestic cash because something somewhere could someday be sanctioned.
That would simply replace one tail risk with inflation, concentration and lost diversification.
The useful lesson is more restrained.
Do not allow one invisible financial infrastructure to become the single point of failure in a portfolio that appears diversified everywhere else.
For a smaller investor, a diversified portfolio at one strong broker may remain entirely adequate.
For a larger investor with meaningful assets in China, emerging markets or other politically exposed jurisdictions, a second genuinely independent custody route may deserve consideration.
Swiss custody can diversify away from one US intermediary.
Singapore custody can add a second Asian financial relationship.
Hong Kong ordinary shares can remove the ADR layer.
European fund domicile can remove one US fund layer.
But none of those decisions can abolish the legal reality of the underlying asset.
There is no sanction-proof brokerage account.
There is no geopolitically neutral securities depository.
And there is no custody arrangement that converts a Chinese asset into a Swiss one merely because the statement arrives from Zurich.
The achievable objective is not immunity.
It is robustness.
That is a much more useful target.
Continue the series
Part I — Sberbank and the Risk Investors Forgot: When a Cheap Share Becomes an Uninvestable Asset
Read the historical case first if you want to understand why company quality, valuation and asset ownership are not enough when settlement and legal access break down.
Part II — Could China Become Another Sberbank? Three Sanctions Scenarios for European and Swiss Investors
Read the scenario analysis to compare targeted restrictions, broader financial sanctions and severe financial fragmentation across ADRs, Hong Kong shares, A-shares and ETFs.
Guidefinances checklists in this article and general toolbox
Custody & Jurisdiction Mapper
Map the broker, custodian, CSD, exchange, wrapper and issuer behind your largest international holdings.
Geopolitical Investment Risk : Portfolio Assessment
Identify capital-control, sanctions, custody and market-access dependencies before increasing an international position.
Portfolio Immobilisation Stress Test
Test whether the household financial plan still works when part of the portfolio cannot be accessed for 1, 3 or 5 years.
Financial Toolbox — Guidefinances’ existing collection of banking and investment tools can act as the broader hub linking the series back into the site’s practical resources. Guidefinances Financial Toolbox
Custody structures, market-access information and regulatory frameworks reviewed 26 September 2026. Sanctions and intermediary arrangements can change quickly. Before acting on an actual restriction, investors should obtain current broker-specific and, where necessary, legal guidance rather than attempting to transfer restricted assets independently.
2 replies on “Beyond Asset Allocation: Should Investors Diversify Brokers, Custody and Jurisdictions?”
[…] Part III — Beyond Asset Allocation: Should Investors Diversify Brokers, Custody and Jurisdictions? […]
[…] Part III — Beyond Asset Allocation: Should Investors Diversify Brokers, Custody and Jurisdictions? […]