Читать книгу Help, I'm Rich! - Stoute Kees - Страница 8

The financial crisis has been explained by many critics: Encouraged by technological developments radically shifting the paradigm of efficiency and scalability, by a continuously increasing competitive environment, by a global trend to focus on profitability and short-term shareholder value, and by excessive bonus pay structures, the interests of clients gradually moved to the background, and in their place, unwarranted, irresponsible risks were taken instead. As a result, the entire financial system was on the brink of collapse.

It is not our intention in this book to explain the crisis. A lot has been said and written already. What is important to us is what the crisis meant for the clients of private banks.

Instead of the private bank being the safe harbor, the place to address the various concerns of HNWIs, the sector seemed to turn into a source of even more concerns and anxieties. How sure can you be that your bank has the ability to survive? How much can you rely on the advice of your private bankers? Are their recommendations serving their interests or yours?

We all know the stories. Take Mr. Melvin Connaly. In 2005, at age 68, he sold his company. He made US$3.5 million from the sale. He invested most of this money with his private bank. The bank then invested this in options and futures. The bank encouraged him to take a loan to be able to invest even more in these financial instruments. Mr. Connaly trusted the bank and followed the advice.

It took precisely four years for his money to evaporate, while the bank had made a few hundred thousand dollars in revenue from what were effectively gambling activities. Luckily for Mr. Connaly, the Court ruled in his favor and the bank had to compensate him in the amount of US$3 million.

Many Mr. Connaly–type stories have discredited the private banking industry. In addition, everyone knows about subprime mortgages, is familiar with Madoff, and has been shocked by the Libor fixing scandal. So how can we uphold trust in the financial sector?

In old movies, it might have appeared rewarding to rob a bank. Now that there is hardly any physical money left in the banks, the only way to rob the bank is through employment, it seems. The clients are merely sources of revenue: As a banker, the more you milk them, the more effective you are. By excessive focus on the upside, most bankers don’t even realize how lethal their products might turn out to be for their clients. This pretty much summarizes the public sentiment toward private bankers.

The crisis, followed by all these kinds of stories and experiences, has severely undermined the confidence in the financial sector.

In an article published in the Public Opinion Quarterly, Lindsay A. Owens describes how confidence levels in the United States have plummeted, reaching levels that we have not seen in the past 40 years.2 In 1970, approximately 40 percent of the respondents of the financial confidence poll indicated having a great deal of trust in the financial sector. This dropped to below 10 percent in 2011. The number of people with hardly any confidence in this sector increased from below 10 percent in 1970 to 42 percent in 2011. The article was written in 2011, three years after the crisis.

This observation is in line with the findings of the 2014 Edelman Trust Barometer, which refers to an annual trust and credibility review by research firm Edelman Berland.3 Their trust index shows that globally, roughly 50 percent of the people have (some level of) trust in the financial sector. It should be noted that among the various financial services sectors, financial advisory and asset management have the lowest scores, in some European countries even as low as 21 to 23 percent (according to the 2013 report).

Although the confidence problem does not seem to carry the same weight in every part of the world, the fact remains that according to the Trust Barometer the financial sector as a whole emerges as the least-trusted globally. That is not good, to put it mildly, for a business that more than any other sector should be based on trust.

No matter how self-inflicted this situation, the effects of low confidence are potentially harmful. Not only for those private banking professionals who work hard to make an honest living – which in our experience applies to the vast majority – but also for the clients (i.e., the ones who distrust the services).

What would happen if we didn’t trust the legal system and as a result we created and enforced our own rules? Anarchy and chaos would be unavoidable. What would be the result if we didn’t trust medical specialists and therefore resorted to self-surgery? Life expectancy would most likely plummet.

The same applies to private banking. If due to distrust of the banks and other service providers we decide to manage our own wealth, we demonstrate a risky underestimation of the value that a private banking professional can add. Qualified and sincere private banking specialists do actually add value. The many years of experience in managing and structuring wealth have taught us valuable lessons. Ignoring this added value is potentially harmful for your wealth.

We mentioned it already: Being rich comes with typical wealth-related challenges and concerns. Most of these can be effectively addressed with the help of experienced professionals. However, a fundamental lack of faith in the soundness and professionalism of the industry will raise an impenetrable barrier, effectively blocking the development of trusted relationships, thus suppressing the value-adding potential of such relationships. Clients will end up collecting ideas from various sources and then follow their intuition in deciding on a course of action, most likely at the lowest possible fee.

For the private banking industry to be able to unlock its full value-adding potential, confidence in the sector is a prerequisite. Current levels are too low. This not only is a threat to the professional standards in the industry, but also represents a serious risk to the financial health of the rich.

The key to success, which is in everybody’s best interest, is to develop and maintain an industry that can be trusted.