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You don't know who is swimming naked until the tide goes out.” The truth of this famous Warren Buffett phrase became painfully clear during and immediately after the financial crisis in 2008. To a large extent, private banking had evolved into a sales industry. To drum up revenue, private bankers were instructed by their managers to sell. Targets and key performance indicators (KPIs) drove the business – not clients.
As long as the markets went up, nobody questioned this and it did not pose a serious issue. Almost every product seemed to perform well, so who cared whether clients were properly advised?
Then the tide went out. Most of the bankers who had sold the products were nowhere to be found and their clients were left behind.
It appeared that many of the loss-making investments in clients' portfolios should never have been recommended in the first place. The public was incensed. The assumed duty of care was sacrificed for the desire to increase revenue. The verdict: Hang those immoral and greedy bankers out to dry.
This might seem somewhat exaggerated but it was, in a nutshell, the post-crisis sentiment. Apart from the fact that the entire financial system seemed on the verge of collapse, public faith in the integrity of the industry dwindled, reaching a historic low.
That triggered regulators from all over the world into corrective action. The credibility of the financial services industry needed to be restored. The banks had created a mess and now it was up to the regulators to sort things out and make sure that history would never repeat itself. In fairness, most banks took responsibility for what happened and initiated programs to improve the situation. A commitment to increasing quality and integrity levels resulted in myriad new regulations, rules, guidelines, policies, procedures, and so on.
However, the combination of a highly skeptical public and a never-ending stream of new policies, no matter how justifiable, affected morale in the industry.
For any service to be value adding at least two conditions need to be met:
1. The service provider must have an unwavering belief in the added value of its own service offering, as demonstrated through a high level of passion.
2. The service recipient must have an open, welcoming, and inviting mindset.
When we look at the private banking industry we still fail, generally speaking, to be confident that both conditions are met. That creates a serious impediment toward the development of a truly value-adding industry. It is mainly a shame because this situation deprives high-net-worth individuals (HNWIs) of the support that the industry is capable of offering in managing and organizing their wealth.
Private banks employ many high-level professionals who have what it takes to alleviate the typical wealth-related concerns that trouble the rich. It is often sad to see so much of that talent go to waste due to a lack of faith among clients and lack of motivation among the providers.
