Money Soul Search

In  a Wealth Management Forum I attended on 14Apr, there was a Private Banking Panel Discussion entitled ‘The Quest by Wealth Managers for Trusted Advisor status’.

For readers who are not familiar with the world of wealth management (like I was before I took up my current job), wealth managers are people who help anyone in possession of a lot of money to manage its usage. Some of you may not agree, but money is like many things in our lives – it can be a problem if one do not have enough, just enough, or so much more than enough that it can’t be fully used up within the owner’s lifespan.

The chairman of the panel, Bruce Weatherill, gave a powerpoint walkthrough on what wealth management used to be – to help a client manages the use of his/her wealth to meet the varying needs of their life during healthy time, into their retirements, when they move on to a better world and eventually transferring the leftovers to their offsprings. And the cycle goes on.

And for this professional help rendered, a wealth manager (a.k.a. Private Banker) is paid a fee by the client. Think of it like how you would pay a gardener for keeping your plants blossoming while you are busy getting on with other more important things in life.

For the past two years that I worked for a software company which started two decades ago helping banks to help their clients manage their wealths, I had attended a number of conferences focusing on wealth management. In a post-Lehman era, the constant tune sung in these conferences was none other than ‘clients have lost their trust in wealth management industry’. Various reasons were quoted:-

• Private banking has become the channel for banks to sell high margin (and more often than not also high risk) products to customers – it was not unusual for a client to lose 70% of his/her wealth during the financial crisis due to these products
• Unqualified private bankers due to (too) fast expansion of the industry during boom time – I heard sayings like ‘anyone who can stand relatively still and smile can be a private banker’ or ‘it was more difficult to become a hairdresser or taxi driver than to be a private banker’
• Private banking has become product centric, not client centric – banks reward private bankers who generate huge profits from clients and punish those who do not meet the sales quota

Bruce commented that he saw a lot of nodding heads when he said Private Banks have to changed to a more client centric model, just as he always saw nodding heads in many conferences in past years when he mentioned the same point – it was challenging to make the change. 

One panelist, Alessandro Mauceri, offered a possible model – his bank treats the clients as partners and link the rewards to private bankers with client’s investment performance. Is this client centric enough? 

Or would the clients want to be a partner with the bankers? Another panelist, Mark Jansen, shared with audience a trend that the typical percentage of client base a private banker who moves to another bank is able to bring along has reduced drastically (something like from 70-80% in the past to 15-20%).

Client behaviours are pivotal in shaping the industrial practices – basic demand/supply principle of economics. Many times it has been raised that many clients in emerging markets expect/demand 20-30% returns on their investment since they are used to much higher returns the booming markets afforded them in the process of their wealth creation – that translate to getting into high risk products. In fact since 2010, merely a year+ after Lehman collapsed, high risk product such as accumulator (nick-named ‘I kill you later’) has made a major comeback in Hongkong. Though this can be used to argue that banks are not to bear the blame solely, I had only heard it once in these conferences when a banker said, ‘we need to tell the clients our role is not to help them create more wealth, but to preserve the wealth they have created themselves’. That was a stark comparison with the tune of the forth panelist, Stephen Harris, who admittedly challenged Bruce by saying ‘let’s be honest, we are in the business to sell something in order to make money for ourselves’.

If you tell your gardener you would like him to help selling entrance tickets to the nicely maintained garden and promise a commission to him for every sold ticket, should he jump on to the opportunity of getting richer or should he advise you that in his humble opinion you have made enough money and the garden is best preserved as your private sanctuary?

In the same week, I came across an article on PPAPER BUSINESS magazine on many ‘city rejuvenation’ projects in many China cities – in which many old neighbourhoods have been inevitably converted into modern shopping malls cum high rise apartments, including Michelin Star restaurants and boutique hotels. Similar process can be found in many other cities globally – while these neighbourhoods may be of different historical origins, their new lease of life share many commonalities. The aim? Money.

Or in a more economic term – unlock the values of the asset.

This is a reminder to me that we now live in an era when more often than not, everything in our lives are being looked at through an economic lens. We have been constantly reminded to think of how to extract ‘greater values’ out from our assets, down to every single cent. Can we then be surprised that customers are expecting/demanding their bankers to help them make more money with their money? And bankers had to sell high risk products ‘in response to client demands’ for higher returns.

Until we see a fundamental shift away from this thinking in the banks, bankers and customers, being client centric will not return the wealth management industry back to its service centric tradition.

And the soul search will go on.