ARE YOU FOCUSING ON THE RIGHT THINGS?

Written by Steve Knabl

“Placing the clients’ interests in the centre of the wealth managers focus is key. Eliminating conflicts, corporate politics and profit driven selfishness is the first step to achieving irreproachable ethical behavior when working for clients.  Many private bankers seem to forget this and focus instead on their own profit and the banking institutions’ profit focused strategy.  This results very often in underperformance of the clients investment portfolio.”

 

Have you lost focus ?

Currently, banks and other financial service providers of all sizes have never been under more scrutiny. The actions of a few impact all our reputations. Small boutique banks and independent external wealth managers have long known the solution, while large private banks are losing their way, prioritizing profits over the needs of their clients. Can something be done to reverse this trend?

Client Focus is Key

The primary focus of any wealth manager should be fixated on the interests of their clients, and their behavior should be above reproach at all times. When done correctly, conflicts, corporate politics, and profit-driven selfishness fall by the wayside, and the client is properly served.

Private bankers often put their own selfish interests before those of the client. Directing their attention on the profit of themselves and their banking institution usually has the opposite effect, and the client and the banker suffer due to the under-performance of the client’s investment portfolio. Concentrate on the needs of your client for optimum results.

The Client Comes First

Conversation among private bankers in the large banking institutions managing the portfolios of wealthy and affluent clients often involves sophisticated investment options and strategies. What is missing from these conversations is the most important element of managing complex portfolios: putting the needs of the client first. Successfully managing their clients’ investments for the short and long term involves concentrating exclusively on their needs. Failure to do so results in the under-performance of the clients’ portfolios.

Ensuring that a client is able to retire with the same standard of living is the outcome of successfully focusing on them. When the banker stops focusing exclusively on their client, it often results in assets substantially below the targets set for the client’s retirement. Unless a laser-like focus is given to each client and ethical standards are upheld, many of them will opt to take their portfolios to smaller boutique banks or external wealth managers, where high standards of fiduciary duty are the norm.

In my opinion, none of the large, global, private banks can afford not to put their clients first, though they are the ones most often guilty of this practice. Ultimately, the client pays the price for this negligence.

Best Practices

Best practices place the needs of the client first, which provides optimum results for both the client and the wealth manager. When the client is the center of the wealth manager’s focus, it is a win-win situation for everyone involved. This ensures success both in the short and long term, so the client will retire with the same standard of living he currently enjoys. Nothing says failure like a portfolio that has under-performed for thirty years due to negligence!

Current Banking Practices

In my opinion, none of the large private banks are currently making the client their focal point. There are valid reasons for this, though they are not an excuse for shoddy performance.

The banking industry is besieged by ever-increasing regulations. Struggling to survive under the onslaught of regulatory compliance and fines is costing the industry billions of dollars annually. The sad fact is that clients are the ones who bear the cost of this burden, and regulators seem to be ignoring the damage it is causing to those they are working to protect.

Large private banks are now extremely averse to risk, and have moved toward a strategy that ignores the short and long term interests of their clients, offering poor results instead of healthy returns. The increasing regulatory burden and conflicts of interest have also resulted in larger banks pushing their private bankers to allocate standardized discretionary mandates to their clients, which ultimately makes them more replaceable.

In contrast, external wealth managers and boutique private banks who uphold a high standard of fiduciary duty for their clients are becoming highly desired for their maturity and focus. They take into consideration the individual needs of every single client and cater to them, resulting in high performing portfolios, satisfied clients, and profitability for all parties.

Summation

External wealth managers and boutique banks understand that managing a client’s portfolio is about more than managing money to generate profit and high returns. It is about taking a holistic approach to all of the client’s interests; they understand, without exception, that both the client and the bank are interdependent. Placing the needs of the client first will ensure survival, growth, and profitability.