lost his favorite pastime. His feelings of pride and euphoria have given way to a sense of emptiness. The immense satisfaction of being the “King of the Game” lasted a remarkably short time. What can he do now?
This paradox of achieving a dream, followed by the realization that normal life then returns, is like a sobering hangover. Achieving a dream does not grant you eternal access to a dreamlike world. Instead, the bitter truth is that by achieving your dream you lose a source of inspiration.
Becoming wealthy is another such dream. To become financially independent and be able to do whatever you like appears to be a commonly shared goal. The entire lottery industry, for example, is built on this premise. But then, when one day your dream comes true, life goes on. More often than not we see how gradually the euphoria of financial success gives way to serious wealth-related concerns, worries, and even anxieties, such as:
● The fear of losing money by (over)spending, paying taxes, making the wrong investments, divorce, and so forth
● Being sure of having enough money to financially support you for the rest of your life
● The fear of looking or feeling stupid by missing out on obvious investment opportunities
● Transferring wealth and the business to the next generation
● Being able to raise kids in a way that they are inspired to live a purposeful life and are motivated to excel
● How to protect and keep up the reputation that has come with the wealth
● How to distinguish between real, sincere friends and phonies
● How to go about achieving philanthropic goals, being involved in charity in a “right” way, and making sure every dollar has the greatest impact
● Maintaining maximum privacy so as to avoid feeling uncomfortable when too many people know about this financial situation
● Theft, robberies, blackmail, kidnappings – the rich being obvious targets
Dealing with these and similarly difficult concerns is a consequence of being rich. To really enjoy your wealth and lead a happy, fulfilling life it is first and foremost important to make yourself aware of the concerns, worries, and anxieties that, generally speaking, come with wealth. And you will need to address the causes of the concerns, worries, and anxieties that keep you restless.
That is easier said than done. Fortunately, there is an industry specializing in addressing your wealth-related concerns: private banking.1
Over the years the private banking industry has built tremendous knowledge on every aspect of managing wealth. Based on experience with thousands of other rich families, it has the knowledge to help you protect, grow, share, transfer, and enjoy your wealth. Problem solved: For most of our wealth-related concerns, worries, and anxieties, there are private banking professionals to help you cope. They can help you to continue to live your dreams.
Or not: Haven’t we learned from the financial crisis in 2008 and its aftermath that private bankers are nothing but “wolves in sheep’s clothing”? To what extent can I genuinely trust that my private banker will help me to cope with my wealth-related challenges?
Shaken Confidence
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.
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