the morale in the industry? This is a good question, and one that forces us to repeat: because it is in the best, personal interest of clients that they are able to have a high level of confidence and trust in a passionate, highly motivated financial services industry, as this sector does have the capability to deliver high-level, high-value-adding services.
Identity-Based Trust
The final level of trust concerns identity-based trust. This is the level where you dare to become vulnerable, knowing that the other party won’t take advantage of you. This type of trust takes time to develop. During that time, the other party has to demonstrate a consistent ambition to be honest, fair, responsible, and transparent.
The main actor “responsible” for developing higher levels of identity-based trust is the financial services sector itself: no more bank scandals; a problem-solving attitude instead of a narrow product focus; no hidden charges or fine print. The private banking industry has to consistently demonstrate it has a sincere resolve to accept its fiduciary responsibility, which refers to the acceptance that the interests of clients must never be compromised by the self-interest of the private banker. In the words of The Trusted Advisor, private bankers can contribute to increasing trust levels by higher levels of credibility, reliability, and intimacy, and by reducing the level of self-orientation.
Table 1.1 combines the three levels of trust with the four ingredients of trust in a single table.
Table 1.1 Three Levels and Four Ingredients of Trust
Why This Book?
Everybody has a role to play in restoring and improving trust levels. This book is primarily written for private banking clients and their children, with the intention of contributing to an increase of knowledge-based trust levels. That is the only level of trust where clients have a (proactive) role to play. Sufficient basic knowledge about the potential added value of private banking service providers helps rich families to perform their duty to increase overall levels of trust in the private banking sector.
To be rich is a blessing. But to really enjoy this blessing in the long run, professional help is usually indispensable. The dilemma here is that to rely on professional support, you first need to be able to trust the professionals. Regulators and the private banking sector play a crucial role here. Although essential, that is not sufficient.
We firmly believe that the more knowledge you have about the service offering of a private banker, the more you will be able to benefit from the relationship. Knowledge deepens your understanding of what to expect and makes you more aware of the opportunities that a healthy relationship with a private banker represents. As a rule, knowledge tends to improve – usually over time – the value received from a product or service. The more you know about cameras, the higher the likelihood that you’ll find the camera that suits you best, from both a functionality and a cost point of view. The more you know about cameras, the higher also the likelihood that you will be able to discern between the competent and the incompetent camera salesperson. The same applies – and probably even more so – to private banking.
After having read this book, you should not only have a better appreciation of what a private banker could mean for you, but you will also be able to have a meaningful, more engaged conversation to ensure that the service provided is really the service you need.
In a way, it kick-starts – or, if you already have a relationship, deepens – the relationship, which is in the interest of both your adviser and yourself as it enhances the likelihood that you’ll receive a service that truly suits you.
In other words, being more informed and prepared serves two purposes:
1. It enhances your knowledge, thus allowing you to get the most out of the relationship with your private banker.
2. It motivates and appeals to the professional, thus encouraging her to give her best to impress you.
Both are important to you.
When we talk about increasing knowledge, we refer to the areas where private banks typically add value:
● Investments
● Credit
● Life insurance
● Wealth structuring
● Psychology of wealth
These are therefore the areas that we will discuss.
We start in Part Two with the area of expertise that is generally perceived to be the core activity of private banking: investments. Step-by-step we guide you through the seemingly mysterious world of investing. Why would you invest in the first place? How do you invest in a way that suits you? What are the risks that the investment manager deals with, and how does he manage these risks? What are the asset classes and financial instruments that you can invest in?
Managing assets is a complex process. An effective conversation with your private banker, leading to a value-adding investment service offering, requires at least a basic appreciation of this process.
In Part Three, we elaborate on credit, a second area where the private banker adds value. Generally speaking, lending is one of the key banking activities. Apart from providing some basic overall insights in the world of lending and borrowing, we explore and discuss the reasons why rich individuals borrow. We separately highlight the risks involved in borrowing as well as some technicalities with regard to the relationship between lender (i.e., the private bank) and borrower (i.e., the client).
In Part Four, we discuss a third area where most private bankers play a valuable role: life insurance. We take the view that a basic understanding of the life insurance industry – what is the general use of life insurance, and what are the available types of life insurance? – is useful before exploring and understanding the rationales for using life insurance by the rich. As the average private banker is not an insurance specialist, we also look at which role they usually play and how they add value with regard to life insurance.
Through life insurance, people intend to create some level of future certainties in an otherwise uncertain world. The same applies to wealth structuring, which we discuss in Part Five in terms of the various purposes of wealth structuring as well as the various wealth structuring tools and vehicles. We also discuss which value-adding role you may expect from your private banker.
A final topic we discuss, in Part Six of this book, concerns the psychology of wealth. Raising children in a wealthy environment has proven to be challenging. We explore these challenges and provide some specialist insights into this intriguing topic. And once again, we discuss how private banking specialists may be of added value with regard to the psychology of wealth.
It is essential to get the most out of your relationship with your private banker. For the industry to be truly value-adding, it is on the one hand important that clients are open and receptive to the services of the private banks, and on the other hand that the private banking professionals have the passion and the drive to excel and provide the service that their clients need. This book aims to increase your knowledge level, thus implicitly increasing your (knowledge-based) trust in the industry and motivating your private banker to shine.
Part One
Conclusion
The private banking industry has tremendous potential to add significant value to the lives of the rich. Ignorance and skepticism, among other factors, create a dense fog, blurring our ability to recognize this potential.
In this introductory part we have explained how increasing knowledge about the value-adding potential of a private bank helps to unlock this potential. That also explains why this book has been written and why in the remainder of this book we elaborate on investments, credit, life insurance, wealth structuring, and the psychology of wealth, that is, the areas where private banks typically add value.
Are you rich? Don’t worry; help is near!
Part Two
INVESTMENTS
Once