This phone call took place in March of 2007. The client accepted my colleague’s advice and sold the stock. During the next three months the stock continued to climb and the boss of the bank received a very strong worded letter, laced with the colorful language of the variety that only those who have travelled the salty seas and bare the anchor tattoos to show for it are capable of. But it wasn’t the purser of the Love Boat who sent the letter, it was the client. The jist of the letter was that my colleague was a chap of the lowest ability and wouldn’t know a stock from Woodstock and presumably had continued to use the products he had discovered there to this very day.
Although us bankers are thought of as being cold hearted and uncaring, my colleague was one to never fit that stereotype. Due to the letter, he was deeply hurt, although he did his best to hide it.
With that knowledge I would like to ask you a question: Was my colleague incompetent? (We’ll come back to this story a little later)
I ask the question because it brings us right to the crux of the issue of what a private banker’s duty to his client is. So let me ask you another question: What is your private banker’s duty to you? Think about it for a moment.
Most people will answer that it is wealth creation. Let me be very clear. That is the absolute wrong answer. The problem is that this is the misconception often carried by the client and just as often carried by the private banker.
When the relationship becomes about wealth creation it automatically turns in to a game of the banker and client chasing returns; Picking stocks and bonds and so on. This road will always and inevitably lead to tears. This is precisely why private banking has such a high churn rate of clients. At some point within the cycle of the relationship there will be a crisis and because private bankers invest their clients assets in all asset classes there will be crises... as in multiple.
So what is the real duty of a private banker? The answer is simple: Wealth preservation. The difference between wealth creation and wealth preservation is huge. Your banker’s job is to protect you from risks and keep your head cool, because when the markets rally over an extended period, which they will do, you will start getting giddy about your own abilities and those of your banker, the problem is that there will be a crisis at the end of the road and that is when you need a private banker who is dedicated to the preservation of your wealth.
Let’s get back to my colleague and the stock he had told the client to sell. The stock doubled after he had recommended to the client to sell and subsequently the stock crashed, to this day it is trading 80% below the price my colleague had told the client to sell at.
Next time you talk with your private banker, ask him what his main duty to you is.