Where have all the bankers gone? The rapacious hubris of private banking

“The burnt customer certainly prefers to believe that he has been robbed rather than that he has been a fool on the advice of fools.” Source: Where Are the Customers’ Yachts

Arguably the concept of private banking, or wealth management as it is commonly referred to, is no longer fit for purpose in the modern age. The core banking structure and product offering is not merely outdated, we would argue that it is virtually obsolete. The people who run these institutions and provide services to wealthy clients are no longer bankers, that era is clearly over. 

Today, Zurich’s Paradeplatz is looking more and more like Avenue Montaigne in Paris. The private banker is closer in job function to that of a shop assistant and is far away from providing actual holistic wealth advice. Global banks have duped countless clients by mastering selling skills, positioning the bank as a Louis Vuitton but actually delivering Zara – we see the industry competing on brand and little else.

What happened? How could such a formidable and powerful industry fall from grace? 

Rapacious hubris

The 2008 crash offered a huge opportunity to reform the financial system root and branch. Regrettably, there were no takers and the spiral of bad actors and greed continued. In turn, regulators felt empowered to act with vigour with the most stringent and stifling of regulations. We have created an environment where casinos can flourish, and banks cannot function. 

After two decades of arrogance and suspect sales practices the banking industry has been ostensibly checked, but at what cost. The resulting melee has completely dumbed down the industry to such an extent that it is hardly recognisable. Bankers can no longer advise and have no real purview of a client’s wealth, and as for the bank’s so-called holistic financial solutions – the underlying products are expensive and represent the epitome of mediocrity. Is there any wonder that digital challengers will offer the same mediocrity with lower fees and forgo the advisor?

Customer experience

Recent changes to banking business models have mostly come in response to regulatory shifts, as opposed to a purposeful reimagining of the customer experience and customer needs. Customers now expect interactions to be simple, intuitive, and seamlessly connected across physical and digital touchpoints. Banks are investing to meet these demands but can not keep pace as many are hampered by legacy IT infrastructures and siloed data. The client is treated like a child and is spoon-fed products.When a product is deemed suitable, the product warning and supporting waivers are at least twice as long as the description.

Under the microscope

Is this what banking in the 21st century has come down to, a once esteemed profession is now a shadow of itself and arguably an embarrassment.  

This is not meant to be an indictment on the whole industry or for that matter all bankers, as there are pockets of excellence and some organizations are trying to make a difference. However, in this case size does matter, as invariably the larger and more prestigious institutions are almost defunct, with senior managers better at managing up than down. The smaller nimbler players smell a decaying carcass and hover. And yes, there will be a slew of new technologies and many firms will up their game; but as long as the industry is choked by regulations, banking without advice is akin to a lawyer without an opinion.  

In an era of increasing inequality, huge government deficits, and growing environmental concerns, clients are indeed more conscious of these global challenges. The Millennials will aspire and the Zoomers will demand a coalesce of their financial needs with those of the wider society. Banks in turn will extend client profiles to include social preferences and then the sausage factory will churn out the necessary green-washed content. Banks will scramble to change their stripes and fall over themselves to offer more products orientated towards sustainability and impact – reinforcing the banks' social brand. However, such changes appear to be only cosmetic...hence 'lipstick on a pig' comes to mind.

Ironically, the banking industry was built on trust and AAA ratings; with those now lost, the new AAA (and perhaps the biggest threat) has become Amazon, Apple and Alphabet.

by Louay Aldoory, Managing Partner

We look for extraordinary people with bold ideas and global ambition. 1648 Capital is an early-stage advisor and investor in people. We invest in companies with the potential to disrupt whole industries. We bring deep experience and our expansive network to help develop and scale businesses globally. Our credo is independence and discretion, hallmarked by the year in which European powers recognised the Swiss Confederation as an independent state.

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