The private client industry grew during the twentieth century to serve the needs of clients ravaged by war and desperate to protect their wealth against an invading force. Switzerland responded with numbered bank accounts and neutrality.
Peace has now been enjoyed by Europe for over seventy years, during which time we have seen exchange controls abolished, travel become more available and the globalisation of businesses.
The private client industry was slow to respond; secrecy became self-serving, clients were treated like ‘muppets’, fees were hidden, worthless stocks offloaded and sales pitches masqueraded as advice. Eventually poor practices were found out. Since 2008 private banks have been fined $321.4 billion. These fines cannot be ignored. Private banks have responded by putting a moratorium on sensitive advice; tax mitigation, succession, structuring and privacy issues.
Wealth planning teams in banks formerly the lynchpin for new business, have been neutered; they can now only guide. Clients must be referred to independent professionals for advice. Although some banks gave duplicitous advice, there was also a lot of creative thinking and good planning within private banks; this has now gone.
UHNW families have responded by setting up their own offices to manage their wealth, but the family office is only as good as the guys they hire and more often than not do not have the strength in depth offered by the larger private banks.
Of course there are other professionals; accountants and lawyers; but very often their skills tend towards highlighting the dangers, not in finding simple solutions. They are paid to find problems, and the more problems they find, the higher the fee. Simple solutions do not make money. They like complexity; the more documents the bigger the fee. The trustees they appoint are complicit, – the greater the number of trusts, the higher the fees, but increased complexity does not always best serve the interests of the client.
Private banks may have had their problems but they were good at finding simple solutions and then distilling them into a ‘product’ which could be sold. The gagging of the private banks has therefore left a knowledge gap.
The erosion of privacy is one such issue the seriousness of which needs to be fully understood and a simple solution found to resolve it.
With more people having access to sensitive financial information it is inevitable that some information will be leaked, hacked, bought or stolen from the weakest link and will find its way into the hands of an interested party; an estranged spouse, a disinherited child, a former business colleague, an envious competitor, the press or any manner of crooks; thieves, blackmailers or kidnappers. At best the wealth owner will be pestered, but this can easily escalate into full blown litigation which is ruinous to a family’s business, reputation, harmony and peace of mind.
Some seem to underestimate how grave and real the concerns with privacy are. Giovanni was in charge of a family fashion business which was given to him and his brother Luigi by his father. Giovanni could not work with his brother so he bought him out and they went their separate ways. Over the years Giovanni built the business from a lack lustre brand to a very successful business. He then began to take profits and deposited them in a foreign bank account – on which he paid his taxes in full.
A few years after their father’s death the fact and amount of Giovanni’s bank accounts were leaked to Luigi. At first he did not want Giovanni to know that he knew about his foreign bank accounts so he hired private detectives to follow Giovanni, and send unpleasant messages to his wife about the whereabouts of their children. In due course, it came out that Luigi was behind this menacing behaviour and Giovanni went to court to stop him. At this point Luigi started litigation against Giovanni for fraud for manipulating the profits of the business at the time he was bought out, then subsequently bringing the company back to its full potential at which point he could take large dividends out of the company for his own benefit.
GFOS is on some of the top banks' panels of preferred advisors as we are increasingly being approached by private banks to advise their clients. If a banker were to refer someone like Giovanni to us we would tell structure to protect his assets from litigation, ensure that all disputes are resolved by mediation rather than court disputes and find solutions to protect sensitive financial information from being leaked. GFOS would then make sure these are implemented for the minimum costs.
Ironically, every time we are brought in by a bank to work with one of their clients, he or she is keen to give the bank more business.
You can buy Caroline’s Book, ‘When you are Super Rich Who can you Trust?’ from Amazon, or direct from Svetlana.
If you would like to get in touch with Caroline or any one of her team please call Svetlana on 020 3740 7423.