Higher fees erode returns over time. A private banking client with $10 million invested, for example, who earns annual returns of 7 percent a year and pays 2.3 percent in fees, will hand $3.4 million to his bankers over the course of a decade. With fees of 0.9 percent, that client would pay $1.3 million…
“Most wealth managers and banks have a stumping conflict of interest because their riskier products earn them more fees,” says Drake, who worked at London-based Kleinwort Benson and Granville Plc for more than 20 years. “If your adviser is getting three times more for hedge funds and private equity than government bonds, you’re asking for trouble.”…
The financial crisis exposed “unsound incentive structures” that reward private bankers for pursuing their employers’ interests rather than those of their clients, wealth management consultants Ole Heggtveit and David Clarksonwrote in a report published in December by Oliver Wyman, a unit of Marsh & McLennan Cos….
Potential conflicts include encouraging clients to buy higher-margin assets rather than lower-risk alternatives, pushing the bank’s own products and third-party funds that pay commissions to the wealth manager as opposed to those that minimize costs, and promoting frequent trading over buy-and-hold strategies, according to the report titled, “Trust Me, I’m Your Private Banker.”
Bankers, brokers and insurance salespeople regularly do put their own interests ahead of their clients' for one reason: unchecked greed. Most people get into the finance industry to make money. The first thing they realize is the easiest way to do so is to “pump” their clients. The second thing they realize is that there's nothing stopping them.