Absolute discretion; the strength of character that engenders trust; the emotional intelligence that enables one to gauge a client’s needs, wants and insecurities; and a keen financial mind. Such are qualities that distinguish a top private banker. These qualities, or at least their appearance, have for eight centuries opened the doors of the wealthy and given private bankers access to the money-drenched souls of the super-rich, from the doges of Venice, Belgian merchants, European royal families, American industry tycoons and third-world rulers to dot.com billionaires and post-communist oligarchs in Russia and China.
When asked about their interaction with high net-worth individuals in the current era, private bankers at the start of this year still, as they did a decade ago, talk about advising their clients on expanding and preserving their wealth, about assessing their conservative, moderate or aggressive risk appetites and, quite a bit, about asset classes and diversification of portfolios in volatile times.
Yet in important ways, private banking has changed more in the few years of this century than in the 700 years before. The three main components of this change were the redrawing of regulations, the impact of technology and the globalization of markets. Regulations moved away from selective laissez-faire regimes and from being accommodative to the private greed of the upper 20 percent, to the intense scrutiny and punishment of financial rule-breaking by banks, of complicity in money laundering and individuals’ tax evasion, of sanctions breaking and so forth. ICT systems for asset management and private banking were developed in revolutionary leaps, allowing for unprecedented sophistication of the planning, management and reporting of portfolios. In tandem with the rising data volumes, markets on every continent became richer and more accessible, giving wealth managers more options to diversify than ever before while, at the same time, engendering interconnectedness of risks with new and perhaps entirely unknowable upsides and potentially devastating downsides.
All the while, there is a growing understanding that the destruction of nature, eruption of large social conflicts and unmitigated concentration of power in the hands of self-absorbed individuals and institutions are detriments to the world’s economic future and even threaten the survival of mankind. Environmental, social and governance (ESG) considerations have risen from fears on the fringe of human debates to central concerns in the shaping of the 21st century society and economy.
Some – but certainly not all – necessary lessons have been learned in this context from the Great Recession and social upheavals of the past seven years.
Instead of capitalist orthodoxy allowing us to presume that mere pursuit of individual interest will sustain the public good, new ESG responsibilities demand attention and have begun to inform our ethical orientations and behaviors. Tying this into the behavior of private banking means to extend and enhance business ethics beyond the notion that the most successful private banker in the long term is the one who puts the client’s interest first in all things (for some options, see story on private banking ethics).
From what we can see in history and human behavior, wealth will always be more concentrated under the stewardship of the few rather than distributed into the hands of the many. Even when significant portions of wealth get redistributed via violent or peaceful ways, the concentration process will immediately restart after a revolution or, in the far superior case of voluntary distribution, carry on. Given the continuity and the considerable benefits of managing this process of growing, preserving, sharing and regrowing wealth, and acknowledging that banking is the top asset and best performer in the Lebanese economy, there is no reason why the wealth management process under observance of best ESG standards and in practice of highest business ethics should not involve Beirut as one of its strongest hubs.
As 2016 is a year that started with many questions and rising uncertainties for private bankers and all wealth management disciplines (see story on market volatility), there is one lesson from the recent past that demonstrates why ethical behavior would be a win-win for private banking institutions in Beirut. While a lot of private wealth was destroyed in 2008 and 2009, the total sum of wealth and most high net-worth family fortunes were restored by 2012 or so. But wealth managers that were exposed during the Great Recession for their unethical greed, recklessness, self-absorption and institutional malperformance, in some cases ended up in jail and in others vanished from the markets. The best time to distinguish yourself as a private bank and advertise yourself for future business is to excel in ethical behavior during a period of financial uncertainty.