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Stick to some basics when choosing a private banker. If the individual is CFA certified, all the better... Image Credit: Shutterstock

Health and wealth. Yes, both are important, and not necessarily only during one’s sunset years. Most clients have realized this, but some of them found out the hard way.

I started my private banking career almost a quarter century ago after spending two decades in global markets. The industry was much different then. The prime objective was wealth preservation and earning inflation beating returns over the long term.

The environment has changed significantly since. Younger people have joined the ranks of the wealthy. They are willing to take on more risk, have a shorter term trading attitude to investments and are not particularly excited about returns generated by conservatively managed portfolios.

This new set of clients are also loathe to pay fees. They expect well qualified bankers to offer them their expertise - for free. To meet this requirement Private Banks adopted a low- or zero-fee model and developing new investment products that had no visible fees.

Fit for the risk-takers

They are part of a whole new asset class of - hard to understand - derivative based structured products with hidden commissions. These structures also readily catered to the dopamine producing need of the newer breed of clients.

The clients benefited from potentially higher yields while the bankers could earn fat fees, unbeknownst to the clients, of course.

Worth the hype?

However, is investment in these new-fangled products really worth it?

While they may provide an adrenaline rush to some die hard risk-takers, their longer term returns have been no better than a well-managed, diversified portfolio as most clients will readily testify.

Another critical concern is that selling these products does not require much technical skills. Neither the private bankers nor their clients have much of an idea about the intricacies of these investments or their underlying risks. What the clients see is the headline yield - and bankers the hefty commissions.

That brings us to the question of the quality of wealth managers abounding the marketplace.

In this regard it is important customers accept the necessity to pay for quality, within reason of course, to avoid financial tragedies.

Choosing the private banker

How does one discern the quality of their advisors?

One way is to conduct a thorough background check on the prospective private banker. Verify their antecedents, check how steady has been their career and obtain references from their existing clients, if possible.

Educational background is another. Most people will say qualifications are not important, but they are essential when technical complexities require an in-depth understanding of the subject matter, such as in the medical profession.

Keeping in mind that markets are at best treacherous to navigate, it is certainly not recommended to leave portfolio management to amateurs. A professional qualification is a must.

So, what are the best qualifications for a private banker?

There are a few high quality certifications that are worthy of being considered as appropriate. An MBA from one of the reputed institutions helps. The Certified Financial Planner (CFP), wealth management diploma (or a CISI) and chartered financial consultant are some of the others that come to mind.

The gold standard for a Portfolio Manager or a Private Banker remains the chartered financial analyst - or the CFA as it is designated. It has a vast and comprehensive body of knowledge tested over three levels of rigorous examinations, pass rates of which are usually in the low double digits.

A CFA charter holder can be assumed to have deep domain knowledge. In addition, and most importantly one of the critical aspects of CFA qualification is its strong emphasis on ethics. So strong that high ethical standards form a second nature to CFA charter holders. The CFA code of ethics is much like the medical profession.

As a client you can be assured of full transparency and no miss selling when your banker is CFA qualified…