Charter for Ethical Wealth Management

Over the last two years MyPrivateBanking.com has evolved into a platform to educate and connect wealth management clients, promote their rights and interests and highlight the responsibilities of wealth managers and private banks. Certainly, a lot of the latter try hard to serve their clients in an ethical manner. However, in their discussions in the group section of MyPrivateBanking.com, many  members of our social network had serious complaints about unethical or incorrect behavior of wealth managers.

To capture the essence of these discussions, the editorial board of MyPrivateBanking has discussed and drafted a “Charter for Ethical Wealth Management”. We see this charter as a draft version and throw it open for comments and questions within our networking platform. All our members, including wealth managers, are invited to participate in this discussion. We have opened a separate discussion group for this purpose.

After the discussion process is finalized – we envisage a period of about three months – the editorial board will come up with a final version of the Charter for Ethical Wealth Management. Its purpose will be to serve as guide lines for clients and wealth managers alike. Naturally, we hope that many wealth managers will adopt this charter and integrate its principles in their daily business.

Here is our first draft.:

1. Always put the interest of the client first. To fulfill the goals, needs and aspirations of every client must be the first and foremost purpose of every wealth management business. This overreaching principle must guide every business relationship and every single activity on behalf of wealth management clients.

2. Learn from the client. At the beginning of every client relationship there should be a comprehensive evaluation of every potential client’s needs, aspirations and goals along with multiple other factors that may determine the appropriate wealth management strategy. Such an evaluation should be repeated on a regular basis.

3. Transparency at all levels. Many clients have little know-how about the world of finance. It is the obligation of the wealth manager to explain all details of the business relationship in clear, simple and easily understandable words without leaving out any important considerations. Transparency includes transparency about goals, processes, risk, expectations, costs, fees and many other factors.

4. Set realistic expectations about risk and return. Clients must have clarity about the expectations they should have with regard to risk and return. All asset performance comes with associated risks and wealth managers have a duty to make their clients aware of this.

5. Use straightforward financial products. Wealth managers should use simple and, even for the layman or –woman, easily comprehensible financial products. Hedge funds, complicated structured products or similar complex products may be suitable for the institutional investor, for private investors they are useless in most cases.

6. Comprehensive and frequent performance reporting. Performance must be reported at least monthly after fees and taxes. Reporting should follow international guidelines of Global Investment Performance Standards (GIPS)

7. Clear fee structure. Fees have a major impact on the long-term performance of a client portfolio. Therefore, the client should clearly understand how much and for which services he or she pays fees. The client should also be helped to understand clearly the impact of fees on long-term performance. Particularly:

8. No kick-backs or hidden commissions: The wealth manager should not take commissions (kick-backs) from providers of financial products such as fund sponsors or structured product providers.

9. No unnecessary trading. This practice, also called churning, generates unnecessary trading costs in many cases and reduces the transparency of the portfolio, as investment positions are rapidly changing. Instead, the wealth manager must take a long-term view on all investment decisions. 

10. Refuse unethical client relationships and unethical demand from clients. Wealth managers must refuse business relationships with clients who are under suspicion of money laundering, corruption or related unethical or criminal practices.

We are looking forward to your input !