"I am the boss of the bank least loved by other bank"
Jan. 05, 2011
Karl M. Schmidt is the CEO of the first fee-only private bank in Germany which offers clients wealth advice without conflict of interest. We talked with him about the acceptance of this new advisory model among clients and what has to be done to make the wealth management market more transparent.
MyPrivateBanking: Why do you refer to yourself in an advertisement as “the boss of the least loved bank"?
Karl M. Schmidt: It is important to understand the meaning of the complete quotation, which is: “the boss of the bank least loved by the other banks”. The quirin bank is most unloved by the other banks because it challenges their business model. Usually, banks earn their money by gaining commissions, which are either open or hidden in expensive bank products. The objective of the bank is to sell as many products and gain as much in commissions as it can, regardless of whether this is in the interest of the customer or not. Our objective as a fee-only advisory bank is to advise our clients as best as we can. Of course, we want to earn money as well, but we earn only when our customers are successful and not by selling them expensive products.
By practicing fee-only advisory since 2006, we have successfully raised a public debate in the German market about a consumer-friendly approach in private banking. The banks don´t like this debate and most of all, they don´t like the fact that we are successful with our new fair and transparent private banking model.
And last but not least, good commercials have to have a certain amount of humour, so this statement is of course made with a twinkle in our eye.
MyPrivateBanking: How successful has your strategy been in the market place?
Karl M. Schmidt: We are very successful, if you look at our numbers. We have raised our number of clients from 700 to over 7,000. This means an increase of 1,000 percent since 2006. At the same time, we have quadrupled the amount of assets under management. Today, around 7,500 customers hold two billion euros in assets managed by quirin bank. Our headquarters in Berlin are supported by 12 affiliates and a total amount of 100 fee-only advisors which are located in major cities throughout Germany, such as Munich, Hamburg, Frankfurt, Cologne and Stuttgart.
Furthermore, our success story is also due to the fact that during the financial crisis many people lost their trust in conventional banks and started to look for alternatives. Fee-only advising is such an alternative. It offers a relationship between bank and client which is free from any conflict of interest, transparent and fair. It is currently the only model that I know of which is able to reestablish trust in the banking world.
MyPrivateBanking: Why is there only a small minority of private banks and wealth managers in Europe who avoid kick-backs and offer transparency to their clients?
Karl M. Schmidt: There is an easy answer to your question. Transparency means doing business with less commissions and abandoning the option of ever-growing profits for the bank. Transparency means to look not only for shareholder value, but also for customer value. A concept that is much more sustainable than the conventional business models of banks. But it is a concept that means to share profits with the customer, something that is not easily done, especially if you are tempted to use your informational advantage in your own interest. Unfortunately, this behaviour is stimulated by commission-based banking.
MyPrivateBanking: Can you tell us approximately how many mutual funds are generally paying kick-backs/commissions to banks who place these products into their clients’ portfolios?
Karl M. Schmidt: As far as I know, this holds true for the majority of mutual funds. An exception to this rule are so called Exchange Traded Funds. They are very transparent, cost-effective and efficient. This is why quirin bank likes ETFs and often recommends them for clients’ portfolios
MyPrivateBanking: Do you think that the government should intervene more strongly and protect clients from bad banking advice and conflict of interest?
Karl M. Schmidt: Clearly yes. The average customer needs to be more strongly protected, given that people often do not know how much conventional banking really costs them. They even think that normal bank-services are for free. The contrary is true, of course. I strongly believe that only an informed customer can be truly responsible for his decisions. This is why the costs in bank products and services must be made transparent and comparable. A good indicator is the so-called “Reduction in Yield”. This code number shows how much the yearly profits of an investment are reduced by total costs.
MyPrivateBanking: In your opinion, what are the three most important things a wealthy individual or family should do to get most out of their wealth management or private bank?
Karl M. Schmidt: The most important thing is to ask the right questions: ask about costs in products and services, ask about the motivation of your bank advisor and how he is paid, ask about investment strategy and ask for regular reporting with regard to portfolio structure and changes.
MyPrivateBanking: Mr. Schmidt, thank you for this interview.
Karl Matthäus Schmidt, born 1969, is the CEO of quirin bank, the first fee-only private bank in Germany, which offers clients wealth advice without conflict of interest as the bank does not take any kick-backs (commissions). In the 1990s Schmidt founded Consors, the first German direct broker.