May. 17, 2011
New research findings by MyPrivateBanking Research reveal that only 10% of the world’s most important wealth managers publish performance data for their discretionary accounts (accounts for which the holder gives the wealth manager or bank authority to buy and sell securities at their discretion) and only 22% offer specific information about their fees. These results are based on an analysis of the public websites including all reporting documents that the 40 largest wealth managers worldwide publish online.
These private banks and wealth managers typically manage clients’ assets through defined mandates in discretionary accounts (often labeled “conservative”, “balanced” or “growth”) that are very similar to the investment strategies of mutual funds. In both investment approaches the investment decisions are completely in the hand of the wealth manager or private bank. However, while most countries require extensive transparency on mutual funds such as performance data after fees, the total expense ratio, twice-yearly publication of fund holdings, the benchmark index, there is very little disclosure to the public on the discretionary accounts by private banks and wealth managers:
Non-transparent wealth management fees:
- 35% of analyzed banks and wealth managers discuss the costs and fees of wealth management in general terms.
- 22% give some quantitative information about fees.
- Only 18% offer precise, quantitative information on various wealth management fees.
Lack of performance data:
- A mere 13% of analyzed private banks discuss the topic of their performance in general terms.
- 10% offer some quantitative data on their discretionary accounts’ performance.
- Only 8% offer a 3-year track record (or more) on the performance of their discretionary accounts.
In MyPrivateBanking´s view, wealth managers are acting in a comparable role to fund managers when managing their clients’ wealth through discretionary accounts. Consequently they should offer the same level of transparency to the public. Banks and wealth managers should publish basic data on the performance and cost of their discretionary accounts. This data is important for potential and existing clients wishing to compare and benchmark their current banks with other providers and in order to find the best provider.
MyPrivateBanking recommends that banks and wealth managers be much more transparent about their core services of investment management. They should use the Internet as an effective communication channel for disclosure and distinguish themselves form competitors by a high level of transparency. Banks can show that they have an edge in managing investments by disclosing their track record on discretionary accounts. Over the long term it is just a question of whether banks will become more open voluntarily or if regulators are going to have to come up with mandatory disclosure standards.
A positive example for fee transparency is Deutsche Bank that publishes a comprehensive list of wealth management fees on its public website. Standard Chartered sets a benchmark with a monthly updated portfolio review on its various wealth management mandates.