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UBS Sues Couple Over $9m

Written By: Tiang Chuan on November 21, 2010 No Comment

Private banks seems to be busy these days. Yet another lawsuit has surfaced. This time, UBS has taken a couple to court on the grounds that they owe the bank $9m from losses from foreign exchange transactions. The couple has counter-sued claiming that they are relatively inexperienced in financial markets and had relied on the bank for advice.

In an article on the 20th Nov 2010 edition of The Straits Times (Perils of banking on the young and careless), the finger has been pointed at rookie bankers for the recent spat of fallout between private banks and their clients. The article mentioned that part of the reason for the breakdown in bank-client relationship was the aggressive hiring in the boom years of 2004 to 2007. Private bankers were playing ‘musical chairs’ by hopping from one bank to another, getting pay rises of 30 to 90%. ‘Armies of inexperienced bankers ‘ were hired during the hiring spree. According to the article, this could have led to “a strong culture diluted, with more carelessness“. A veteran private banker was quoted as saying “It is possible that some relationship mangers, in their zeal to sell a fund or stock, didn’t highlight sufficiently what the risks were. Some relationship mangers could also have traded without their clients’ approval – in which case… they should have been fired.”.

Does experience equate good advice? I do not think so. A client of mine is served by a veteran private banker. His banker suggested leverage for his investments. My client is already nearing retirement and have no need for leverage. Is this good advice or just to hit targets?

It is always easy to point fingers. But 4 fingers are pointing back when one is pointing at others. While young and inexperienced bankers could be partially at fault, I feel the management and senior people should shoulder the bigger blame. As the Chinese saying goes “上梁不正下梁歪” – A crooked stick throws a crooked shadow. If the management have set the right example and environment in which to provide proper advice, such incidents would have been minimized. But alas, this is easier said than done. With a multi-layered profit-orientated organization that has numerous KPIs and sales numbers to meet, it is an uphill battle just to meet expectations, not to mention giving proper advice.

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