Comment: Wealth managers and fraud
The Bernard Madoff case might be hogging the financial headlines, but a more revealing case of why financial advisers commit fraud was portrayed in an article in the New York Times yesterday under the heading “Private Banker Moved Funds Undetected”.
The article should be required reading for those that run wealth managers – and how the entrepreneurial relationship manager might be a thing of the past. A link to the story is given below.
The story relates to a private banker called Hernan Arbizu who fled the US for Argentina in May 2008, just before he was to be indicted by federal authorities in New York on bank fraud charges.
Responding to questions of why he allegedly committed fraud, Arbizu is reported to have said: '3 percent of bankers who at some point get confused because of the pressure. We feel like we can take risks that other people don't even dream to do, and that we can manage that risk -- I don't know why.'
Unlike Madoff, who ran his own firm, Arbizu worked for two of the biggest names in wealth management: UBS and JP Morgan Chase.
Arbizu added that UBS 'didn't have proper control over its bankers'. UBS was not prepared to comment on this allegation.
Arbizu may be trying to defend his own actions in the face of extradition to the US and almost certain prison sentence, but he makes some interesting points.
If there are around 3% of bankers who “get confused” and the odd wealth management firm that often has lax controls over its bankers then the possibility for fraud would appear to be rife.
Given this, few wealth managers can respond in any other way but to bring in stronger controls and systems to try to stop characters like Arbizu emerging.
All this suggests powers moving away from relationship managers and more towards experts who provide computer-driven systems such SEI and Northern Trust. Wealthy individuals are increasingly keen to carry out their own research, rather than rely on third parties.
Aggrieved by incidents like the Madoff fraud and mis-selling scandals emerging from the credit crisis, few clients are likely to protest strongly about wealth managers bringing in expert systems if it means better control of their money.
Private Banker Moved Funds Undetected
- Click Here - Web link
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