“I thought I came to the expert, who can protect my capital and my family.”

Who do you think said this?

Sorry, wrong question.

Attempt another one.

What kind of client do you think said these words?

A very sophisticated billionaire client who was also the ex -prime minister of his country, Georgia.

Can you believe this?

I totally do.

But first some background.

Chanyaporn Chanjaroen and Hugo Miller published a post headlined “Credit Suisse Trust Failed Basic Duty, Says Billionaire Client”. I am reproducing a few lines from their post in The Wealth Advisor.

Bidzina Ivanishvili is suing Credit Suisse Trust (Singapore) Ltd. for $800 million in damages and lost income, arguing the bank should have spotted the fraud being committed by former Credit Suisse banker turned fraudster Patrice Lescaudron much earlier.

This is a claim against a trustee to whom assets are entrusted, who failed in its basic duty of keeping them safe, Cavinder Bull, Ivanishvili’s lawyer said in court.

But CS Trust’s defence lawyer countered that their client’s duty was to administer the trust structure, and not to make any investment decisions. Ivanishvili could have exercised his power to transfer his assets to another bank, said Lee Eng Beng, a lawyer for the trust.

Wow, look at the lawyer’s first line of defence. It was their duty to only administer the trust and not make investment decisions. The second one is a genius one – The client could have exercised his power to go to another bank.

Seriously.

I am truly not surprised with such a line of thinking. The bottom line is that they simply don’t care.

On the other hand, when someone comes into big money, there are 2 key issues that weigh on their mind. The first is Taxes and the second is Fear of this money being taken away. Predatory institutions and salespeople know these two issues very well and they play their game extremely well. I see this same game played around in India.

Their pitches start with these 2 things and of course their sophisticated research & trading skills. They tell you this is how we have helped other billionaires like you. They create a certain level of FOMO (fear of missing out) by telling you how you are missing out as compared to others like you. They make these fancy presentations and guess what. Intelligent people are impressed. After all, haven’t other billionaires and ultra-high net-worth investors signed up.

 They are not stupid. They must have done their homework.  This is enough for many others to sign up. Forget investors, even financial professionals believe these institutions have some magic potion to be distributed.

Let me make an important point here. It is not that these billionaire clients are stupid. It’s just that they don’t have the vantage point a world class real financial professional has. They don’t have the perspective to see what you can see. They have been made to believe that billionaires can only be counselled by big firms because they have access to special products, people and research. This is absolute bullshit. There is no reason to complicate any family’s financial life.

This access to special products, people and research was responsible for the global financial crisis. There was a lot of garbage packaged and sold to these sophisticated customers.  Guess what? It still continues.

That brings me to another important point. The firms claiming to protect your wealth couldn’t protect their own.

Merrill Lynch was sold. 

Bear Stearns went bust.

Lehman Brothers went bankrupt.

This time it is Credit Suisse.

Its market cap on January 26^th, 2018, was around $51 billion. Today it is around $10.72 billion (an erosion of 80% from its peak).

How can such giants destroy value in their own firms?

The reasons are excessive greed and leverage. And they are deeply stuck in this vicious culture of excessive greed (and risk taking).