Private Banks Don’t Put Their Fees on the Internet

Asymmetries of information are a big issue in the provision of medical services. If a patient with a stomach ache doesn’t know what to do about it he will consult his medical adviser, in other words, his doctor. The doctor, in turn, will analyze the problem and propose a solution, a therapy.

Given his advantage of information, the doctor has the means to influence the degree of medical advice and an opportunity to earn money from the prescription of drugs. He can suggest that the patient should return to his surgery in two days’ time for a check-up or agree with the patient to return only if the therapy doesn’t work within two days.

Normally, the patient will not be able to judge which of the suggested procedures makes more sense for him. A doctor with extra capacities thus has a way of generating additional income if need be. A tried and tested measure against this supply-induced demand is to limit the number of medical surgeries.

It is definitely worth looking at both the disclosed and the hidden costs. As advisory services in private banking aren’t measured in minutes, unlike those of medical doctors, the symptoms of asymmetries of information aren’t the same. It is worth looking at both the disclosed and the hidden costs. The prices of private-banking services aren’t publicly known because of the discretion of the providers.

To be precise: private banks aren’t displaying their fees on the internet. This makes it hard for an inexperienced client to determine whether the price offered for advisory services or wealth management mandate is fair or not. This is true in particular because these prices normally depend on the size of assets, the strategy chosen and occasionally also on the frequency of advice given. Clients with little know-how thus risk paying too much for the service.

Fees charged for advice and wealth management services at least be disclosed to the client. Many providers, however, are burying other costs in the products they recommend to their clients. For instance, even experts are finding it hard to detect the margin applied to a structured product. After all, who is able to decide whether a particular option was fairly priced or not? The more complex a product is used, the bigger the asymmetry of information and the more options there are to add more margin.