If things go wrong, banks can say that the client had all the information and should have made other choices.
I've been thinking a lot in the past few days about how banks have become more transparent with their clients. It was prompted by a lunch with a family office who have developed an iPad app which combines all your financial data, from all your banks and wealth managers, all your portfolios, broken down by asset class. The device gives you a complete picture of your financial health and reminds you of your life-aims to boot.
This is an admirable level of transparency in certain respects, and one to which many banks, with their online dashboards and electronic reporting, are moving towards. They were blamed during the financial crisis for being opaque, not explaining clearly enough how your money was being managed, and thus their clients were surprised when they made losses in assets they didn't even know they had.
This does not, obviously, make investments fail-safe: just because you can see you have £5m in the XY Fund, it does not mean you know what's in it, and even if you know what's in it, you can't tell whether complex securities like CDOs or CDSs are individually succeeding.
But put the microview to the side for one moment and ask, What is the point of this transparency? Banks will say that it is so clients can be properly informed, and clients should be properly informed, that much is clear. Not all clients are interested, and the family office firm said some of their clients only used the app every couple of months.
It seems, however, that there is a benefit to banks of the new 'transparency': if things go wrong, they can say that the client had all the information and thus was sufficiently informed to make other choices.
One Bernard Madoff made the same argument to the New York Times this week:
'He spoke with great intensity and fluency about his dealings with various banks and hedge funds, pointing to their “willful blindness” and their failure to examine discrepancies between his regulatory filings and other information available to them.
“They had to know,” Mr. Madoff said. “But the attitude was sort of, ‘If you’re doing something wrong, we don’t want to know.’ ” '
This is the kind of attitude which banks, having sent all their data out into the clients' hands, could adopt: you should have been paying more attention. It is sneaky, and not something most banks would resort to, I hope, but when you look at transparency from the other side, the picture is not always as nice.