People, not profits

At WealthSmart, we only charge customers whose accounts are profitable. Why do we feel strongly about operating this way?

Financial services have always operated under an uncertain outcome compensation model. In the most recent financial crisis, we witnessed a windfall of large bonuses on the back of jittery markets and clients being sold products ill-suited to their needs. The uncertain outcome compensation model protected financial professionals from the sharp downturn, leaving customers holding onto whatever remained.

To use a different example, when you visit a doctor, they are compensated irrespective of whether the treatment solves your problem. You trust that the doctor will do everything they can to treat your symptoms but understand that sometimes, for a variety of reasons including your own biology, this won’t be enough. Financial markets are no different in this respect: fund managers can’t and shouldn’t guarantee the positive outcome of an investment. For this reason they feel they should receive a fee no matter the result of their decisions.

However, unlike the world of medicine, success in the financial world is summed up by a single word: profitability. This marks the key distinction with other professions that use the same uncertain outcome compensation model. The phrase, "First, do no harm" is ascribed to the Hippocratic oath but in a financial business, the motto has more often been, "First, make money". People in the industry want to act in the best interests of their clients but are sometimes pressured to make this a secondary concern in the quest for profit. The regulators have been working to change this culture through basic rules outlining the fair treatment of customers. At WealthSmart, we want to take things a step further.

Because we align the success of our customers with our compensation model, we think twice about investing their money in a strategy that does well in good years but implodes in bad ones. Our Smart Portfolio strategy is a natural extension of this ethos. Beyond our customers, we hope to make this the new norm in an industry that desperately needs to shift its purpose from profits to people.

Author note: prior to WealthSmart I worked in the financial industry as a trader. I witnessed and benefited first hand from the positive impact on bonuses of a financial crisis. More jarringly I frequently saw entire company cultures root for economic meltdowns to strike and increase everyone's paycheck.

Yannick Brunner