Mis-selling of Accumulator

Before the incident of Lehman Minibond, many private banking clients had already complained on mis-selling of accumulator. Though these cliens were typically professional investors and thus accumulator was not authorized by SFC, it did not mean selling of such product to them was not subject to suitability obligations.

Last week (SFC) has prohibited Ms Ronnie Wong Wang, a former client adviser at Goldman Sachs (Asia) LLC, from re-entering the industry for two years.

An SFC investigation found that:

• in November 2007, Wong entered into an accumulator transaction with a total exposure of $13.8 million on behalf of a high net worth client without the client’s instructions, knowledge and proper authorisation;
• in December 2007, Wong prepared a spreadsheet for the client which contained inaccurate information in that it did not present a true picture of the client's portfolio. The spreadsheet included profits that had not yet accrued and overstated the client’s earnings by US$1.72 million.
  

Wong admitted to SFC that she had entered into the accumulator transaction without proper authorisation. However, she claimed it was a good investment and the client normally accepted her recommendations. Although the client signed a confirmation of the transaction in January 2008, she complained to SFC about the unauthorised transaction in March 2008.

Private banking is a business model where the clients place a high degree of trust on the advisers, especially when the advisers can make huge profits for them. When the clients has realized that the trust could be abused, it's the right time for private banks to change the culture.