Imagine logging in to your online banking and no longer being able to see your accounts.
So you call customer service. You give them your account number.
‘I’m sorry. I cannot find this account in our system.’
This is what happened to me some years back. The large bank I was with in Britain separated their banking divisions. And lost some of my accounts in the process.
I was shocked. And in complete disbelief.
First, I checked I had retained a good number of statements. I had. Second, I raised a complaint with the bank.
After an hour on the phone and being passed around two international divisions, they finally found my accounts. But could not provide any access.
‘I’m going to need some compensation for this,’ I told them frankly.
And the typical line they seem ready for in the UK. ‘How much compensation would you be looking for, sir?’
We settled on about £150. Possibly the maximum they can give over the phone.
When I researched the troubles, I learnt that this bank receives tens of thousands of complaints every year. There’s perhaps a business in just raising complaints with British banks. In fact, when you consider PPI claims, there is.
But the scenario rocked me. Proceeds from a property sale had gone into these accounts. And it was several days before I regained access, notwithstanding the need to re-prove my identity.
Where is your money?
The concept of money derives from your ownership of something recognised to store value and be tradeable. Gold is the old money. Your wealth resided in your claim on physical gold holdings.
Up until the early 1930s, you could actually exchange banknotes for the equivalent value in gold from the Bank of England. And as with other central banks, the BoE still holds a significant custodial quantity of gold.
Now, money today — outside of the cash in your wallet — is digits in a bank or brokerage account. It’s electronic money.
You may think you physically own that money. In fact, while you legally own it, your money is in the possession of whatever financial institution you deposit it with.
Should that institution ‘lose’ your accounts — or suspect you of fraud, or make an error, or fail to identify you, or fall victim of a devastating cyberattack — you may find your claim on ownership of your money limited.
What can you do?
One key thing is to keep detailed records in dealing with financial institutions. Not just records with the bank or broker, but cross-records. Deposits from one bank to another — keep those records.
Then, within your portfolio, add some physical ownership.
Buy property — although titles can still be susceptible to fraud. Buy gold. Buy shares that you hold directly on the company register — not solely via the nominee account of a broker.
New Zealand is one of the few jurisdictions where you can often hold shares directly on the register. Which is why, when you run searches of large shareholders, you’ll sometimes see individuals owning large swathes of certain companies.
Then there are cryptocurrencies like bitcoin.
Here, you sidestep the financial institutions and have your ownership publicly verified in the blockchain, for which you’re issued an impossible-to-remember private key.
With crypto, you depend on that private key. Lose it, or have it hacked, and you have nothing.
The future of money
It seems to me that we’re currently in the early days of finding better ways to do money outside of financial institutions.
The upside of crypto is that it publicly verifies ownership through the blockchain. You don’t need banks to hold your wealth or governments to issue currency. Theoretically — you’re in control.
But even bitcoin is still not widely accepted. It does not process fast enough for many transactions. And given the number of hacks at exchanges and wallets, it’s proving as vulnerable as everyday money.
A colleague here at Wealth Morning eschews online wallets — which can be hacked. He uses a hardware solution called Ledger Nano.
This helps provide physical security for your crypto. But there are still no guarantees.
Yet there remains another problem. Unlike fiat currency, while you hold bitcoin — or another cryptocurrency — there’s no yield.
You can’t put the money to work. Your only path to wealth is speculation. Relying on the hard cap of coin assets which might suggest their long-term value trend is upward.
But since the whole crypto area is still finding its way, there’s volatility.
Should a better blockchain solution come to the fore, the value of bitcoin could free-fall.
My own view is that the best return you’ll get on your money is to put it into businesses that are ready to profit from the future of money and other trends.
Google [NASDAQ:GOOGL] would seem the ideal issuer of a new crypto coin. The company is global. It’s connected. And it has tech and research resources exceeding those of many governments.
Google’s market cap of $814 billion is nearly 4 times larger than New Zealand’s GDP.
Facebook [NASDAQ:FB] is preparing to launch its own currency — Libra. This seems to have spurred renewed interest in the stock after a drawdown earlier this year. Potentially, Facebook could enter the banking industry, offering a full suite of credit and payment services.
But this seems like a long shot, given Trump and Federal Reserve Chairman Jerome Powell have already suggested a new banking charter would be required by the company.
Which seems sensible. When the bank loses your money, there’s government machinery to hold them to account.
And until cryptocurrency starts offering some of the expansionary abilities of banked money via credit and yield, it will likely remain in the realm of more volatile and speculative instruments.
While the banks continue to consolidate and profit.
In my latest research report within Lifetime Wealth Investor, I look at one bank doing particularly well. And with a value share price thanks to macroeconomic fear.
Keep watch. Those who stay open and on trend will profit.