The former wealth management executive talks about the state of investment advising, the art of the cross-sell and the real reasons behind her departures from high-profile roles at Citigroup and Bank of America.
Q: What's your assessment of the wealth management industry these days?
Most of the mainstream press has a bias about the industry. They think clients are upset, that they're leaving their financial advisers and that those financial advisers who still have some clients are all going independent. They think there's a massive move away from the big guys and everything is bad. Also, that everybody underperforms, and they overcharge, and all clients care about is price and performance.
In fact, what clients really care about is that relationship with the adviser. Yes, they absolutely care about performance, but they also care about a financial plan, about being kept from panicking during downturns, about the adviser caring about their family. There are about six or seven things they care about more, when you ask them, than investment performance. Clients are not leaving their advisers in droves. The typical attrition rate for financial advisers of the big firms is about 2 percent a year.
Q: What do you think will happen when a uniform fiduciary standard meets the increasing pressure on financial advisers to cross-sell the company's other products?
We could talk for hours about the potential for a fiduciary standard. I know there are many in the industry who are against it. I think the underlying tenet is that individual investors should not have to have a Ph.D. in regulatory science to understand their adviser's responsibility to them.
There is something that is unpleasant about the word cross-sell. If you tell me we're going to cross-sell something, to me that's a push to the client, and that doesn't feel good. On the other hand, if you then say to me the financial adviser has got full access to the capabilities of the firm in order to meet the needs of the client, that actually feels pretty good. That puts the client in the center. So is the cross-sell about your company, or is it about the client?
We've gotten into so much trouble, not just as an industry, but as capitalism, by putting the shareholder at the center. So don't put the shareholder in the center. Put the client at the center, put the employee next and the shareholder will do just fine.
Q: Do you think wealth advisers are just stockbrokers who called themselves advisers so many times that their clients started believing them?
I've spent a lot of time with financial advisers, or stockbrokers or whatever one wants to call them, and again, there is a wide perception that brokers are all about "sell them this, churn that, move that." The typical client relationship with an adviser at one of the larger firms is more than 10 years in length. I think the industry actually does a pretty good job of finding those who are in it for the short term and spitting them out.
I was on the receiving end from our financial advisers [over Citi's failed hedge funds and auction-rate securities] and I have never been screamed at so much in my life. I have never seen a group of people advocate for their clients with the kind of energy I saw from those people. I listened to them. I heard them out. I combed through the documents looking for someone who broke the law. I couldn't find anybody who broke the law. I found out we were stupid. But I think if the clients out there could have seen those advisers yelling at me, they would have felt pretty good about their financial advisers advocating for them.
Q: Do you miss the industry?
I miss the advisers. I loved everything about them. I loved how client-focused they were. Do I miss the big bank operational risk committee meetings with the 300-page deck and the "Sallie, you need to talk to page 182 through 184 and here's your script?" Not particularly. I don't really miss that.
Q: What were the reasons given to you when you were "sent home," as you call it, from Citigroup and Bank of America Merrill Lynch? And what, in retrospect, do you believe the actual reasons were?
With Citi, it was the fight over Falcon, MAT and the auction-rate securities. I probably committed hari-kari or something. With the auction-rate security implosion, I was having clients call me and say, "It's in cash on my broker's statement. I can't get my money. My daughter's supposed to get married in two weeks. What am I going to do?"
We gave them zero percent interest rate loans. I'm not sure the CEO was really aware that we did it. We went out on a limb for our clients, and so at the end of the day when you have that kind of break with your CEO, you have to go home afterwards.