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.

With Bank of America, the CEO who brought me in [Ken Lewis] told me, "Coming into this company is hard. I'll be here for two years to ensure your safe passage." He announced his retirement less than two months later. I said to the new CEO [Brian Moynihan], "I'm not on your team. In fact, we've been competitors for years. I'm happy to go home and let you put your own team in place." He said, "No, we need you. You were brought in to turn around the business." And two years later when the turnaround had clearly gotten traction, they reorganized the business. I was told, "We're not going to have anyone run Merrill Lynch any longer, so the job's just eliminated."


Q: When you were at Citi, who supported your decisions with reimbursing clients stuck in auction-rate securities investments and who was against you?

The board voted together to reimburse, but the board clearly allowed me to leave. So was that with me or against me?


Q: Was it your sense nobody was thrilled that you raised the idea of reimbursement? What would have happened if you hadn't spoken up?

I don't think the zero percent interest rate loans would have been made. What I want to be clear on is that it was a difference of business opinion. Did I believe we had an ethical obligation? Yes, but I also very much believed that it was a positive NPV [net present value] thing to do. I thought that if we told clients, "Sorry. You did read the really small print, didn't you?" they would leave us. On the institutional business side, a large trading partner will trade with you and sue you at the same time. Individual investors will sue you, leave you—if they are big enough clients, which these were—and they'll take their advisers with them. And then they will talk about you.

Individuals don't forget when they feel like you've done them wrong, and they talk about you at the golf club, and today they'll go to social media and talk about you. My very strong point of view was that it was the right business thing to do.

A lot of people at the time said to me, "Were you kicked out because you were a woman?" And I said absolutely not. As time has passed, I think I would still say "no," but I would acknowledge the research that shows that women tend to have a longer-term view on business and tend to be much more empathetic to clients. And so I don't think I was thrown out because I was a woman, but I do think there was something about being a woman that made me take the stands I took.


Q: Would you do it again today?

Oh, a thousand times again.


Q: Everyone's been watching as you embark on your 85 Broads adventure. Tell us about that.

85 Broads is a 32,000-strong professional women's network around the world and across industries. I bought it because everything I read kept reinforcing the positive impact of diversity in senior management. Companies with more women in senior management yield higher returns, lower volatility, more client focus, greater innovation and lower gender pay disparity. Diversity is so powerful that diverse teams outperform more capable teams.

I've worked on diverse leadership teams where there were really robust, vibrant, fulsome conversations, and I've worked on teams that were a bunch of folks that were just alike who finished each other sentences. That's fine if they're right. It's not fine if they're all thinking wrong.

When I think about the causes of the financial downturn, the court of popular opinion tends to put the blame on greed. There was greed. But what we really haven't fully thought about is all the groupthink that happened during that period. Groupthink had just as important an impact as greed or individual mistakes.


Q: What do you think the wealth management field will look like in 10 years regarding diversity?

The industry has a real challenge with diversity. I am almost 100 percent certain that if I had started as a trainee at Smith Barney I never would have run Smith Barney. I had to come in an unconventional way, because the hiring of financial advisers at Smith Barney, a company I love, was highly skewed toward male characteristics. The people who were at the top of the business were using Marine Corps questionnaires for hiring people. They were very "take the hill" and "command and control." That was a hurdle that existed.

The other hurdle that has existed is that women financial advisers tend to be successful more slowly than males, so the firms were knocking women out along the way. And then finally, and this continues at all wealth management firms today, if one wants to get promoted through the ranks, one moves a lot. It's very military in that by the time you make it up to the number one position, you have moved your family 10 times. At Smith Barney, we had one woman who had made it up to regional director and she was single.

Those challenges are so ingrained in the cultures of those organizations. I think that's the reason that as much as the companies have really, and I think with very good intentions, said we're going to get the number of women financial advisers up, they can't get it past 12 percent or 14 percent.

Also, I wouldn't be sure that all the male executives at the firms "get it."

Not very long ago, I was with the CEO of a quite large financial institution. We're having a cup of coffee and I took him through some of the numbers showing that 45 percent of U.S. millionaires and 60 percent of college attendees are women, and 90 percent have responsibility for managing their own money at some point in their lives, and I finished by saying there's an enormous opportunity here for wealth managers. And he says, "Hmm, very interesting, very interesting. But don't their husbands manage their money for them?"

He didn't even hear me. It's because he's got a worldview that is stuck, maybe not in 1952, but it might be 1997. But because these organizations are making so much money, what's the point at which they have to change? When you're making $2 billion a year, at what point do you start to panic?

The industry's in very good shape. The industry is in better shape today than the press will concede. The industry is in worse shape long term than folks recognize if they don't change their ways. And the biggest risk is knowing you have to change, but just not being able to do it.



Paula Vasan and Kris Frieswick are editors at On Wall Street, a SourceMedia publication.

Interview has been edited and condensed.

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