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Krawcheck's latest move called paper thin

New Merrill CEO cited as breakaway spark [new comments added 8-20-09]

Tuesday, August 18, 2009 – 5:56 PM by Brooke Southall
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Can this bull act more like a cow?

When Merrill Lynch & Co. hired Sallie Krawchek to head its brokerage business, it struck me as a good idea. If ever a company needed of a more feminine side, it is this wirehouse. Merrill has been sued periodically by the women who work there. Bulls are not females. If a company could have an aroma, Merrill might smell like Aqua Velva.

Of course the former Smith Barney chief isn’t exactly freshening the air wiith Chanel No. 5 if Bruce Kelly’s article in Investment News on Monday is any indication. The article cites sources who claim that Krawcheck is huddling with Merrill’s old guard including former CEOs like David Komansky and Daniel Tully.

For a woman charged [presumably] with bringing about change and reinventing the company, this does not seem like the most forward-looking move. She is also garnering support from Winthrop H. Smith Jr., John L. Steffens, former head of Merrill’s retail business by chatting them up on the telephone, according to the article’s sources.

The question becomes: Is Krawcheck, 44, the former head of Smith Barney, building a base to bring about great change or is this purported flurry of phone calls part of a more pressing concern — damage control? Is there a fear that her youth, gender and Smith Barney pedigree are going to cause problems with the rank and file brokers who advise trillions in assets?

Krawcheck’s purported moves reminded me of what Tom Nally told me only a few days before. I asked TD Ameritrade Institutional’s head of RIA sales what was driving the sudden uptick in breakaway recruiting success at his company. Virtually all his custodial competitors pointed toward the improving markets and economy. Nally agreed but added this thought: “Wirehouses and other brokers are still making decisions that are stirring the pot,” he says. “[For example] LPL jettisons Pershing’s clearing platform and Sallie Krawcheck comes to Merrill Lynch. The environment has really helped push [brokers] in this [RIA] direction.”

With Krawcheck’s presence being cited as a recruiting catalyst, I decided to poll some of my sources that are closest to the action at Merrill Lynch. I wanted to see how they view her hiring and how they view her decision to allow the old foxes back into her new chicken coop.

Here is the view of one industry consultant who formerly worked for Merrill Lynch: “I think she is trying to do the right things by bringing in the old fogeys (Komansky, et al) to repair the culture, but just her presence alone shows that none of the current Merrill leaders will ever get a shot anymore,” he writes in an e-mail. “Thus, [from the perspective of breakaway-minded brokers] it IS time to bail!”

Another industry consultant who has family members working for Merrill Lynch employees countered with this view in an e-mail: “I think she is helpful…ML reps have cautious optimism about her,” he writes. “Advisors respect her track record. She did turn around SB’s [Smith Barney] compensation plan – that is perceived as a positive (helping stem furor that BofA will move to a bank compensation model or look to reduce comp). Perceived as dynamic by ML advisors – good track record, but BIG shoes to fill.”

Yet a Merrill Lynch executive who recently left the company is skeptical about what impact she can have on the company — even with the support of the company’s former quarterbacks. “The Sallie story strikes me as ‘paper thin’ – as if making a few phone calls to beloved retirees could meaningfully change things at this point,” he writes in an e-mail. “People want their problems solved before they want their heartstrings pulled.”

Here’s one more view that I received from an RIA that broke away from Merrill Lynch after I asked what impact he believes Krawcheck will have at the company: “I am not sure how bringing in the leader of another broker dealer is going to make anybody feel better,” he says. “I can’t understand how she would add value.” But he also doesn’t see Krawcheck’s arrival as a compelling reason to depart. “If I were thinking about leaving, her arrival would not impact my decision at all,” he says.

I don’t reasonably expect a reader to draw conclusions from these [off the record] comments. I wouldn’t call the expressed views to be a ringing endorsement but they hardly condemn her either. Krawcheck has a reputation as an enlightened person and she studied journalism, which [I say] suggests an open mind. Reaching across the aisle from the New Guard side to the Old Guard side displays that quality. But let’s hope for her sake it was done out strength and not because she’s out of her depth.

Afterword: Sallie Krawcheck was scheduled to be the keynote speaker for the IMCA [Investment Management Consultants Association] meeting in San Diego in early May. It was what got me to book my flight south. I was planning to launch RIABiz then and I thought it would be great coverage to kick off with. She didn’t show up and I never heard an explanation for her absence.

A couple days after my return to Sausalito, I ran in to Chip Roame, principal of Tiburon Strategic Advisors out for his jog. We stopped to chat and I told him about the IMCA conference and about Krawcheck’s no-show. Without skipping a beat, the former McKinsey consultant said it was likely that a big company was in the process of hiring her. It would explain the abrupt cancellation and the lack of explanation, he says.



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