What the serial ex-wirehouse chief left dangling was her future and whether she will launch a Ellevate robo for women

June 26, 2015 — 4:16 PM UTC by Lisa Shidler


Brooke’s Note: There is only one Sallie Krawcheck. She is the Barry Sanders of the financial services world, somebody who seems to have left stardom semi-inexplicably at the height of her powers. Now it’s a four year drift and taking on an air of permanency — mostly of her own volition, though she was fired. Barry quit. Krawcheck brings an unselfconsciously contradictory slant to her speeches — still with buy-in of Wall Street wirehouse legitimacy but making money talking about how it stumbles on women, both as clients and when it comes to hiring and promoting her gender. You don’t hear her praise RIAs, or even what they are about, but she doesn’t mind speaking to them, at least for a decent fee. So we like her but we’re not entirely sure where she’s coming from at times. Her speeches accomplish something — personifying all the paradoxes of Wall Street, women and the biases of culture that get blown up cartoon size in the business of managing other people’s wealth. That’s worthy of this article as you’ll see.

If Sallie Krawcheck never works another day on Wall Street, she can still make a living by talking to RIAs about how her old crowd doesn’t get — in both senses of the word — women.

It’s going on four years since Krawcheck abruptly left Wall Street’s upper echelons — stepping down as president of Bank of America’s wealth management division, namely Merrill Lynch. See: Merrill Lynch brokers brace for sweeping comp changes as Sallie Krawcheck departs BoA and takes her advocacy with her.

At the opening day of Morningstar, Inc.'s national conference in Chicago, Krawcheck did speak about women but did not once mention New York-based Ellevate Network and Ellevate Asset Management — she is chairwoman of both entities. Neither, in defiance of the unwritten rule for 2015 financial services industry conferences, did she say a word about robo-advisors.

This was especially disappointing given the rumors that Ellevate Asset Management is poised to become a robo-advisor for women. See: Word from Sallie Krawchek on where our financial system stands five years after the Lehman crash.

But the ex-Merrill, ex-Smith Barney brokerage chief’s pleasing self-deprecation was on display as she described her reaction to her own financial advisor dropping the ball in 2006 while shouldering her share of blame. Krawcheck vividly remembers discussing what would happen if the bottom dropped out of the market. Their mutual conclusion: “it would suck but you’ll be fine.”

At the time, Krawcheck was chief executive officer of Citi Wealth Management Group and Citi stock was her second-largest asset.

“We didn’t talk about Citi stock … and what would happen when it went from $54 to less than $1. We also didn’t talk about my biggest asset — which is me — and if the market goes down, what are the chances of me keeping my job — they aren’t so high. Add that my husband was in financial services and we owned real estate in New York. Shame on me and shame on him. You need to think about risk management and we didn’t think about risk management. You need to bring in that kind of holistic planning.” See: Sallie Krawcheck talks tough — and with disarming openness — online about the glass ceiling and lip gloss.

Values and other women’s issues

Krawcheck candidly admitted that she now urges advisors to adopt many of the practices that she shunned while at Merrill Lynch.

Values-based investing is one of them.

“If you’d walked in my office and said we’ve got this [values-based kind of] fund, I’d say, get out of my office, you freaking tree hugger. You can’t do it.” See: At Envestnet event, Sallie Krawcheck alludes to Crager alliance, blasts women-as-niche marketers and edges perhaps closer to endorsing the RIA model.

Now, Krawcheck counsels advisors to consider these types of funds, which have particular appeal to women and millennials.

Krawcheck’s speech had the well-rehearsed flavor of one who frequently talks at RIA-based events on a range of topics, but with an emphasis on women in financial services and their women clients. Krawcheck has consistently criticized advisors for not treating women clients with as much care and respect as their male counterparts. See: 6 things to consider when reading Sallie Krawcheck’s comments in interviews.

And, although Krawcheck has always been at pains to straddle the RIA or wirehouse debate, never directly addressing which channel is better, when she gives specific examples of wrong-doing by advisors, more often than not it is a wirehouse experience she describes. See: Why women just aren’t buying what financial advisors are selling.

'Lean’ and mean

In her speech, Krawcheck staked out some contrarian ground by critiquing “Lean In: Women, Work, and the Will to Lead,” Sheryl Sandberg’s treatise about women’s stalled rise to top positions in corporate America.

“I don’t think leaning in is the answer. The power of diversity is diversity. It is not taking diverse people and telling them to act like the majority.” See: Top RIA business executive recruiter chides 180 women gathered in a New York ballroom for second-guessing themselves.

Without offering up specifics, Krawcheck described her vastly different experiences at the major financial firms in the United States, saying the companies with the most diverse leaders were always most likely to respond best in crisis situations. See: Column: Advisors should be 'heroically available’ during a crisis.

Putting aside self-deprecation, Krawcheck said: “I’m the only person on the planet who has worked directly for seven financial services CEOs and I’ve seen all types of leaderships. It’s probably more like 12 leaderships with all of the turnover and the leadership teams that made the quicker decisions weren’t the ones where people finished one another’s sentences but the ones where the leadership team was diverse.” See: How Morgan Stanley and a lesbian super-producer came to grief in South Carolina and why she alleges bias.

Widows peak

Krawcheck also lamented the still-widespread shibboleth that women are a niche market. Women are the rule, not the exception, when it comes to clients and advisors who fail to realize this will lose business. See: At Envestnet event, Sallie Krawcheck alludes to Crager alliance, blasts women-as-niche marketers and edges perhaps closer to endorsing the RIA model.

Men tend to be happy with their advisors and are unlikely to move assets. Women, by contrast, are typically not as content and are much more likely to move assets. “It’s a mistake to treat women as a niche market,” she says. “There are very few 60-year-old white guys who don’t have a financial advisor, and in that group, their satisfaction is higher than their doctor. The growth rate in that category is by definition zero percent.”

Krawcheck commented that studies reporting that 70% of widows will leave their advisors are underestimating the problem. She recently lunched with an individual who runs a wealth management firm who said his widow attrition rate is even higher than that. See: How a suddenly wealthy, young Bay Area widow found her RIA after months of fruitless efforts.

“When I had responsibility for Merrill, I’d stand on a stage like this every quarter and we’d talk about outflows because of death without realizing this money is going to someone whom the advisor should know.” See: Why you won’t know your female clients are unhappy until they’re out the door.

Mentioned in this article:

Morningstar, Inc.
Top Executive: Joe Mansueto

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Teresa Vollenweider said:

June 26, 2015 — 9:00 PM UTC

Did Sallie Krawcheck have an advisor/adviser, a broker or a broker masquerading as an adviser? After working for Citi-Smith Barney and Merrill Lynch, both B/Ds masquerading as RIAs, at least she was aware that brokers masqueraded as advisor/advisers. Most investors, probably 98%, aren’t aware that these guys wear a fake hat (adviser) on top of their permanent hat (broker). It’s time for these guys to make a choice. Is one going to be a broker-sales rep-product peddler that works at a suitability shop, or is one going to be a REAL adviser that works solely in the best interest of his clients-customers? Make A Choice! Why does Sallie Krawcheck never talk about this confusion that inexperienced investors—the majority of investors—face, as many of these inexperienced investors are women.


FAA said:

June 28, 2015 — 3:27 PM UTC

Here ya go Teresa

Broker, Advisor, What is the BFD?

A number of years ago, Wall Street marketing executives made a seminal decision to change the title of ‘Broker’ to that of ‘Advisor’ or ‘Wealth Manager’. Perhaps considered a brilliant marketing move by a profit-seeking Wall Street, the change in professional title naming conventions can be best described as an elaborate shell game that continues to cause confusion for asset owners, investors and beneficiaries alike. Are the titles of Broker, Advisor, or Wealth Manager truly synonymous? The answer to this question needs to be understood as it fundamentally affects the manner in which investors, asset owners, and beneficiaries are serviced and charged. It also has meaningful repercussions to those that oversee assets for the benefit of others, i.e., to those that serve as a “fiduciary”. A re-examination of the differences, motivations and incentives is warranted.

“Tell me how a person gets paid and I can tell you how they will behave.”

Brokers’ compensation, work environment and responsibilities differ quite a bit from those of the Advisor. In short, Brokers are compensated via the placement of financial services products. Obviously, commissions can come in reasonably straightforward forms such as transaction fees, 12b-1 fees or loads for mutual funds among others. They can also come in more subtle forms such as revenue sharing, placement fees or ‘trailer commissions’. Brokers do not provide, are not compensated for nor required to provide advice; nor, not surprisingly, are brokers required to operate in the best interest of their client. Rather, brokers operate in a suitability environment whereby they are allowed to sell investment products to a client provided it is ‘suitable’ for the client. Suitability can be defined a number of ways and candidly is somewhat ambiguous; perhaps based on the level of net worth or the perception of the investors sophistication among others.

Brokers also have production (another name for commission or fee) goals regardless of whether the Broker works for a large Wall Street type firm or in the independent broker dealer world. The more fee/commission generation the more the Broker makes; the lower the fee generation the more chance the broker has of not having a desk to return to in the morning. In the inner workings of the broker dealer world each broker is subject to a grid. The grid determines how much of the gross commissions generated go to the “House” and how much is paid out to the Broker. The more gross commissions generated the higher the percentage that is paid directly to the broker. It’s very simple; Brokers are motivated to sell products, which do not need to be in the best interest of the beneficiary; causing a complete misalignment of interests and trust! It is rarely disputed that the best brokers are the best sales people. Rather it is more frequently disputed that the best brokers are the best investment advisors.
Advisors are incentivized differently from brokers in that they provide advice and are not compensated via the placement of product. Rather, their compensation is generally in the form of a fee (a flat fee or percentage of assets) outside those paid to the underlying investment vehicle. While brokers operate in a suitability environment and get paid on whatever fee sharing arrangement they can arrange, advisors generally work in a fiduciary environment whereby they must act in the best interests of their clients at all times. In our experience, successful Advisors or Consultants provide their clients with an investment process that is: Educational: on-going education for both the Advisor and their Client pertaining to best practices, regulatory and legal considerations Documented: understanding investment objectives, establishing investment policy statements, developing asset allocation options, on going due diligence of investment strategies etc. Demonstrated: Implementation adhering to documented goals/ objectives, guidelines and risk profile Defendable: based on validated investment practice and defendable for both the advisor and their client. Repeatable: surviving any individual including the advisor or client. Clear: complete transparency regarding how and how much one is compensated and regarding any perceived or potential conflicts of interest

“Tell me how a person REALLY gets paid and I can tell you how much he or she cares about your interests.”

Investors, asset owners and beneficiaries are best served when their trusted advisors operate and are incentivized to operate in their best interests. The concept of full disclosure should not be lost on any trusted advisor. Clients should always be encouraged to ask the following questions: “How much is the Advisor being paid and how is the Advisor being paid?” Does the Advisor receive any commission on the sale of investment products? Does anyone else in the Advisor’s organization receive benefit from my account, either directly or indirectly? If you’re “Advisor” cannot give you a definitive answer that may be telling you something.

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