Krawcheck on advisory business opportunities

Dec 2, 2012 @ 12:01 am

InvestmentNews editorial director Jim Pavia introduced Ms. Krawcheck and moderated the question-and-answer session.

Mr. Pavia: Few individuals can speak about the opportunities in the advisory business better than our keynote speaker, Sallie Krawcheck. She will take a few minutes to describe both the demand and the need for new talent in the financial advisory business.

Ms. Krawcheck: I saw about a week ago that CNN named financial advisory one of the top 10 professions. I couldn't agree more, and I will give you a few reasons. I'm going to go through some of my thoughts about the business and how I think it's portrayed incorrectly by some of the mass media, how the business is changing and how we should all be thinking about it.

One of the top reasons that I believe it's a good business to go into is very fundamental: There is a need. There is a need for financial advice right now, to a significant degree — some would say to a degree we have never had before, given the market and economic volatility. And it really can be a great career for people to build over years and decades, because it is one where you can help people. It is one where you can be the master of your own fate through your own actions, through client service and through, as some say, owning that client relationship, and therefore being able to work with and for large companies, if you choose to do that. If you know folks who are financial advisers and folks who are investment bankers, during this cycle, you've probably seen the advisers who are working with individual investors — helping them move forward — smiling a bit more than the investment bankers.

But there are some significant misperceptions about our business, and I'd like to lay some of those out for you so that you know what you're getting into. The business has been portrayed as something that's sort of [like] stock picking, where the goal can be to outperform the markets. The business is viewed as short-term-oriented, how you did this quarter, serving fickle — and again, if you read the press, sometimes unhappy — clients. And depending on which press you read, the business can even be shown as slightly questionable. I mean, it is Wall Street after all, right?


But I have been in the business for quite some time, most recently having responsibility for Merrill Lynch, and I will tell you that at Merrill Lynch, a lot of these things simply aren't true. As for the idea of the business being a more short-term-oriented one, the client relationships for our advisers were more than 10 years old on average. They were long-term relationships, and they were strong. We did weekly client surveys, and those relationships were almost as strong in 2011 as they were in [the sustained favorable markets of] 2006 and 2007.

That, I think, will be surprising to most people. The research also shows that when people go through tough times together, such as advisers and clients have [over the past few years], it can actually strengthen the relationship.

I would put to you that this business is much more client service and much broader than stock picking. In fact, when we surveyed those clients, we asked what the top things were that they valued in and wanted from their financial advisers, and I will read them to you in order: No. 1, trustworthy; No. 2, understands my needs and goals; No. 3, keeps me regularly informed; No. 4, charges me fairly for the services provided; No. 5, be upfront with me; and No. 6, investment results.

So you have to go through any number of other things before you get to investment results. In fact, the No. 1 reason that clients give for leaving their financial advisers is that their phone calls were not returned quickly enough. As long as you are providing fair returns, it is a client service issue.

For clients, it really is risk management first and performance second. Put another way, it is: First, help me keep the money that I worked so hard to make, and second, let's grow the money. Both the press and, frankly, the industry, can get those two things backward. And then, of course, it's not unusual to pick up the paper on a Sunday morning every once in a while and you read about some bad apple, somebody in the business who did something they shouldn't have done.

First, these businesses tend to attract very good people, and second, all have compliance programs in place to make sure that those very good people are doing very good things. And so every time one of those articles would come out and show there is a bad apple in every batch, I would always say, “Darn it, bad apple. At least we know we've got here at this firm 15,999 who are doing what they are supposed to do, and we caught that one who wouldn't have.”

The business constantly changes, and it doesn't get enough credit for being as dynamic as it is. It is more planning than it used to be. I think it started as stockbrokers and has moved. Today it is and will continue to be much more about understanding clients' goals and helping them reach them rather than just outperforming some benchmark. It doesn't matter if we outperform the benchmark if a client can't retire the way he or she wanted to, isn't able to live the life that they wanted to. It is much less plain-vanilla stocks and bonds, and on the investment side, continues to move toward more global, more alternatives.


There has been much discussion post-election of how the face of America is changing. Well, that means the face of the client base is changing. Research shows that women are becoming a more prominent client base for the industry. Women do tend, as a group, to approach investments differently from men. They make their decisions about their financial adviser more slowly, more carefully. Therefore, a lot of financial advisers will be interacting with a female [prospect] and will give up on her just as she is about ready to make the decision. On the flip side, women tend to be more loyal to a financial adviser over a longer period.

So if I have made you interested in the industry, I'll tell you what you need to do well in a job. It pegs off the comment I made before, which is that the most important thing is to be trustworthy. The other important thing is being client-oriented, detail-oriented, patient.

What you might not read in the textbooks is that you are dealing with individuals and with the money they have earned, and these can be emotional decisions for these folks. It's not always as analytical as the textbooks would have you think. You need to be contrarian. In many cases, you need to get these people who might be emotional to do things they don't want to do, to talk about things they don't want to talk about — when they are going to die and how much money they will need until that day. These are fraught conversations, so you have to have a personal orientation.


You need to be intellectually curious because the investment landscape is always changing. And, of course, you need to be analytical. What actually makes the job so interesting for so many folks for so many years is that it does take a lot of different skills, so you are not in a one-note job for your entire career.

My advice to you is that it's a long-term job, and you need to think [like] that in every way — which can be hard in your 20s. When I was in my 20s, I was a banker. [One time] we didn't get a deal, and someone said, “Oh, well, it will probably come up again next year.” I remember thinking, “Next year? That's like forever away.” A long-term perspective is needed. Wall Street tends to overweight the near term and underweight the longer term, to its own detriment.

So I would say shortcuts just aren't worth it. It's your brand, and I don't think people think that at a young age. There is a personal-brand perspective to this, where you are presenting yourself, quite rightly, as you learn the business as an expert. And you need to be very aware of that personal brand, how you conduct yourself in business, outside of business, what pictures you have on Facebook. Everyone understands people go to college and put pictures of themselves having fun on Facebook, but you better watch what you [have out there]. You'll be projecting a personal brand to clients, and they want a little bit of weight. They want a little bit of gravitas to their advisers because it's so important to them.


I would urge you to be choosy, though at the beginning of your career, it doesn't feel like you can be. Don't go into business with teams and people you don't want to be around, just because it's a job. Don't work with firms who don't feel like they are aligned with your values, just because it's a job. Again, if you think about it as a long-term proposition, you want to be in a business that you want to be in business with.

That said, there is no step as important as the first one. That doesn't mean you paralyze yourself, but look for the places in your first role where you can learn the most, where you can build a strong foundation and platform: the best firm, perhaps with the best training or the best mentoring program, being part of the team that has successfully helped young people get into the business.

If you try to get every dollar or every penny today, you will be underearning on a net-present-value basis. You will not be nearly as successful as if you take a longer-term perspective. And what I mean by this is that you do nice things for your clients, even if you aren't immediately paid for it. You speak to their kids, you talk to their friends, you advise people, you spend time with them on planning something that's come up in their lives that you don't get compensated for. If you do that and you think about it as building a long-term foundation, you will do enormously well on that.

Mr. Pavia: Sallie, one of the young people wants to know how wealth management organizations are positioning themselves and changing to meet client needs.

Ms. Krawcheck: Most of them remain overinvested in their investment organizations relative to their planning organizations, relative to their banking organizations, for example. It's hard not to keep one foot in where you've come from.

But all of them are recognizing the need for planning. The firms are recognizing — and you should recognize — that the business has gotten too complicated, and the needs of the clients are too great, for this to be typically done by an individual.

That really accrues to the benefit of all of you, because if you can join a team and get mentoring and have that learning, you can accelerate what you're able to do. Each firm is doing this or that to a greater or lesser degree, but they are smart enough to recognize where the business is headed.

Mr. Pavia: Why is there such a large need for financial advisers compared with, say, 20 years ago?

Ms. Krawcheck: There is a need. There has been a need. There will continue to be a need. The idea that somehow computers are going to take this over doesn't fully recognize that client service aspect, that care aspect that the industry has.

The smart firms will increasingly, increasingly, increasingly use and leverage technology. There will always be clients who will want to be more self-directed and [those] who want that personal touch and the personal aspect of advice. My best guess is that the smart financial advisers will leverage technology and be able to do more for their clients, and more for more clients.

Particularly now, after the tough times we've gone through in the markets, you will see that people generally are looking for help in getting a good grasp of what to do. And that need continues. Maybe it hasn't increased over the past 20 years, but certainly it has increased over the past seven.


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