Sallie Krawcheck: Why behemoth brokerages will prevail

She has been president of Bank of America Corp.’s global wealth and investment management unit for less than three months, but as usual, Sallie Krawcheck is already making news. In the past two weeks alone, she has generated headlines: unveiling her new management team at Merrill Lynch & Co. Inc., announcing a new $20 million marketing campaign for Merrill and being mentioned as a possible successor to Ken Lewis as BofA’s chief executive.

For good measure, after proclaiming, “The bull is back!” at a press conference last week, she took a shot at independent-advisory firms, which she believes are losing clients in part because they “don’t have the vast depth of capabilities and resources” of a large financial services corporation.

Q. Being a Merrill Lynch broker has not been easy this past year. What are you doing to retain good brokers?
A. The best thing we can be doing for our advisers and their clients is to invest into the business. We have already brought the capabilities of Bank of America to Merrill Lynch with very good success. And we’ve made investments in stand-alone technology, performance reporting and a new website, which clients tell us they highly value. When financial advisers across the industry catch their breath, I think they’re going to see that Merrill clients are the ones who are better off.

Q. Your brokers have gone from being part of the proud “Thundering Herd” to being part of one of the country’s largest banks. Has there been a culture clash, and how are Merrill brokers adjusting?
A. Our financial advisers have the same managers, the same brand and the same capabilities — in fact, they have more capabilities.

And the brand is receiving more support than it ever has. Financial advisers have not been turned into tellers.

Q. At your press conference last week, you talked about impressive numbers of new advisers joining the firm. Where are they coming from?
A. The new financial advisers are trainees. Merrill has a very long and successful history of growing their own. It’s been a strength and a very important part of the Merrill Lynch culture.

Q. Citigroup announced last week that it is converting its branch network brokers to a fee-only advisory model. Do you see Merrill Lynch moving in a more fee-oriented direction?

A. The entire business has been shifting to a more fee-oriented model for a number of years — that’s a secular trend that’s occurring across the board. Merrill Lynch wants to make sure clients have an informed choice about how they interact with advisers and what the compensation will be.

Q. Along those lines, will there be more open architecture at Merrill Lynch?
A. I think the company is doing a terrific job of offering an impressive range of investment options. I don’t think we have to focus on bringing in the 3,761st mutual fund. The value we bring is offering superior re-search and asset allocation to the strong investment offerings we already have.

Q. How badly do you think Merrill’s reputation has been hurt over the past year and what do you need to do to repair it?
A. It doesn’t matter what I think. What matters is what clients and research tell us.

And they’re telling us that the Merrill Lynch name, along with other players, has taken a reputational hit [and] is in the process of recovering. We’re also seeing that firms that have financial advisers who are interacting with clients have taken less of a hit because good advisers are shielding those brands.

And our new advertising campaign will support what is already a very well-known and respected brand that will be represented by the iconic image of the Merrill bull.

Q. Is U.S. Trust for sale?
A. No.

Q. First Republic?
A. We are reviewing its status.

Q. If a fiduciary standard is adopted for brokers who give advice, how will it change the way Merrill does business?
A. It depends on what kind of fiduciary standard. If it’s a [Investment Advisers Act of 1940] standard, our advisers are already operating on a very high level. A new standard will require additional profiling and technology, but it won’t require wholesale changes in our business.

Q. How has your experience at Smith Barney helped you in this job, and has it given you a competitive advantage?
A. All experiences give one additional perspective and knowledge. As for working at Smith Barney, I have to make sure I’m not prejudging or preconceiving in bringing the experience I had there to inform the situation at hand.

Q. The common wisdom is that the independent channel is gaining at the expense of firms like Merrill Lynch. But you disputed that at your press conference. What is your assessment of how independents compare with large financial service corporations?
A. I think the common wisdom is dated. Clients are looking for firms with financial strength, and broader capabilities to better navigate the next period of turbulence. What we’re seeing now is independent advisers asking how they can join us, because they’re hearing about how much we’ve invested in the business.

It’s a little trickle, but it’s very different from before. It may be a blip, but I think it’s notable.

E-mail Charles Paikert at [email protected].