John Thiel: Learn from the past or lose out in the future

On the wall just inside the door of John Thiel’s corner office in downtown Manhattan’s World Financial Center hangs a framed handwritten note of encouragement from Daniel P. Tully, Merrill Lynch & Co.’s chairman until 1997. It is written on a printout of one of Mr. Thiel’s first major memos to his brokers after he became head of the firm in April 2011.

“The past is prologue,” Mr. Tully wrote, quoting William Shakespeare. “Thanks for remembering.”

For Mr. Thiel, the quote, which is from a scene in “The Tempest,” has come to mean that the problems from the past are destined to repeat themselves unless he can take things in a different direction.

“What he’s saying is, history repeats itself in our business,” Mr. Thiel reflected. “All the crises, all the excesses and all the opportunities. And it’s going to keep doing that if we don’t learn from it.”

Mr. Thiel, who started his career in 1989 making cold calls for Merrill Lynch in a Tampa, Fla., branch, is trying to write a new chapter in the firm’s history. Taking over as head of Merrill Lynch Wealth Management following the merger with Bank of America Corp. in 2009, he has pushed forward on a mission to marry bank and brokerage, overseen the investment of close to $1 billion in new financial planning software and stepped out as the first wirehouse executive to support a fiduciary standard.

“The business today is not the business that [it was],” said Mr. Thiel, 55.

25% PROFIT MARGIN

The moves have helped make Merrill Lynch into the most profitable firm compared with its wirehouse peers with a profit margin around 25%, compared to 22% at Morgan Stanley Wealth Management. Merrill Lynch also has a greater share of fee-based business and securities-backed loans and mortgages on its book, growth that Morgan Stanley and others have worked to emulate.

Mr. Thiel has made changes under the banner of goals-based wealth management and asked advisers to reflect on their “noble purpose” — why they got into the business, ostensibly to help people reach those goals.

“I was asked when I thought goals-based would be considered a success,” Mr. Thiel said. “I said, “When 100% of our clients know whether their goals are feasible or not.’”

But the moves haven’t been an immediate success, particularly at a firm where many advisers take pride in Merrill’s tradition or began in commission-based sales roles and differentiated themselves by their investment knowledge more than holistic planning.

The firm saw a number of departures last year of longtime Merrill Lynch veterans, some of whom managed a half-billion or more dollars in assets and cried foul at the effort to cross-sell Bank of America products — advisers can be penalized if they don’t make one referral per year to Bank of America. There also were complaints that some clients had higher fees than before on the Merrill One platform, which was rolled out in 2013.

“I think it’s a vocal minority that is driving this,” he said of the bank’s increasing role in wealth management. “There’s no client who thinks this is a bad idea.”

In another controversial shift in tone, the firm has also been cleaning house under Mr. Thiel’s leadership. In a couple of high-profile instances, Merrill Lynch let go longtime veterans and $1 billion-plus advisers for conduct that may have been overlooked in the past. The termination of the firm’s top adviser in Indiana by assets, Thomas Buck, was for reasons that included failing to discuss “pricing alternatives” with clients.

Mr. Thiel declined to discuss specifics of personnel moves.

Asked, however, why the firm, under his leadership, is deciding just now to stand behind a higher standard of advice and focus more intensely on goals-based planning, Mr. Thiel countered that most advisers are already acting according to the higher fiduciary standard.

“[Although] clients sometimes don’t want to engage you that way,” he said. “It’s not just us.”

NOT CUT FROM SAME MOLD

Mr. Thiel said he hasn’t modeled his leadership style on any previous executive’s. His background bears little resemblance to the generation before him at Merrill, most of which is scattered at competitor firms. He also was never really part of the old guard, which included Greg Fleming, James Gorman and Robert McCann, who were close colleagues and executives at Merrill Lynch in the run-up to 2008 and now run Morgan Stanley and UBS Wealth Management Americas.

“I never really had a relationship with Greg Fleming,” Mr. Thiel recalled. “He was president of Merrill Lynch and I was running the private banking division, so I spent a bit of time with him, but at that time he had way bigger issues to worry about.”

They usually speak only when they see each other at conferences.

Mr. Thiel now is also the only head of wealth management at the wirehouses, for example, who started his career as a financial adviser. Mr. Gorman got into the industry having been a consultant to Merrill Lynch with McKinsey & Co. Mr. Thiel, by comparison, was recruited to Merrill Lynch, thanks to a recommendation from a fraternity brother.

Mr. Thiel, who stopped working with clients in 1995, aside from his mother, whom he still counsels, decided he wanted to get into management because he felt he could make a “big impact,” and still has the same sense for his own “noble purpose,” he said.

“I want to help people,” he said. “I like the “thank you’ from advisers and clients. I think it’s wonderful. It makes me feel good.”

Mr. Thiel said he thinks past Merrill executives had their own version of a noble purpose, although he says “they would probably say it differently.”

To keep his experiences in perspective, and gain what he calls “mature” advice, he tries to meet at least once a year with former Merrill executives, such as John “Launny” Steffans, who led the private client group for 15 years until his retirement in 2001.

“They’re reevaluating their impact but from a very different perch in terms of “what did I leave?’” he said. “I’m still thinking about what can I leave.”

Related Topics: Merrill Lynch