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Practice Management > Building Your Business > Leadership

Cautionary Tales of Wirehouse Leadership

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The upheaval on Wall Street is ushering in a new round of leadership for the battered financial industry.

Vision is not a luxury on Wall Street (or, for that matter, on the much greater stages of politics and religion). The last firms standing have survived in part by stint of luck but also by virtue of good leadership.

Dick Fuld, captain of Lehman Brothers, will be remembered for the pride that blinded him to the dangers that smothered his firm. Stan O’Neal – the Merrill Lynch CEO — will stand out as a leader who preferred yes-men to constructive critics who tried to warn about the huge risks the firm had assumed. By contrast, JPMorgan CEO Jamie Dimon has won the respect of many for his foresight in managing treacherous waters.

Financial advisors able to choose where they work would do well to take into consideration the quality of leadership at the top – not just deals or payout schedules but where a firm sees itself in five years. Do you want to be part of that journey? Below, I consider three stories of leadership – one in process and the others object lessons for advisors thinking about where they might fit on Wall Street.

Morgan Stanley

The leadership story is just taking shape at Morgan Stanley, where James Gorman is set to take over the helm next year. Gorman is an excellent communicator. He is decisive.

When he took over the combined brokerage force of Dean Witter Reynolds and Morgan Stanley, he re-set the bar for professionalism. He shed lower-producing advisors who made sense for the firm in the bygone Dean Witter era of proprietary product pushing.

He launched an aggressive recruitment program to attract high-end advice-oriented producers because in his vision, high-end advice is the future (if not the present). Furthermore, Gorman recently sold its retail asset management arm so that the firm could focus on the institutional business.

The swift changes Gorman implemented turn Morgan Stanley into the go-to firm for high level advisors – at least until the Great Recession hit and the basic health of so many Wall Street firms came into question.

Now Gorman faces the challenge of running the joint venture with the Smith Barney retail financial advisory force. He has already delivered a message to shareholders: He’s slashing costs, $1 billion. Advisors can count on a no-nonsense executive who understands the business and who makes decisions. How disruptive the joint venture will be for advisors and whether they will truly benefit, only time will tell.

Merrill Lynch

One of the most legendary leaders was Daniel P. Tully, CEO of Merrill Lynch from 1992 to 1996. Tully shaped Merrill into an innovative retail powerhouse and investment banking presence.

When Tully innovated, the rest of Wall Street followed – if sometimes kicking and screaming.

A graduate of West Point, Tully applied his military discipline to his workforce but he didn’t do it by brute force. He inspired. He spearheaded the firm’s transition to fee-based accounts and introduced the initially much-maligned cash management account. He enabled stock jockeys to evolve into wealth managers who became asset gatherers. Under Tully, assets doubled and the stock price tripled.

Merrill, in fact, became the first firm to pay brokers for asset gathering.

But the leadership skills that Tully commanded eluded Stan O’Neal, a numbers man who didn’t understand the investment business. In fact, he was the first CEO who hadn’t come up through the ranks of the retail sales force – which for astute observers should have signaled trouble ahead.

O’Neal wasn’t lacking for smarts: He’s a Harvard MBA. But he didn’t have an in depth understanding of Wall Street’s investment products. He viewed the world through balance sheets and income statements and share prices.

A ruthless politician, he unhesitatingly purged potential rivals. “He got rid of people with hundreds and hundreds of years of experience,” lamented Winthrop Smith, former head of Merrill’s international brokerage and the son of one of the firm’s founders. He left when O’Neal was named president in 2001.

O’Neal winnowed rather than cultivated talent. When the markets turned violent his loyalists didn’t understand just how exposed Merrill had become to market risk. Only weeks before the firm announced a $2.24 billion quarterly loss, O’Neal predicted the firm would post a loss one-sixth as big.


Joseph Grano was a much admired head of retail sales and later CEO of UBS Paine Webber. A former Green Beret and ex-broker, he was a great communicator who inspired great loyalty among the branch managers and brokers at the Wall Street firm. He was known for his pithy one-liners; brokers considered him an ally in the boardroom.

Grano instituted a discounting policy that enabled advisors to focus on the money that would walk out the door – and not the percentage of discount. At one conference for some of the firm’s big producers he held up a pack of cigarettes to illustrate just how bad transactional business would be to the long-term health of the broker business. He was a skillful at recruiting high-end brokers and helped to move the firm toward a fee-based business.

But the 2000 merger with UBS proved his undoing. The merger brought more heft to the relatively small PaineWebber: the firm’s offerings expanded greatly. UBS beefed up syndicate to advisors and added high net worth services – like loans pegged to Libor.

But Joe Grano left the firm within two years of the merger and morale suffered . The advisors never connected with the Swiss CEOs, and many felt that they had simply become a tiny fish in a vast ocean.

Now UBS has brought in an old Merrill retail hand to revive its retail unit; and another cycle will begin anew.

The Great Recession has changed the playing field on Wall Street. Great institutions have disappeared seemingly overnight.

But even as we speak new ones are emerging. The ones with luck and great leaders will usher in a new age for the financial industry.

Mark Elzweig is president of Mark Elzweig Company, an executive recruiting firm that has been working with financial advisors and asset management firms for 25 years.


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