The Unsinkable Sallie Krawcheck

Like Titanic survivor Molly Brown, the unsinkable Sallie Krawcheck ain’t down or done yet.

The former head of two wirehouse wealth management units — Bank of America Merrill Lynch and Citi — is on the way to broadening her own Ellevate Asset Management firm, as she signals in an interview with ThinkAdvisor.  

By strongly defending the robo-advisor model in the interview, could she, for instance, be weighing an entry into that realm? Further, speaking at the Investment Management Consultants Association 2015 New York Consultants Conference last week, she panned the “robo-advisor” tag, while stressing the millions in venture capital that online money managers have raised.

At Merrill Lynch, the tech-minded Krawcheck kicked off the online Merrill Edge initiative. Now she’s on the board of 2U, which delivers college degrees online, and for two years was a board member of Motif Investing, a Web-based service.

She is tight-lipped, however, about potentially launching her own robo-advisory, though doesn’t deny nurturing such a move: “I don’t have any additional business plans that I’m sharing,” she responded when ThinkAdvisor asked specifically about a robo initiative.

With Pax World Management, Krawcheck’s firm manages the Pax Ellevate Global Women’s Index Fund (formerly the Pax World Global Women’s Equality Fund), a diversified mutual fund investing in top companies that advance female leadership. It debuted in June 2014.

Krawcheck, 50, has been waging a comeback after Bank of America eliminated her position as president of wealth management in 2011, following dismissal, three years before, by Citigroup.

In 2013, Krawcheck bought the professional women’s organization 85 Broads — renaming it Ellevate Network a year later — partly to advocate the power of corporate diversity as a way to help prevent another financial meltdown.

Just a few years ago, Krawcheck was dubbed “the most powerful woman on Wall Street.” She had already begun making a name in the 1990s as a controversial top research analyst at Sanford C. Bernstein with pull-no-punches reports about the brokerage industry. By 2001, she had risen to Bernstein CEO and a year later was named CEO of Citi’s Smith Barney unit.

The New Orleans-born, Charleston, South Carolina-bred attorney’s daughter started as an investment banking analyst at Salomon brothers, moved to Donaldson, Lufkin & Jenrette and picked up an MBA from Columbia Business School before joining Bernstein in 1994 as a research associate covering the life insurance industry.

Journalism degree from the University of North Carolina at Chapel Hill in hand, she’d taken the Salomon job to scope out a beat to cover as a business reporter. But working within the industry proved more interesting than the prospect of peering in from the outside.

In the recent interview, she had lots to say about wirehouses in general, and BofA Merrill and Citi in particular. The vocal Krawcheck spoke with ThinkAdvisor from her New York City office about what she’s fired up about now.

 ThinkAdvisor: Why did you decide to focus on women and diversity after being demoted and leaving Merrill Lynch?

I began thinking through the less conventional causes of the financial crisis. I was struggling with the idea that the people I had worked with were the greedy, evildoers [they were said to be]. I’d never heard anybody call a client a Muppet. I never knew anyone who perfectly foresaw the crisis and drove the business into it. In fact, it was quite the opposite: I saw people, who were my friends, that believed the real estate boom would continue. So, if they weren’t evil geniuses, what went wrong? What does that have to do with diversity?

I kept coming back to “groupthink.” These people, in many cases, had been in the same training programs together, promoted together, vacationed together. As a result, you weren’t getting 12 different opinions from 12 different people around the table. You were getting the same opinion again and again. But everybody talked themselves into thinking it was 12 different opinions. So I started to research how to break groupthink. The answer is diversity. Gender diversity is one driver of a different way of thinking.

How did you know how to run Smith Barney and Merrill? Your background was mostly as a research analyst.  And you were never a financial advisor.

You keep your mouth shut for a while. You ask lots of people about lots of things. It’s like learning any other skill. But you have to be humble and not go in with the view that you know everything, particularly about finance.

So, did you keep your mouth shut and do everything you just said?

Yes, I sure did. [But] I remember that Smith Barney wouldn’t let me build my own models anymore — for acquisitions and business initiatives we might do. When I was about six months in, the head of financial planning and analysis came to me: “You have to stop building your models.” I said, “But I think mine are better than everyone else’s.” He said, “They are, but you have to stop it because you’re demoralizing the individuals who work for you.”

You became known for turning around companies. When did that start?

When Sandy Weill reached out to me [to head Smith Barney], it was because I had led some bold moves; and Smith Barney’s research business, certainly, needed someone who could do that and turn around the business. At Bernstein, we took ourselves out of investment banking. While that wasn’t a turnaround at the time, it was a pretty controversial move.

You came to Merrill Lynch during the financial crisis, right after Merrill was sold to Bank of America. Did you turn around the firm?

That’s what the numbers would show. My charge from Ken Lewis, the [BofA] CEO who brought me in, was to help turn the Merrill Lynch business around. I put in what I think was a terrific team, and the team turned it around. When I arrived, the financial advisor attrition rates were running in the mid-double digits: 45%, 50%. When I left, they were in the mid-single digits. The business was growing and gaining share, and outperforming the other businesses there.

If you accomplished all that, why did they let you go in a so-called “de-layering”?

I can’t answer that! (Laughs)

Do you think sexism was part of it?

I don’t have any reason to believe that. Another person was sent home that day, and another who was demoted was sent home some weeks later. I believe it was because this was a CEO [Brian Moynihan] putting the team that he wanted around him in place. Do you believe that sexism played a role in your being fired from Citi?

For several years, my answer was an unequivocal “No.” My answer now is a nuanced “Yes.” I firmly believe, and was told, that I was let go because I advocated returning clients’ funds [after certain investments went bad during the financial crisis] and wouldn’t fall into line. Over the years, I’ve looked at research that says women are more client-concerned and more long-term oriented than men. Those issues were very top-of-mind for me. I couldn’t sleep because I was worried about our clients.

And that’s why you were fired?

You can connect that if women tilt more towards those things, I got fired for that. Was I fired because I was a woman? Not in the traditional “Gosh, you’re a woman — You need to get the heck out of here because we don’t like women!” But in a more subtle fashion.

Did they return the clients’ funds?

They did. I won the war. The board voted to do it, and I stayed on with the company for several months. But the CEO [Vikram Pandit] started stripping responsibility away from me.

What’s the most important thing you learned from losing those two jobs?

Resilience. You can let it knock you down and stay down — or you can pick yourself up, dust yourself off and go on to have an even more interesting, exciting and engaging career.

Under what circumstances would you work for a wirehouse again?

(Laughs) I haven’t thought about it.

Were you in talks to buy UBS?

Oh, it’s so funny you say that. It depends on how you define it. Was I in talks with the board to buy it? No. Were a whole bunch of people flitting around it at some point with private equity firms that were trying to throw money at it? Absolutely.

How come you didn’t open your own advisory when you left Merrill?

The idea of going out and competing with all the financial advisors that I’ve known and respected for so long was not one that topped my list. Would I do something that could be additive to the information and knowledge that’s out there? Yes. But I wouldn’t form a traditional firm that looks to hire a bunch of advisors from my old firm. Life’s too short.

What are your thoughts about robo-advisors?

The mere fact that they’re called robo-advisors is somewhat disdainful and diminishing and denigrating. We’re dismissing them; but in fact, it’s very important for our industry to continue and accelerate the trend of investing in technology, thereby freeing up the very valuable time of the financial advisor. So those who are dismissive of robo-advisors are dismissing an important set of capabilities to leverage the advisor’s time. I could go on and on.