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The Unsinkable Sallie Krawcheck

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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.

What new plans do you have for Ellevate Asset Management?

Wait and see.

How long do I have to wait?

I don’t know. But I’m not going to let you bully me into something! (Laughs) Give me a hint about what’s next.

Wait and see. I’m not done yet!

Do you pick the stocks in your personal portfolio?

God, no! I have a financial advisor. I was a sell-side research analyst. I ran research businesses. I ran trading businesses. I do not pick my own stocks! That’s why I have a couple of financial advisors, in fact. The main one is sort of a consolidator.

How would you assess the wirehouses right now?

All the wealth management firms have the potential to, and in very many cases, do deliver tremendous value to clients. From what I saw is that financial advisors who have clients that have been with them for some years have very high approval ratings from them. But there’s this entire small industry built up around being critical of the business: the mainstream media oftentimes focus on issues that are more important to them than to the clients.

What other challenges does the industry face?

The business operates on different standards: the fiduciary standard [for RIAs] versus the broker-dealer [suitability] standard. This is confusing to clients, and I’m not sure that even many people in the industry, who don’t spend full time on it, can give you the soup-to-nuts on what the differences are.

Are you in favor of the fiduciary standard for all advisors?

I’ve been calling for moving to it for years. But there are standards amongst the broker-dealers that are higher than some amongst the RIAs. We shouldn’t just change the broker-dealers and leave them with a fiduciary standard plus more stringent advertising requirements and ongoing educational requirements. We should bring everybody to the same standard.

Any other major challenge?

The aging of the industry. It’s tough for firms to grow through recruiting and training because the payoff for each of those is a multiyear payoff. There’s a stop-start aspect to it driven oftentimes by public shareholders wanting near-term results.

Which of your achievements are you most proud of?

The very first research report that I wrote under my own name and published less than two months after I joined Bernstein. It was negative, something that nobody did in 1994. I was just a research associate, not yet an analyst. It was about American General [Life Insurance Co.], later bought by AIG, and their getting into the subprime lending business, and that the way the industry reported the numbers masked an underlying deterioration in the credit quality of the business. Everything old is new again, right? I disaggregated their ratio of reporting to reveal the deterioration.

Was there fallout?

You’d send the reports to the firms [before publication]. When the company read my piece, they called: “You’re making a huge mistake. You don’t know what you’re doing. You’re going to ruin your career. One, you’re wrong. Two, nobody publishes negative research reports.” How did you react?

I thought, “What do I do?” I was scared to death that I would ruin my career at 30. But I published the damn thing [that December]. And darn it — if, when they reported their earnings numbers in January, they didn’t prove me right. I was right — for the right reasons. I was a baby research analyst, but I had the strength of my convictions not to back down. If I could go back in time, I’d give me a hug — this poor, trembling kid. I’d hug me and say, “Just do it.”

How much progress has financial services made in employing women at the senior level?

Since the downturn, the industry has gone backwards in terms of gender diversity. That’s not surprising since during crises, most industries do that. What I saw happening was a lot of “Geez, we should have that guy in that job because we can’t afford to take on any risk.” We all tend to view people who are different from us as being riskier. I’ve always [said] that if I want to put someone in a job who I think is low-risk, I look at middle-aged Southern women [like me], right?

Often male FAs ignore or talk down to women when meeting with a client couple. Then, when the husband dies, the majority of widows change advisors. How can this be prevented?

It’s a problem. What you most often hear from advisors is, “Yeah, other people do that. I don’t.” But when you, sort of, stand behind the glass and tape them engaging with client [couples], they do in fact spend more time talking to the gentleman than the woman.  A lot of what can be done is having discussions with advisors and showing them the evidence. It’s a matter of practice to make sure they’re engaging both [people] in the conversation.

Did you put many women in senior positions at Citi and Merrill?

I had diverse teams at both.

Did you need to battle anyone to do that?

I did not.

Financial services remains a male-dominated domain. Progress for women — especially rising to the top — has been slow. You’re an exception.

I would never have run Smith Barney or Merrill if I’d started as a trainee. I think it was only going to happen if a turnaround was needed and I came in in a senior role.

Why?

When I was starting my career, there were some subtle, some not-so-subtle, requirements to become a manager that were very gendered. For instance, you had to [relocate] multiple times. I couldn’t do that. Research on the “glass cliff” shows that women are more likely to be brought in for turnaround [thereby standing a greater chance of failure] than to make it to the top of some iconic companies without a crisis. Have female advisors as a group made any strides recently?

The number of women in the financial advisory business has been pretty flat over a fairly long period. They range from 12% to 18%. And here’s something new: Female “personal financial advisors” earn 58 cents to every man’s dollar, according to a recent Atlantic Magazine article. Horrifying!  Overall, women earn 78 cents on every man’s dollar.

When did you get the idea to buy 85 Broads?

It was a bit serendipitous; it sort of came along. I didn’t go out to buy it. But I was working along this line of thinking, and then Janet Hanson [founder, ex-Goldman Sachs] started to have a conversation about it.

What’s the chief goal of Ellevate Network and Ellevate Asset Management?

The underlying view is that the financial and economic engagement of women is good for everyone, and only positive things happen.

How is your Pax Ellevate Global Women’s Index Fund doing?

It’s early to talk about it. But so far, so good. We’re pleased with the performance we’ve seen since the relaunch. It’s growing. So stayed tuned.

You were funny on a recent Ellevate panel discussion about personal branding, when you counseled: “Don’t tweet drunk!”

I’ve been around for a long time. If you don’t laugh, you cry, right?

— More by Jane Wollman Rusoff on ThinkAdvisor: