Krawcheck’s Take on the Future of WM

Sallie Krawcheck, former President of global wealth management at Bank of America, says the two biggest challenges facing the wealth management industry are attracting the next generation of investors and working with women, both on Wall Street and off.

Speaking at the annual meeting of the Securities Industry and Financial Markets Association (Sifma) in New York, Krawcheck first noted that the wealth management (WM) industry is “in much better shape than conventional wisdom would think, though parts have real risks and challenges.”

WM’s strengths are in existing client relationships, she said. “Research has shown that the level of trust by existing clients is within spitting distance of 2007. The downturn cemented that feeling of trust and confidence. Financial advisers typically lose clients at a low single-digit rate each year,” which is impressive for any industry, Krawcheck observed.  However, clients also say that while they trust their adviser, they are less-than-pleased with the advisers’ institution; support and services are lacking.

Attracting “Gen X”  

Pleasing existing clients is not the greatest challenge facing the WM industry though, says Krawcheck; the attrition rate of clients for advisers is very low.  One of the two main challenges will be in attracting the next generation of investors – to help them see the value of wealth management.

In the past ten years, the average age of clients has gone from mid-50s to mid-60s, she said – this is not sustainable for the long-term. People in their 40s are not using financial advisers, she pointed out; they don’t see any value in them, since older generations have suffered as a result of economic turmoil. The industry’s challenge is to prove its value.   

“Typically we don’t do ourselves any favors because when we talk about our value, we tend to talk about stock market returns.  We’re not talking about planning, full asset allocation, liquidity management; we’re not even talking about protecting the downside,” Krawcheck said. “We’re talking in language they don’t understand, ‘bps,’ and they don’t believe we can deliver. If a client doesn’t ask what a ‘bp’ is, they’re being polite.”

“Existing clients say investment performance is important, but it’s about eighth on the list. ‘Return my phone call,’ ‘Help me plan,’ are more important. Planning, liquidity management, help them keep what they’ve got…these are where our value is,” she concluded.

Diversity of Perspectives  

Krawcheck then focused on the financial industry’s contact with women – both as clients and as members of the team.  As for female clients, she simply said they do not want to think about planning for retirement in terms of the stock market. Both genders want holistic planning advice, but this hold particularly true for women.

As for women working on Wall Street, Krawcheck shared an anecdote of speaking to undergraduate women at Harvard Business School.  As she prepared to speak, Krawcheck said she felt sorry for the young women in the audience, in the sense that not enough has changed in the past 20 years.  She said it seems as if the industry has capped out at having about 15% of upper management roles belonging to women. While some of this is due to biological factors, she said, other reasons remain. The most important of which is a “culture of crisis” she has seen in the industry for years, dating back before the 2008 recession.

“We all see [a culture of crisis] right now for sure, and we want to make fast decisions. But going back to the early 2000s, we all said ‘oh my God, Goldman is whopping us.’”  So instead of forming diverse teams, everyone wanted a team that can act fast, she says.  “Research shows a more diverse team does better than a capable team. And I don’t mean diverse just according to gender or race – I mean people from HR, people from different backgrounds, people with varied skills. It might feel like a risk, but it’s not.  A broad range of perspectives can help you navigate through a crisis.”

Looking to the Future 

Krawcheck was asked if she was just graduating college today, whether she would still gravitate towards a career in financial services.   

“I’ve always been attracted to the business; it’s an exciting business, you work with really intelligent people, and these are common reasons. But also, I love the client interface. It’s not ‘PC’ to talk about any part of Wall Street doing good, but in wealth management you really can help move families and institutions forward,” she said.

“It is tougher to operate within the traditional banking system than before. Regulators are tougher, and deservedly so. It is tougher to get things accomplished, but taking a deep breath and slowing down is not a bad thing overall.  Let’s move back from a culture of crisis; it’s not a game.  Somehow years ago markets went from being arenas in which capital was directed from people that had capital to people that needed capital; that’s what made this economy so great. Somehow now they’re betting mechanisms; tools for people to make money instead of the markets being a way for efficient allocation of capital,” Krawcheck continued. 

Perhaps this is why confidence has been broken between the industry and the public, she said.  Confidence is of course an intangible, and the secret recipe to rebuild it remains a mystery, but getting  back to helping clients is a good start, she added.