Krawcheck: Client Attrition Very Low, but Wooing Younger Generation a Challenge
Generation x and y kids are not too keen on the big
wealth management firms, Sallie Krawcheck said Monday, and that is one of the major
challenges the wealth management industry faces over the medium term. The former
head of wealth management at Bank of America Merrill Lynch, Krawcheck sat for
an interview with Charlie Rose at the SIFMA annual conference in New York.
Krawcheck, often cited as one of the more powerful
women on Wall Street, left
Merrill in early September after two years at the firm. Before
joining Bank of America in August of 2009, she was head of the wealth management
division at Citigroup.
Krawcheck said the wealth management industry is in
some ways in much better shape than the conventional wisdom would have it, but
it also faces many risks. Today, the average client of a traditional brokerage
firm is in his or her young to mid 60s, she said, and that next generation of
clients is not coming forward. That’s because everything that generation has seen
tells them they don’t want to be in the markets and they shouldn’t trust the
banks, she said. The challenge is for the industry to prove to the younger
generation they in fact do add value, she told Rose.
“Typically we don’t do ourselves any favors because
when we talk about the value we bring we tend to talk about stock market
returns,” said Krawcheck. “I can’t tell you the number of client events I’ve
been to where we’re all talking about the stock market—is it going up or is it
going down. We’re not talking about asset allocation, liquidity management,
protecting the downside. Instead we talk about bps and alpha—language clients
don’t understand. Clients don’t actually believe the industry can deliver
relative outperformance. And frankly that’s because the evidence is pretty
good.”
Financial
Advisors In, Institutions Out
Still, profitability in the wealth management
business is well above that of other financial services businesses, Krawcheck noted.
“Returns on equity are at the very top end. So we continue to do what we’ve
done successfully.”
The other good news is, client attrition among
financial advisors is in the low single digits in any given year. But while
surveys show that clients are happy with their financial advisors, they’re not
so happy with their advisors’ institutions, she said.
“Clients continue to like, trust and admire their
financial advisor,” said Krawcheck. “In fact, some of the research I’ve seen
suggests that the level of confidence in the financial advisor by the existing
client is within spitting distance of where it was in 2007, before the
downturn,” she said. For the majority of advisors, the downturn actually
cemented client trust and confidence in their financial advisors. And yet, clients
say they expected more from their advisor’s institution than they got, she said.
Women
On Wall Street
Another challenge the industry faces is that it’s
not doing a great job for women, said Krawcheck.
Krawcheck said she recently spoke at a Harvard
Undergraduate Women in Business event, and what she wanted to tell them was
that she was sorry that women had not come any further since her days as a
college undergraduate.
“I kept wanting to say, ‘I’m sorry.’ And not I’m
sorry as in I apologize, but I’m sorry as in, ‘I’m sad.’ Because when I was
your age ladies I would have thought that 25 years on, plus, we would have made
more progress. We’re kind of stuck in corporate America.’” In the traditional
retail brokerage industry, women represent only 16 to 18 percent of financial
advisors, she said.
There are plenty of reasons for the under-representation of women on Wall Street, she said. Among other things, she cited a culture of complexity, and a “culture of crisis.”
