The new UBS Oct 31, 2009
Exclusive: McCann Back To Work In October
By John Aidan Byrne
Over a leisurely breakfast in an upscale hotel in Short Hills, New Jersey, Robert J. McCann, former president of Merrill Lynchs mighty thundering herd, sat down with Registered Rep. contributor John Aidan Byrne for this exclusive interview. Just last week, McCann settled a bitter lawsuit with Merrill parent company Bank of America over a non-compete agreement. The settlement frees McCann to return to work this month.
RR: Lets turn to compensation. What about how advisors are paid today?
BM: I am a big advocate for client choice whenever possible. Some clients like to pay a fee to their advisors, some like to pay commissions. Back in the summer of 2007, I fought hard against the abolition of Rule 202. [Rule 202 was the broker-dealer exemption that permitted fee-based brokerage accounts.] I was on public record about this, and I went down to Washington and met with SEC Chairman Christopher Cox. I lost and fee-based brokerage didnt get a play. I think it is a mistake to this day because I think all we do is take choice away from the clients.
RR: There is a lot of talk about size and scale in the industry. What do you make of that?
BM: There has been consolidation in the industry generally, and in wealth management in particular in my 28 years in this industry. We have had violent consolidation in the last 15 months: Merrill Lynch did not wake up one morning and choose to be part of Bank of America; Smith Barney did not wake up one morning and choose to be in a joint venture with Morgan Stanley; Wachovia did not do that with Well Fargo either. Here is what I am concerned about. Executives in the wealth management industry talk a lot about size and scale and how big they are. But it is just a way of saying they are bigger. As a businessman, I ran Merrills wealth management business. I know a fair amount about size and scale and what it can do. But size and scale in and of itself is not good, or doesnt automatically result in good things for the client. The organization needs to be run from top to bottom in a way that is focused on the client -- by people who understand the client and who know that open architecture is a good thing.
RR: Clients, however, might feel more comfortable with a firm that is too big to fail in todays climate?
BM: Wealth management is a bit different. First of all, it is not about a huge balance sheet and capital. Secondly, a firm that is big enough to be relevant but small enough that their clients feel they are important to them, still works. Do you need a different cost structure? Yes, you do. Do you need to source products, maybe research from third parties? Yes, you do. Might you need to use third parties to handle functions like the backoffice and settlement? Yes, you might want to think about things like that.
RR: What size is this firm you describe? How many FAs does it have?
BM: When I was at Merrill, we had some 16,000 FAs and I figure they have about 18,000 now. Well, I think there are different models that will work today in wealth management: You can have one model that has 200 to 400 FAs focused exclusively on high-net worth clients, spread out among the major money market centers in the U.S., a model committed to open architecture and dedicated to the $10 million-plus client. On the other end, there is the Morgan Stanley and Smith Barney style of joint venture with 20,000 FAs offering a full range of services for the $100,000 clients and up. Then, there is the boutique with several thousand FAs plus or minus 5,000 that might be standalone or tied to a larger institution and dedicated to open architecture.
RR: How do you put together a good team of FAs for these types of organizations, and how do you recruit?
BM: There are two areas I try to keep my focus on in terms of recruiting FAs. I look at the $400,000 to $500,000 producer who can show they are succeeding, have no compliance problem and seem to have good grades and satisfaction with their clients. They want to grow their business. That is a group of people I am interested in recruiting. Another group are the $1.5 million-plus producers who are the pros, the stars of their markets. You want to recruit those top names, and you want them to come into and set the right tone in the office. But here is what I am not interested in doing paying someone a lot of money, and then have them come in and effectively retire. I think some firms made a mistake in the last few years, by frankly paying too much for advisors giving them far too much guaranteed money. I have no problem with a financial package that recognizes a transition for an advisor. But if you pay the advisor too much, who wins? I think the advisor wins and sets the wrong dynamic. Quite often, the firm loses and sometimes the client loses. So keep the ones you have, and recruit intelligently is my message.
RR: You must be receiving a lot of resumes? You were popular among advisors at Merrill Lynch. Your reputation as a strong leader is well known among the troops.
BM: Advisors are cautious people and they are going to think through very carefully what is the best place for their clients. I would like to think I have made a lot of friends, and earned the respect of my industry. But nobody is going to show up at every firm I go to just because I am there. Id like to think I am a thoughtful supporter of financial advisors, and that I will run the firm in a client-focused way.
RR: What was it like at Merrill Lynch in your final days? With Merrill in trouble was it a difficult time for you?
BM: Look, I had long and happy years at Merrill, and I had wonderful mentors, including [former Merrill CEO] Dave Komanksy who is still a great friend. I got my start on the trading floor as an associate, and when I left I was head of global equities. I loved going to work and loved my job. I felt I was part of the best firm on Wall Street. Things started to change and some of it was necessary and appropriate, and other parts of it were not appropriate from a business strategy, or cultural standpoint. New senior management took the firm in a different direction. As the company went down that damaged the wealth management business through no fault of people in wealth management. In fact, if you think about what went wrong in major companies on Wall Street, it was not in wealth management, it was in institutional sales and trading, the amount of leverage companies took on; the problem was in commitments to investment banking clients, or investments the companies made in private equity that went wrong.
RR: What was it like managing 16,000-plus FAs at Merrill?
BM: It was a wonderful challenge. First of all, you dont manage you lead. You dont affect the FAs compensation; FAs pay themselves. They effectively are individual entrepreneurs who work for a company as opposed to a trader who you sit down at the end of the year for an evaluation and a year-end bonus. You dont do that with FAs they are on a grid system. There is another side of this, which took me a while to appreciate. We had 620 offices in global wealth management. One year I traveled widely I think I visited 42 offices. But you know what the problem was? There were 580 offices I didnt visit. So you have to reach out and communicate in other ways too, besides personal visits. That includes conferences, written communications, e-mail, in-house TV and it was a wonderful challenge. At the same time, there are differences at every office an FA in Midtown Manhattan, say, is different from an FA in Birmingham, Alabama and I dont mean that in the sense of good or bad. The FAs are different and so are the clients.
RR: After you left, Merrill was demoralized.
BM: I think a lot of it gets over-reported, and exaggerated.
RR: What were some of your proudest achievements at Merrill atop global wealth management?
BM: We grew our pre-tax margins in 2007. They were in the mid-20s that year. But the single thing I am proudest of is that, in that same year, we had very, very low turnover of FAs compared with the rest of the industry. We had almost no turnover among our best FAs. Everybody talks about recruiting FAs. Well, here is the dirty little secret: It is about keeping the ones you have, about creating an environment so that the people that already work at your company want to stay. Recruiting is nice and helps you pick up talent you should do that at intelligent prices. But the bottom line is you keep the talent you have and create an environment that they feel good in. Give the FAs the tools to take care of their clients. At Merrill the turnover started to pick up when Merrill started to have problems [in its final days].
RR: Tell us a bit more about the personal side of Bob McCann.
BM: First, everything I do outside of business is geared towards supporting various educational projects. I am on the board of trustees of Bethany College. [McCann graduated from Bethany in 1982 and later earned an MBA from Texas Christian University]. Second, I love Ireland and I love going there. I just got my Irish passport, so I am now a U.S. and an Irish citizen! I am on the executive committee of the American Ireland Fund and most of my activities in Ireland are, once again, geared towards education and in this instance, particularly towards integrated schools in Ireland. And, third, I am on the advisory board of No Greater Sacrifice, an organization with the goal of supporting children of military personal who pay the ultimate sacrifice in the Middle East. Our goal is to make sure those kids get an education and we work with other charities on this.
RR: You love movies.
BM: My two favorites are The Godfather and Field of Dreams.
RR: You also love a good, gripping crime novel.
BM: I am a lifelong fan of Boston crime fiction writer Robert B. Parker and his private eye Spenser series. I also have read and re-read John Steinbecks novels.
RR: Hope you hadnt images of the Great Depression flashing through your mind when the global credit crisis erupted?
BM: I never felt like Tom Joad in The Grapes of Wrath, if thats what you meant!
RR: Anything else?
BM: What I am focused on right now is going back to work. And I think wealth management is a growth industry and if it is done properly, there is room for good advice for individual investors.
RR: Nice breakfast. Thank you.