MAKING LISTS OF BIG HITTERS, particularly one this short, is an act of capriciousness. We try to be as scientific as we can — picking regulators, politicians and business leaders who will have the greatest impact on the financial advisory industry; perhaps they personify an industry product or trend; steer the strategy of a major firm in the midst of a great transformation; or have the influence to shape the regulatory landscape of the industry.

With the Federal Reserve now preparing to revamp securities laws in the wake of its unprecedented bailouts, we could have merely named Fed Chairman Ben Bernanke and his staff. (We did select the New York branch's leader.) We also could have chosen one of a slew of lawmakers, who are currently pushing through legislation to save hundreds of thousands of homeowners from foreclosure.

Instead, we tried to spread our choices around. We have asset managers, securities firm CEOs, a lawmaker and even a noted economist and newsletter writer whose opinions are widely followed by professional money managers. Whether you agree with our choices or not (our short list was pretty long), we think you'll agree that each person merits close scrutiny in the coming year.
— David A. Geracioti

The Lawmaker

Chrisopher Dodd

Age: 64 | Position: U.S. Senator, Connecticut | Location: Washington and East Haddam, Conn. | Education: Providence College; University of Louisville School of Law

This five-term Democrat is chairman of the powerful Senate Banking, Housing & Urban Affairs Committee. That's a nice seat to occupy, since the Banking Committee has a wide-ranging bailiwick, with oversight of everything from the Federal Reserve system and monetary policy to banks and financial institutions.

Dodd is the consummate Washington insider, having served in the House and the Senate for more than 30 years. As the new chair of the Banking committee, he helps set the agenda. He definitely plays the populist card, putting the onus squarely on financial firms for the rise in foreclosures. In a July committee meeting, Dodd said, “In this committee, 18 months of exhaustive hearings have documented what I have called a pattern of regulatory neglect.” He has also introduced legislation to stop “abusive credit card practices.” Dodd co-authored the Sarbanes-Oxley law, which was meant to strengthen accounting and managerial practices, but is widely criticized for inhibiting U.S. capital markets. As for the current mortgage crisis, he backs increased government intervention in the financial industry. He supported the nationalization of IndyMac, and helped author the mortgage rescue plan intended to save hundreds of thousands of homeowners facing foreclosure. He was also the architect of the overhaul of Fannie Mae and Freddie Mac, and is currently being eyed as a potential running mate for Barack Obama. Alas, Dodd now has baggage. Dodd has been denying that his special VIP mortgage rate from Angelo Mozilo's Countrywide was to curry favor. Yet financial firms seem to like him: During his brief presidential campaign, securities firms and banks were among his top sources of cash, according to opensecrets.org. Let's see how they feel a year from now.
— David A. Geracioti

The Short Seller

David Einhorn

Age: 39 | Position: Co-founder and portfolio manager, Greenlight Capital | Location: New York | Education: Cornell, B.A., Political Science

Boyish hedge fund manager David Einhorn excels at both Texas Hold 'Em and attracting publicity. Like many short sellers, Einhorn is righteous. When he uncovers what he believes is corporate malfeasance, his firm shorts the stock — and then he broadcasts his findings about the offending company to the world. Mere rumor mongering to help drive his bets? Perhaps. But Einhorn has the advantage of having been right a few times. His work on Lehman Brothers was detailed, exhaustive — and accurate. Had you listened to him, you would have sold Lehman in May — and missed the ensuing 60- percent plunge in share price. He is the classic crusading short seller: banging his drum in the belief that “Sunlight is the best disinfectant.”

Einhorn founded Greenlight Capital at the tender age of 27, and now manages more than $6 billion. His fund has averaged more than 25-percent net returns since inception on both long and short positions. In 2006, Einhorn placed 18th in the World Series of Poker, winning $659,730, which he gave to charity.

His basic criticism of the industry is one familiar to any reader of Michael Lewis' classic, Liars Poker. “The investment banks outmaneuvered the watchdogs,” he said at an April conference. “With no one watching, the managements of the investment banks did exactly what they were incentivized to do: Maximize employee compensation. Investment banks pay out 50 percent of revenues as compensation. So more leverage means more revenues — which means more compensation.”

Einhorn began publicly expressing reservations about the securitization model popular with Wall Street banks last October, mentioning several banks — including Lehman and Bear Stearns — by name. In May, Einhorn announced that he was shorting Lehman. With his penchant for publicity and for exhaustive security analysis, Einhorn could help us get a handle on what's next in the current financial crisis.
— Nate Wendler

The Contrarian

Marc Faber

Age: 62 | Position: Founder, Marc Faber Limited, an investment advisor, fund manager and broker/dealer. Publisher of The Gloom, Boom, & Doom Report. | Location: Hong Kong | Education: Economics, University of Zurich, Ph.D., magna cum laude

It's tempting to dismiss Marc Faber as a perma-bear, but that description isn't exactly a fair one. Actually, the asset manager and author of the widely followed monthly newsletter, The Gloom, Boom, and Doom Report, is bearish on securities in the U.S. and Europe. And, for that matter, he's now bearish on emerging markets, too — for the short run.

Why should we listen to Faber, since he seems so, well, bearish on everything? For one, Faber's opinions are heard — if not followed — by some of the savviest professional investors on the planet. His publications and predictions have been consistently thought provoking, and, more importantly, in recent years, highly accurate, particularly his warnings on the U.S. markets. Faber correctly anticipated the current real estate decline in the U.S. residential markets, and previously predicted the Asian flu of 1998, the collapse of the Japanese stock market in 1990 and the 1987 crash in the U.S.

While Faber has long been positive on Asia, he turned bearish on both the emerging and Chinese markets in late 2007, a call that looks particularly prescient given the collapse in the Chinese indices, now down as much as 50 percent from their highs of last year.

Faber's outlook for U.S. markets is one of restrained skepticism. He says, via email, that he expects a shallow but extended period of economic weakness worldwide in the short run. This weakness will weigh on stock markets, and also ease pricing in commodities, forcing down steel prices and potentially sending oil to $80 a barrel. In Faber's view, one way to play this is the common stocks of airlines like AMR, Lufthansa, Japan Airlines and Singapore Airlines. Now that's a contrarian call all right.
— Nate Wendler

The Regulator or Mister

Timothy Geithner

Age: 47 (on Aug. 18) | Position: President, Bank of New York Federal Reserve | Location: New York | Education: Dartmouth College; Johns Hopkins School of Advanced International Studies

As far as what the future holds for regulation of financial markets, the man of the moment is Timothy Geithner, the ninth president of the Federal Reserve Bank of New York. It was Geithner who, in March, orchestrated the bail-out/fire sale of Bear Stearns for $10 a share to JPMorgan Chase, the Fed's most significant intervention in the financial markets since the Great Depression.

The New York Fed served up the $29-billion loan that made the deal digestible for JPMorgan Chase, and then, in the following weeks, opened the “discount window” to investment banks that needed capital — something it hasn't done since the 1930s. The Fed is responsible for supervisory oversight of depository institutions and financial holding companies like Citigroup and Bank of America; the SEC regulates securities firms, including Goldman Sachs, Lehman Brothers, Merrill Lynch and Morgan Stanley.

The SEC was also responsible for monitoring capital and liquidity standards (oops!) as well as disclosure of that information. That's all changed now that the Fed is handing out money to these firms. Not only have teams of examiners from Geithner's office been working with the SEC to comb the books of investment banks, but as of July 7, the Fed and the SEC have formally agreed to share information, coordinate exams and consult on supervisory expectations. “Geithner is the person who will control how much money will be lent to the big b/ds and [investment banks], and the structure and terms of that lending — that's huge,” says Hardy Callcott, an attorney with Bingham McCutcheon who focuses on broker/dealers and investment advisors. “He's now the backstop liquidity provider for these firms.” And liquidity seems to be in short supply these days.
— John Churchill

The New Chief

Ellyn McColgan

Age: 54 | Position: President and COO, Global Wealth Management Group, Morgan Stanley | Location: New York | Education: Montclair State College; Harvard Business School

Ellyn McColgan has some big shoes to fill: In April, she became the new president and COO of Morgan Stanley's Global Wealth Management unit, the position James Gorman vacated in November of last year to become co-president of the firm. McColgan, who spent 17 years at Fidelity Investments in Boston, will report to Gorman.

Gorman, who took the job two years ago when the wealth management division was struggling, set the bar high. Through a combination of forced attrition of low-end producers, new technology and aggressive recruitment of talent from Merrill and the other wirehouses, Gorman vastly improved morale and margins. Today, average production and assets are up more than 35 percent and 15 percent, respectively. McColgan, who just moved from Boston to New York in July, will need to continue that trend. After all, she has to follow through on promises made to the raft of more than 250 new recruits who jumped to Morgan in exchange for gaudy compensation packages and the promise of strong leadership. McColgan should be up for the challenge. She has held executive positions in several business lines at Fidelity, and led its retail brokerage arm for the past five years, a period in which the firm's retail client assets exceeded $1.6 trillion — surpassing Schwab and Merrill Lynch. More recently she helped leverage that businesses' access to high-net-worth clients for its burgeoning RIA custodian business, creating a referral network for its best RIA clients. One of McColgan's strengths is knowing how to squeeze greater efficiencies out of a business — qualities that also charcterize her new bosses.
— John Churchill

The Phoenix

Vikram Pandit

Age: 51 | Position: CEO, Citigroup | Location: New York | Education: Columbia University

Vikram Pandit has a task of epic proportions on his hands. In an industry environment that some are calling the worst since the Great Depression, and with some predicting the failure of dozens of smaller financial institutions, Pandit must turn around the country's biggest bank, and the one hardest hit by the mortgage crisis. Just eight months into the job, some are already calling for his head.

Since mid-2007, Citi has written down over $45 billion in credit losses — more than any other bank — and it has lost over $17 billion in the past three quarters. Meanwhile, the stock was trading at 10-year-lows in mid-July. Still, second quarter earnings were better than expected due to much smaller write-downs.

To right the ship, Pandit has raised $40 billion in fresh capital and announced plans to eliminate over 19,000 jobs, spin off certain business lines and streamline operations. He is also working to overhaul Citi culture, in part with a new bonus structure that gives executives incentives to cooperate in teams.

Pandit shrugs off criticism that his plans to revive the bank look too much like those of ousted predecessor Charles Prince. After a detailed review of the firm, he says he is convinced that, “the universal banking model is the ideal one to capitalize on global growth trends.”

Whether Pandit is successful may be out of his control. If housing and the economy recover in the next year, then the firm, and his hide, may be saved. If not, he has his work cut out for him.
— Kristen French

The Indexer

James Rogers

Age: 65 | Position: Chairman, Rogers Holdings | Location: Singapore | Education: Yale University

At a time when oil and gold prices are soaring, it is hard to recall that most investors ignored commodities a decade ago. With technology stocks all the rage, who cared about soybeans? But in 1998, Jim Rogers started the Rogers International Commodity Index and predicted the start of a huge bull market in commodities. While other commodity indexes of the time focused on energy and metals, Rogers deliberately designed his benchmark to be broad-based, including such agricultural products as rice. Now that rice prices are skyrocketing, his forecasts from the 1990s appear eerily accurate. Rogers has emerged as the best-known proponent of commodity investing.

Since the Rogers index began, it has risen more than 400 percent. But Rogers is not worried that his favorite asset class has become overvalued. He says that demand from China and other emerging markets will keep pushing up prices. Convinced that Asian economies are the most dynamic in the world, Rogers left Manhattan last year and relocated to Singapore, a center of growth.

Since 2005, Rogers has offered commodity investing to high-net-worth individuals through Diapason Commodities Management, which has more than $1 billion invested. For retail investors, Rogers has brought out a slew of new products in the past year, including a number of exchange traded notes (ETNs).

While billions of dollars are now invested according to the Rogers' benchmarks, it'll be interesting to see if the retail set is last to the party — or if Rogers' amazing string of predictions unfolds again.
— Stan Luxenberg

The Oracle

Robert Shiller

Age: 62 | Position: Professor of Economics, Yale University; Visiting Scholar, Harvard Univ.; Chief economist/co-founder, Macromarkets; co-founder Case Shiller Weiss | Location: New Haven, Conn. | Education: University of Michigan, B.A.; M.I.T, Ph.D.

In the first edition of his book, Irrational Exuberance, published in February 2000, Robert Shiller predicted the stock market collapse. In the second edition, published in 2005, Shiller compared the housing boom to a stock market bubble; he also predicted that housing prices would decline for “many years to come.”

Shiller says home prices will decline, on average, by 25 percent; through April, the S&P/Case-Shiller 20-city composite index of metropolitan areas is off by about 15 percent. If Shiller is right — and he was before — we've got some more pain ahead of us.

But while Shiller has been an economic Cassandra for some time, he has astutely positioned his research to produce meaningful opportunities for gains — both for himself and for investors. Creating a futures market for housing prices, his Case/Shiller index is a tradable security, and his collaborations with both the Chicago Mercantile Exchange and S&P have helped establish C/S as THE brand name when it comes to betting on housing prices. Since the late 1970s, Shiller has explored the deviation of financial asset prices from efficient market models, but his true innovation comes from his ability to tie theoretical heterodoxy to practical speculation.

His forthcoming tome, The Subprime Solution: How Today's Global Financial Crisis Happened, and What to Do about It (to be published in August), will no doubt help set the legislative agenda for Congress' efforts to assign blame and recreate a stable housing and mortgage market for American families, leaving Shiller as one to watch in the coming year.
— Nate Wendler

The Middleman

Barry Sommers

Age: 39 | Position: CEO, Bear Stearns Private Client Services, a JPMorgan Company | Location: New York | Education: Ohio University

Barry Sommers says the hard part is over — and he may be right. He did, after all, manage to keep about 80 percent of the original 500 Bear Stearns retail financial advisors on board after word of the alarming JPMorgan Chase takeover spread. But now, he has to deliver on the promises made to those advisors — who, in exchange, agreed not to bolt for the door.

Sommers was made CEO of Bear shortly after the firm was bought by JPM. His job: retain brokers, ensure a smooth transition for the FAs and their clients, and pave the way for advisors to tap into JPM's product and services platform. “The integration can't happen fast enough. I'm under pressure from brokers to bring to the table all sorts of products and services right now,” he says. JPM says it will keep the Bear name on the unit, and keep Bear advisors where they are in attempt to retain its old culture.

Sommers, who gets on a 6:00 a.m. Manhattan-bound train each morning, spends his waking hours connecting the imaginary pipes between JPM and his advisors. “I have to make sure every decision makes both brokers and JPM happy,” he says. A four-hour meeting about the rollout of an alternative investments platform meant discussing the operations and technology logistics with JPM folks, while the other half was spent making sure marketing of the products was in tune with the image of Bear advisors.

Sommers predicts that not only will the Bear brokerage succeed under JPM, but it will be a place that will attract rival FAs. In fact, over the last two months, about 15 of the “best in the business” have inquired about joining the firm. And, in typical Bear fashion, Sommers says, “We will not hire anyone who isn't the best.”
— Halah Touryalai

Mister Fix-It

John Thain

Age: 53 | Position: Chairman and CEO, Merrill Lynch | Location: New York | Education: Massachusetts Institute of Technology; Harvard Business School

Analysts labeled John Thain's appointment as head of Merrill Lynch in November a huge positive for the troubled firm. David Trone at research house Fox Pitt Kelton, for one, was astonished Merrill was able to grab someone of Thain's caliber. “We cannot think of another instance of a former high-ranking Goldman exec moving to such a direct competitor — nor can we think of anyone running Merrill that did not rise from within.”

Thain left his post as COO of Goldman in 2003 to become CEO of the NYSE. He introduced electronic trading, demutualization and bought the pan-European exchange, Euronext. The stock jumped sixfold in that time. Merrill could certainly use some of Goldman's “secret sauce,” says Trone, referring to the two firms' contrasting investment timing. (Merrill, like many others, was ramping up sub-prime as Goldman was exiting — even shorting it). He's got quite a mess on his hands: more than $18 billion in losses over the trailing four quarters, along with write-downs of more than $43 billion. Will the $15 billion in capital injections be enough?

And that's just the deleveraging part — Merrill Lynch, like many other financial services institutions, will have to be restructured, too, say analysts. According to Thain's January speech, his strategy is simple: Sub-prime, CDOs and structured credit are out, emerging markets and commodities are in. In addition, Global Wealth Management, which has set a string of quarterly revenue records through the first quarter of 2008, will expand internationally. In the meantime, there are many challenges. At least one thing's for sure: Thain won't be cashing out his $83-million pay package anytime soon. After all, most of it is in stock options.
— John Churchill

Where Are They Now?

An update on last year's Ten To Watch.

  1. Steven Caruso, immediate past president of PIABA and a partner in Maddox Hargett & Caruso

    Last year's challenge: Make the securities industry's system of mandatory arbitration more investor friendly.

    How he's doing: A PIABA study in September of last year exposed the inadequacy of the arbitrator selection and training, specifically as it relates to broker CRD expungement proceedings. No longer president, Caruso continues to be an active commenter on FINRA and SEC rule proposals.

  2. James Cannon, (former) president and CEO, AIG Financial Advisors

    Last year's challenge: Build out the Advisor Select program, a multi-affiliation platform where reps can associate as either employees or independent contractors.

    How he's doing: It's catching on. Advisor Select saw a 30-percent increase in the number of reps joining the program. But Cannon left AIG in June for personal reasons. He was replaced by Jeff Auld, formerly of Next Financial.

  3. Barney Frank, (D-Mass) chairman, House Financial Services Committee

    Last year's challenge: Strike a balance between regulation and free markets.

    How he's doing: Frank backed the Fed's bailout of Bear Stearns and its decision to offer loans to Fannie Mae and Freddie Mac. Frank and Fed Chairman Bernanke (who speak regularly) have together toughened mortgage and credit-card lending rules and regulations.

  4. Charles Goldman, head of Schwab Institutional

    Last year's challenge: In 2007, Charles Goldman replaced much-loved Deborah McWhinney as the head of asset-gathering machine Schwab Institutional and its more than 5,000 RIA advisors.

    How he's doing: So far, he's doing great. He's “very effective” at his job, says one advisor. Plus, he has delivered on things that Schwab has been promising for years, like trust reporting for Schwab Bank. Meanwhile, assets continue to roll in at a furious pace: The Institutional division gathered $14.5 billion in net new client assets in the second quarter, up 20 percent versus 2007.

  5. Jim Hays, president of Wachovia's Private Client Group

    Last year's challenge: Paving the way for the successful integration of A.G. Edwards and Wachovia and convincing A.G. Edwards reps that he's not just a (former Merrill) suit.

    How he's doing: Some advisors say that they have been frustrated with the transition to Wachovia's workstation, but others are thrilled with the additional resources they can now access. Still, full integration has been pushed back to February of next year from the fourth quarter; so the verdict is still out.

  6. Harry Kat, Prof. of Risk Management, Cass Business School, City of London

    Last year's challenge: To replicate the return distribution of successful hedge funds using futures — but without the illiquidity, volatility and high fees.

    How he's doing: Kat's FundCreator computer program is working. Two funds, about $2.2 billion, using his risk-management have returned 8.1 percent year-to-date through June. Meanwhile, the HFRI Fund of Funds Index lost 1 percent in that time. The funds are new, but Kat says, “Sample volatilities and correlations were on or even below target.”

  7. Ron Kruszewski, chairman, CEO of Stifel Financial Corporation

    Last year's challenge: Continue astronomic growth without losing the spirit of Stifel's independence.

    How he's doing: Still independent, still growing strong despite the market. And no write-downs or losses: The firm had a record year in 2007 with revenues of $763 million, up 69 percent from 2006.

  8. Tom Marsico, CEO and founder, Marsico Capital Management

    Last year's challenge: Continue the growth and success of his asset management firm, Marsico Capital Management, after buying it back from Bank of America.

    How he's doing: The market has hit Marsico like everyone else: Assets in MCM are down to $93 billion from $96 billion last year. Year to date, Marsico Focus, the firm's flagship fund, is down 15.6 percent. But long-term Marsico is still a favorite: “We still think Tom Marsico is one of the best growth investors out there,” says Karen Dolan, a Morningstar analyst.

  9. Kris Robbins, chairman and CEO, Security Benefit

    Last year's challenge: After insurance company Security Benefit acquired cutting-edge investment shop Rydex Investments, skeptics wondered if it was a good match.

    How he's doing: The acquisition may have weakened Security Benefit's capital position. It remains to be seen whether Robbins can keep Security Benefit's performance buoyant given the company's exposure to sub-prime mortgages.

  10. Barbara Roper, director of Investor Protection, Consumer Federation of America

    Last year's challenge: Alongside the Financial Planning Assoc., sued to vacate the broker/dealer exemption.

    How she's doing: Victory! CFA and the FPA won, and fee-based advisory brokerage accounts were not allowed. Roper's continuing goal is to reform how mutual funds are sold and simplify 401(k) fee disclosure. She served on an SEC panel on revamping 12b-1 fees. The SEC has yet to rule on it. She also wants the SEC to review the arbitration system, which she said is a kind of hell for retail investors.