Charles Schwab, The Charles Schwab Corp.

E. Stanley O'Neal, Merrill Lynch

A. Peter Cieszko Jr., Citigroup Asset Management

Eliot Spitzer, New York State Attorney General

Harvey Pitt, Securities and Exchange Commission

William Nutt, Affiliated Managers

Abigail Johnson, Fidelity Management & Research

Sanford Weill, Citigroup

Bruno Cohen, CNBC

Don Phillips, Morningstar

Where will it all end? In the third year of a bear market, more than $7 trillion in market capitalization has been wiped out. The corporate CEOs and investment bankers who a few years ago were revered as the midwives of a New Economy are now cotton-mouthed and sweaty under the grilling of congressional hearings. And the brokers and investment advisors who were getting rich along with their clients are bearing the brunt of the public's anxiety, as they watch their books and commission checks shrink. “We're the shock absorbers of the industry,” one A.G. Edwards broker told Registered Rep. recently.

Someday, this will all be a dim, painful memory. No matter how fearful you are about the length and depth of the market retreat and how leery you are about the prospects for a quick rebound in investor confidence, there will be an end to this bear market. So, Registered Rep. is taking this opportunity to look ahead and to focus on 10 key players who are shaping the future of the investment industry.

The group includes industry leaders as well as the government officials who are prosecuting the fraudsters and creating new policies meant to prevent future abuses. (Let's hope they don't go too far, though.) Take Eliot Spitzer, for example. Last year, it would have been hard to imagine including New York's attorney general on a list of the investment industry movers and shakers, but as he brought Merrill Lynch to account, Spitzer uncovered a whole raft of conflict-of-interest issues. Although he settled with Merrill, remember that Spitzer's investigation of other firms continues.

Some might be surprised at Harvey Pitt's inclusion. After all, he's been accused of being conflicted himself, having worked for the accounting firms that have been implicated in the corporate accounting scandals before coming to the SEC. He has also been seen as trailing both Spitzer and Congress in pursuing the bad guys in the boardrooms and on Wall Street. But, as the head of the SEC, it is Pitt (assuming he survives calls for his resignation) who helps craft and carry out the policies that will change the way the industry works.

Others are not exactly household names, but they mean something to brokers. One is Bill Nutt, CEO of Affiliated Managers, an important innovator in the money management business. Another is A. Peter Cieszko, Jr., head of U.S. retail & high net worth for Citigroup Asset Management, where the multidisciplinary account concept is flourishing.

Then there's Bruno Cohen, a player most brokers have never heard of, but whose work affects them every trading day. Cohen is executive vice president of business news for CNBC. He was the driving force behind CNBC programming in the boom — when the cable channel became the daily sports show of America's favorite pastime: watching the stock market soar. Now, the game has changed and CNBC is focusing on reform, disclosure and a more prudent approach to investing.

Finally, there's Charles Schwab. To many retail brokers, Schwab may seem an odd choice. He pioneered the discount brokerage concept and taught Americans that they didn't really need to have a registered rep to help them pick a stock or fund. Now, Schwab is on a new crusade — again tilting at Wall Street's wirehouses. This time, he has identified the Street's research scandals as his strategic opportunity. He's trying to recruit brokerage clients with one simple message: You can trust our research. Will it work? We'll see. Either way, Schwab is once again a force for change in the industry.

THE VISIONARY

Charles Schwab

Age: 65 / Position: The Charles Schwab Corp. Co-CEO and Chairman / Location: San Francisco / College: Stanford, B.A. and M.B.A.

Although he might be regarded by many brokers as enemy No. 1, Charles Schwab is definitely a figure to pay attention to. He has an uncanny knack for capitalizing on brokerage trends. In 1974, when the SEC deregulated commissions on a trial basis, most firms took the opportunity to raise commissions for stock trades. Not Schwab. He registered his company as a discount broker and lowered commissions.

In 1984, he launched his legendary mutual fund supermarket, which has since been replicated industrywide. Then, in 1996, Schwab got a jump on his competitors by building an Internet trading system, snaring 2 million online customers within two years. And in 2000, Schwab, along with his co-CEO David Pottruck, sent chills down the spines of independent advisors and brokerage rivals alike when the firm bought U.S. Trust, the 149-year-old advisory firm catering to millionaires.

Once again, San Francisco-based Schwab has reinvented his business in ways that make his competitors nervous. Charles Schwab & Co., in effect, has become a full-service brokerage, offering financial advice to clients through the Schwab Advisor Network, a referral program that will soon have about 500 independent advisors available for clients who want an advisor, and the new Schwab Private Client program, a new fee-only account in which clients get investment advice from a Schwab broker.

“We are very optimistic about our ability to grow in this sort of new post-Enron environment with our Schwab Private Client offering,” Schwab says. “It's the first time in 25 years I've ever offered our clients a one-on-one relationship with a broker and it's based upon a fee relationship, not a brokerage relationship. We finally figured out how we could do this appropriately.”

And this summer, pouncing when he saw a new weakness at the wirehouses, Schwab is out front again with a new stock rating system that he promotes as the antidote to the conflict-of-interest-laden research of the big investment banks. The Schwab system is intended to remove subjective aspects that made banking-related research so slippery — those descriptive passages used by Internet analysts to persuade investors to put money into pre-profit enterprises. Instead, Schwab simply ranks stocks based on corporate performance.

Although Schwab has often positioned his company as the alternative to traditional Wall Street, it is a major player on the Street. And it is suffering along with everybody else from the end of the bull market. In 1999, citing the promise of the Internet and online trading, investors bid up Schwab shares to a high of about $50. Its market cap for a time exceeded that of Merrill Lynch. However, when the bubble burst and self-directed investors started logging off, Schwab's market value sunk and the firm was forced to cut 25 percent of its workforce — its worst cut since 1987. Its shares now trade at around $10.

In the past year, the firm has regrouped, de-emphasizing the online business and repositioning itself as a full-service provider of investment strategies, advice and stock rankings. There is the risk that its new private client group could be perceived as competition to the 5,000 RIAs who use Schwab for custody and clearing operations. “I am afraid they will call my clients and say, ‘We custody your assets, why not cut out the middleman, and come with us entirely?’” complains one RIA who uses Schwab. Schwab denies that's his intention: “The independent advisor [field] is growing at a very fast rate, and I think this is one of the issues traditional Wall Street firms need to be cognizant of because people love those independent relationships.”

What Schwab definitely has in his sights are the wirehouses on Wall Street. While he was never a broker, Schwab started out as an investment analyst at a small firm near Stanford University, where he went to business school. He says that's when he first witnessed the “storytellers,” brokers who would spin tales to get someone to buy their stock. “Wall Street has always been built upon a shaky foundation of conflicts,” Schwab says. And that goes for brokers, too: “They are caught in a terrible conflict put forth by senior management. If they want a job there, they have to move some of their product on occasion. It's the nature, it's the compensation, it's some fundamental structural things at the top of the organization that are flawed.”

He says reform needs to come from within the industry, through brokerages and brokers. “The industry needs to clean up its act once and for all,” he says. “If you hold yourself up to be a fiduciary on behalf of clients, rendering advice, you need to act like that.”

THE INNOVATOR

A. Peter Cieszko Jr.

Age: 42 / Position: Citigroup Asset Management Managing Director / Location: Stamford, Conn. / College: Villanova

If you believe that the multidisciplinary account — a collection of managed accounts that embody multiple styles — is the next big thing, then A. Peter Cieszko Jr. is clearly among the top to watch in the brokerage business. He didn't invent the multiple-discipline account, but since Cieszko's arrival at Citigroup Asset Management in 2000, MDA assets have rocketed. In 2001, Citigroup took in about $15 billion in net new money in its separate account platform — about $7 billion of which went into MDAs. “Cieszko and Citigroup are way out in front,” says Kevin Keefe of Financial Research Corp. “No one is even in their neighborhood.”

The MDA, created by Citigroup in 1997, is a simple concept: To diversify, you put different separate account managers under one portfolio and then have an über-manager make sure they act in sync. (So, you don't have a value manager buying a stock that the growth manager just sold.) But it's a headache technology-wise, which is why only a few of the wirehouses have introduced the product, although many more are close to rolling it out. Separately managed accounts are expected to grow 15 percent to 20 percent annually over the next few years, Keefe says, and MDAs, which last year tripled in asset size to roughly $16 billion, should grow 20 percent or faster.

“Cieszko recognized the potential of this product, which was sitting on the shelf, and he realized the time was precisely right, and he brought in the right people, built a staff and launched it — while everyone else was still trying to figure out how to do separate accounts,” says Keefe.

Cieszko, now head of U.S. retail and high-net-worth asset management, began his career at Merrill Lynch in 1983. But he had a yen for a more consultative approach to his job, and so he soon moved to E.F. Hutton, which invented the managed account, and was eventually absorbed into Smith Barney and Citigroup.

THE MANAGER

William Nutt

Age: 57 / Position: Affiliated Managers Group Chairman and CEO / Location: Boston / College: Grove City College, University of Pennsylvania Law

Be wise, diversify. How many times have you told that to your clients? Well, maybe they didn't listen. But certainly William Nutt of Affiliated Managers gets it. His version of diversification is a bit bolder, however. It involves building a financial product factory that has just about any investment style that an advisor could want. And, if his hunch is right about the value of one-stop shopping, and brokers are allowed to choose freely under an open architecture regime, AMG may become an even bigger factor in the industry.

The company, established in 1993, already has $81 billion in assets in 160 different investment vehicles for institutions and individuals. They represent a broad range of investment styles and asset classes.

Instead of following the early 1990s trend of growth through outright acquisition, Nutt created alliances with money management firms. AMG makes majority investments of 50 percent to 75 percent in midsized firms and the remaining stakes are divided up among current management and the next generation. The result is a system that provides succession solutions for founders/owners and gives newer management a greater stake in the firm.

“He's changing the rules,” says one money manager. “In the past, big financial institutions would buy smaller managers lock, stock and barrel, and thank you very much. Nutt cuts a deal, so that he leaves the current managers with a significant stake to grow the firm and make money.”

Among AMG's 17 manager affiliates are Friess Associates, which manages the Brandywine Fund, Rorer Asset Management, Skyline Asset Management and Tweedy, Browne. In May, AMG took a majority equity interest in Third Avenue Management, adding $5.6 billion in assets under management. Last year, it bought a stake in DFD Select Group, a Paris-based alternative products marketer, which allows affiliates to broaden distribution into Europe.

THE HEIR

E. Stanley O'Neal

Age: 50 / Position: Merrill Lynch President and Chief Operating Officer / Location: New York / College: GM Institute, Harvard

Talk about trial by fire. Stan O'Neal stands poised to take over as CEO of the largest retail brokerage firm on Wall Street at a time of unprecedented investor cynicism and broker frustration.

But he isn't scared. The conflict-of-interest scandal that resulted in a $100 million fine for Merrill Lynch and forced the company to put new restrictions on how its analysts work with the investment bank was only one of the enormous tests for the CEO-in-waiting. He also relocated about 8,000 employees after the September 11 attack destroyed some of Merrill's Wall Street offices — without missing a beat. And he has had to cope with the effects of the bear market, slashing thousands of workers since last summer. Now there's the insider trading investigation of a Merrill rep and his famous client Martha Stewart.

O'Neal must be doing something right, however. Merrill posted a 17 percent increase in second-quarter profits from the year-earlier period, even after paying the fine. Of course, one quarter does not a trend make. And Merrill still faces a federal investigation and 80 or more pending class action lawsuits. The magnitude of Merrill's civil liability cannot be accurately estimated.

O'Neal, who joined Merrill in 1986 and was named president in July 2001, will take the reins as CEO in December from David Komansky. Komansky, a former broker, may be a hard act to follow.

The grandson of a slave, O'Neal was the first in his family to earn a college degree. He studied engineering and industrial administration at General Motors Institute before getting his Harvard M.B.A. on a GM scholarship. He then went on to work at GM until he moved over to Merrill.

“He's a tremendous leader, in a very soft-spoken way — that's somewhat disarming,” says Marsha Jones, director of Merrill's flagship New York private client office. “Beneath that demeanor, he is very focused on what we are trying to accomplish.”

THE STARMAKER

Don Phillips

Age: 40 / Position: Morningstar Managing Director / Location: Chicago / College: University of Texas, University of Chicago

You wouldn't dream of buying a car without doing homework, perhaps reading Motor Trend. Similarly, you wouldn't suggest a fund to a client without glancing at a report by Morningstar. As managing director of Morningstar, Don Phillips truly has his hands on the stars.

Phillips was the Chicago firm's first mutual fund analyst when he joined in 1986. Then, retail investors had few tools for analyzing funds. Phillips and others developed a convenient format, squeezing scads of data onto a single page. Lately, he's been leading Morningstar's expansion. The research firm has introduced its own mutual fund wrap program for advisors. A database on managed accounts is forthcoming.

Another project involved the company's widely accepted star ratings. Early on, Morningstar conceded that the system didn't necessarily predict future performance. Investors didn't care. A study showed that when funds were elevated to five stars, new assets increased more than 50 percent.

So, in July, Morningstar revised the star system — a move that made some fund managers nervous. But so far, the change has won applause. “They have refined the system so that investors can better compare funds,” says Steven Norwitz, vice president of T. Rowe Price.

Under the old system, funds were lumped into four broad classes (U.S. stock, international stock, taxable bonds and muni bonds). Therefore, small-cap growth was measured against large-cap value. For a more precise comparison, the new system divided funds into 48 categories. Now junk bond funds will only be compared to each other, not to portfolios specializing in Treasuries.

When star ratings were introduced in the 1980s, investors typically owned one or two funds. Now, “investors are searching for multiple funds that play specialized roles in their overall portfolio,” says Phillips.

THE PRODUCER

Bruno Cohen

Age: 51 / Position: CNBC Business News Executive Vice President / Location: Fort Lee, N.J. / College: Princeton

Sept. 17, 2001. Trading was about to resume for the first time after the terrorist attacks, and Bruno Cohen was scared. With communications outages across the city, no one was sure transmission and electronic trading would go smoothly after the opening bell. Cohen, the gatekeeper of CNBC programming, and 1.3 million Squawk Box viewers would soon find out.

All went well, and Cohen, who calls his audience “the most affluent, most influential TV audience that's ever been put together,” was back at work deciding who would be talking on the most-watched financial network.

During his five years in programming at CNBC, ratings have increased 233 percent. Even though the bear market has taken the fun out of watching the play-by-play commentary that made CNBC a fixture in brokerage offices during the boom, the network remains the place for money managers, corporate execs and financial advisors to see and be seen. “He has a unique ability of being able to grasp and translate what can be dry — and sometimes difficult-to-understand information — and turn it into watchable and even sexy television,” says CNBC anchor Maria Bartiromo. “He, as much as anyone at CNBC, is responsible for leveling the playing field for the individual investor.”

Back in 1977 when Cohen talked his way into his first job at a Eugene, Ore., TV station, he couldn't have imagined he'd end up in such an influential position. His first job included drawing weather maps on plexiglass. During the next 20 years, however, he won a Peabody award for early coverage of the AIDS epidemic, developed first-time syndication programs for Disney's Buena Vista Productions and led WNBC-TV to become the No. 1 station in New York.

Now, Cohen is pressing to break more stories and to make the workings of corporations more transparent to the investors in his worldwide audience. His proudest recent moment? “When David Faber broke the WorldCom story.”

Cohen isn't all work. In his spare time, he plays guitar in a rock 'n' roll band aptly titled The Derivatives.

THE SCION

Abigail Johnson

Age: 41 / Position: Fidelity Management & Research President / Location: Boston / College: Hobart and William Smith, Harvard

Who's the most powerful woman in financial services? It would have to be Abigail Johnson, president of Fidelity Management & Research. She is in charge of Fidelity's 280 mutual funds, with total assets under management of about $860 billion. That puts her on the third row from the top of the Fido org chart, behind her father, Chairman Ned Johnson III, and COO Robert L. Reynolds, to whom she reports. Now that her father is 72, the rumor mill has her as the odds-on favorite to succeed him, which would put her atop of Fidelity's brokerage arm and corporate benefits outsourcing business, too.

Fidelity, founded by her grandfather, is no longer just a retail fund manager. It is a financial services giant, offering brokerage accounts, employee benefits and financial planning through its private wealth management group (with about 200 reps for accounts of $3 million and up), and a referral service to independent RIAs for the little guy.

Johnson, who apprenticed at Fidelity for 14 years, has a stake in the privately held company estimated to be worth $10 billion. Before she makes it to the top job, she has plenty on her plate in the mutual fund unit. Fidelity is still the largest mutual fund manager, but its market share is slipping (now down to 15 percent of U.S. equity funds from 19 percent seven years ago). And Vanguard is inching closer. The bear market has lopped off tens of billions of dollars of value and the company has lost some of its best-known managers.

As president for the past year, Johnson has had a salubrious effect. Johnson is trying to restore the stock-picking culture that made Fidelity's reputation — so that managers have more latitude in building their portfolios. She has been instituting better bonus packages in an attempt to prevent further defections. She is also rounding out the product line with more bond, value and international funds.

THE ENFORCER

Eliot Spitzer

Age: 42 / Position: New York State Attorney General / Location: New York City/Albany / College: Princeton, Harvard Law

New York State Attorney General Eliot Spitzer is the latest of a storied line of edgy Empire State prosecutors (including former Mayor Rudy Giuliani) who have brought the hammer down on nefarious white-collar shenanigans. Spitzer exposed the “embarrassing fiction,” as one analyst put it, that a Chinese Wall separated investment banking and research.

By releasing e-mails showing that Merrill Lynch's analysts were so conflicted that they were even mocking the stocks they were pushing on behalf of their banks, Spitzer forced the firm to deal with him. And, in so doing, he forced the Street to face up to an industrywide problem.

“Had it not been for Spitzer, there may not have been as much momentum on the analyst issue as there is now,” says New York attorney Jacob Zamansky, who won a settlement against former Merrill analyst Henry Blodget last year.

The attorney general has been criticized, however, for stopping short of getting an apology from Merrill, which makes it harder for investor lawsuits to be successful. In addition, the $100 million fine he elicited from the nation's largest wirehouse is, relatively speaking, coffee and doughnuts. And the Chinese Wall hasn't yet been rebuilt as a result of his efforts.

But Spitzer's fans say that, partly because of his efforts, research will truly separate from investment banking over time — Spitzer couldn't make it happen through one action.

“That's the sure way to tell when you've done a great job — when you've made people on the extremes on both sides angry,” says North Carolina Treasurer Richard Moore. “Getting that first person to cooperate is the toughest … look at the spotlight on this before the A.G. started his efforts. Everybody knew about the problem, but it wasn't under the spotlight.”

THE JUDGE

Harvey Pitt

Age: 57 / Position: SEC Chairman / Location: Washington / College: St. Johns, Brooklyn Law

If Harvey Pitt's patron, George W. Bush, does not cave to pressure to replace him as SEC chairman — an unlikely development, according to administration leakers — this is the person who may have the most to say about what the business looks like in the coming decades. Whatever reforms Congress enacts to prevent more book-cooking and executive self-dealing, it will be the SEC that carries them out.

Early on, Pitt became a lightning rod for critics. After all, he had made his living advising top accounting firms, including Arthur Andersen, and had to sit back as the Enron debacle unfolded. He resisted accounting reforms and was slow to act on the analyst conflict-of-interest scandal.

In July, Pitt declared that after a year in office he no longer has to recuse himself from issues involving his one-time clients. And the agency responded aggressively when WorldCom disclosed that it had artificially boosted its net by $3.8 billion. Pitt served notice that he planned to prosecute the firm for fraud, and that he was going after the millions Bernard Ebbers and his gang earned on stock gains based on bogus earnings.

While Congress is one-upping Pitt on reform proposals, the SEC has trotted out some practical remedies for corporate fraud. His biggest step: requiring CEOs and CFOs to certify that their firms' statements are accurate.

Pitt's advocates say there are not many with a sharper mind than the current SEC chair, who served as the commission's general counsel from 1975 to 1978, having first started as a staff attorney in the office in 1968.

“He was a holdover from the Ford Administration, and he was so sharp — just such a standout,” says Chris Davis, executive director of the Money Management Institute. “There was no one I was more impressed with.”

THE LEGEND

Sanford Weill

Age: 68 / Position: Citigroup Chairman and CEO / Location: New York / College: Cornell

For years there was an annual tug-of-war in Washington over the Depression-era Glass-Steagall Act, which kept banks out of the underwriting and brokerage business. Every year the banks would push, and every year the securities industry would block. Glass-Steagall finally fell after Sandy Weill's brazen deal merging Citicorp and Travelers Group in 1997 made the law moot.

Aggressive? Bold? Yup, that's Sandy Weill — the guy who started life as a broker and is now chairman and CEO of the largest financial services company in the world. Every step of the way — from Shearson, to American Express, to Primerica, to Travelers, to Salomon and then to the mega-merger that produced Citigroup, there were always doubters and detractors. But Weill has a tendency to come out on top. The secret to his success? He makes money, and so do his shareholders.

“He's created great value for his customers, shareholders and employees throughout his career,” says Marc Lackritz, president of the SIA, of which Citigroup is a member.

He's not without his problems. His brokerage arm, Salomon Smith Barney, is front and center in the analyst scandals and congressional hearings about IPO allocations. And Weill isn't escaping Eliot Spitzer's eye — the attorney general is investigating these matters as well (at press time, there were rumors of a Merrill-like settlement). Weill, at least, is confronting these issues head on. He addressed the research conflicts in a July 12 memo, suggesting that analysts avoid roadshows for new deals — a step further than Merrill has gone. His fans probably hope Citigroup's part of the research issue disappears as quietly as it has with Merrill.

But that may be wishful thinking. It's not just that Smith Barney analysts had conflicts of interests because of their banking relationships; it was who they had the banking relationships with — most notably, the telecom industry, including WorldCom. And, of course, there are those loans that Citi made to Enron. Only a bank with a broker could have that magic combination.