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.”