November's news that Bob Mulholland was leaving Merrill Lynch wasn't entirely a surprise. He had been co-head of the 14,000-strong retail brokerage unit, but Merrill insiders figured all along that only one boss would prevail. The news is nonetheless dispiriting to many Merrill reps because Mulholland, a former broker, is part of a dying breed — an executive with hands-on knowledge of life in their trenches. “A number of people have voiced that disappointment. It's psychological, but it is important,” says Danny Sarch of Leitner Sarch Consultants in White Plains, N.Y. “Merrill had a culture for many years where it was run by brokers.”
In top management, the move away from bosses like Sandy Weill, David Komansky and Joseph Grano — ex-brokers, all — has been under way for some time. Former investment bankers, such as Merrill's Stan O'Neal and Morgan Stanley's Phil Purcell, or corporate counsels, like Chuck Prince of Citigroup, now occupy the executive suite. Just two of the wirehouses are headed by ex-advisors: Mark Sutton of UBS and Danny Ludeman of Wachovia.
On one level, the development is expected. As the brokerage industry emphasizes a consultative, service-oriented approach, a more strategic management style is appropriate. Reps are aware that given the complexity of the top companies, the up-from-the-bullpen CEO is passé. “The No. 1 guy doesn't always have to be a salesman,” says one Merrill rep. “I'm not sure that it's important.”
Now, however, even the heads of the brokerage operations haven't been advisors. Merrill's James Gorman hails from banking and consulting. Sallie Krawcheck, who led Smith Barney until recently, was a securities analyst. Her replacement, Todd Thomson, is a former banker. John Schaefer, a former investment banker, heads Morgan Stanley's brokerage unit.
“There's good and bad to it, but people are going to have to get used to it,” says Dennis Gallant, head of research at Boston-based Cerulli Associates.
Reps still see experience in the trenches as an important requirement. In an interview with Registered Rep. last year, Ludeman talked about the dangers of running a brokerage without understanding the life of a rep. “We have to challenge ourselves always to remember what it's like to walk into a branch office,” he said. “If you're out of synch with these constituents, you end up in a spiral downwards.”
Reps say that is precisely what is happening. They believe management short-changes reps when it comes to investing in support resources, saying those without field experience are the quickest to cut sales-support costs. Two of the lowest marks in this year's Broker Report Cards (see story, page 34) were for Sales Support and Quantity of Sales Assistants — and those scores have fallen consistently in the past few years. “You can cut back on overhead in New York — that's not producing revenue,” the Merrill rep says. Sales assistants may look like pure cost, he adds, “but out in the field, sales assistants produce revenue.”
Some also complain that many of the initiatives that look good in the corporate suite — moving clients toward fee-based services, for example — are difficult to implement at ground level. A Morgan rep recalls how one initiative — to get reps to create a financial plan for all clients — met stiff resistance because management didn't understand the time commitment. “Not one person involved with the basic concept had been a broker,” he recalls. Instead of selling reps on the program, branch managers were forced to explain why it wasn't a bad idea. “It came out negative, even though a majority of the program is good,” he says.
Would reps be more flexible about orders from on high if a former advisor issued them, though? Perhaps not. Often, brokers react to change the way babies react to grapefruit juice — harshly. Still, what reps say they are worried about is a trickle-down effect — a nonbroker executive hires a sales director without brokerage experience, and so on down the line. So far, Sarch says that's not happening. Most firms have a former broker as a second-in-command, including UBS (Jamie Price), Smith Barney (Tom Matthews) and Wachovia (Jim Donley). That's emotionally comforting. “If you know what it's like to get on the phone to talk to a stranger to open an account, it's easier to lead a group of producers to do it,” says one former brokerage exec, now working for a fund company.
That doesn't mean having a former rep on top makes for a more effective brokerage operation. Wachovia is living that: Despite the presence of Ludeman and Donley, technology snafus related to the merger with Prudential Securities have severely undercut management's credibility at the firm, according to Wachovia reps. The leaders still have the respect of the rank-and-file, but if the problems aren't solved soon, all the tribal feelings in the world will not stop reps from racing to the exits.
