When the scandal craze that has gripped the securities industry first got its kick in the pants two years ago from Eliot Spitzer and his crew, few in the industry recognized how deep it might go. Sure, some nefarious conflicts of interest would be exposed, and some heads would roll. But then we'd go back to business as usual, since the rot would surely be limited to a few bad actors.
Wrong. And anyone who thinks anything similar now — that the biggest problems have already been outed and corrected — could be in for a comparably rude awakening. As this year's Ten to Watch illustrates, change isn't just something of the past: It's only beginning. The 2004 list, now in its third year, is dominated by “reformers,” and they're examining — with intent to overhaul — the very foundation the industry is based on. (In fact, just two of the 10 are not in some way related to the regulatory bodies or the fund-industry turnaround. And some of our fund-industry sources blanch at our choices, saying, “This just shows that we're in a bull market for regulatory activity.”)
The industry has already paid out more than $2.4 billion in fines to investors and regulators without admitting wrongdoing. Yet, “We're just getting started,” is how one senior executive for a large mutual fund company puts it. “We're only a quarter of the way through.” Regulators started on the cozy and, in some cases, illegal, trading relationships between funds and some large clients; now they are zeroing in on the sales relationships between fund companies and brokerages and on how funds are presented and explained to clients. So, no, we're not just talking about investigations into how shares in IPOs were allocated (although that's one big issue), but in other areas as well, from directed brokerage (which is all but dead) to B-shares sales. One sign of the traction that regulators continue to get is this rumor going around Boston, the home of several large fund companies: Regulators are renting office space in such quantities that they are now said to represent one of the city's larger single group of tenants.
You may have felt the heat yourself. One executive at a regional brokerage jokes, “We've got two compliance officers for every broker, it seems.” Another telling sign that regulatory change is gathering steam: Recruiters say pay and signing bonuses for compliance officers have increased “significantly” over the last year.
“We're preparing for the worst over here,” says another brokerage executive. “Everyday, it seems like something new or different comes up. Everything is up in the air, and we don't see it coming to an end anytime soon. Everyone just needs to get used to it, because compliance is going to be the No. 1 issue for a long time.”
So who do we here at Rep. think will be wielding the most influence over the next 12 months or so? For starters, those who have direct input on regulatory issues, the ones who are driving reform (the SEC's Paul Roye, the NASD's Mary Schapiro, securities legal expert Mercer Bullard and the NYSE's John Thain, for example). Also, watch those called in by fund companies or securities companies to stop the rot and turn the boat around (Morgan Stanley's Eric Dinallo, Putnam's Charles Haldeman and MFS' Bob Pozen). Take Roye, director of investment management for the SEC. No, he isn't chairman (we picked Donaldson last year; see page 38), but Roye has become the public face — and pit bull — of the agency. (To the ICI's annual convention, Roye blasted fund companies, accusing them of “resisting, whining and complaining” about reforms to expunge blatant conflicts of interests.)
If you aren't familiar with name the Mary Schapiro, you probably will hear her name over the coming year. Schapiro, president of NASD regulation, is leading the investigations into the sales practices of 529 plans, which may be the next financial product to grab headlines.
Then there is new NYSE Chairman John Thain, a man who has a tough job. Not only must he wipe away the public stain of former leader Dick Grasso's reign (Grasso was one of our Ten to Watch last year), but Thain has to protect the NYSE's antiquated auction-style franchise from likes of tech-heavy rivals, such as Nasdaq and Archipelago, and proposed SEC rules which might benefit smaller exchanges.
Fittingly enough, one of Spitzer's original staffers, Eric Dinallo, graces the Ten to Watch this year. Dinallo was once Spitzer's top deputy, the very person to encourage the attorney general's office to investigate investment banking conflicts, the tipping point that started this whole surge. But you won't find Dinallo in public service anymore; he's now the head of regulatory matters for Morgan Stanley. If anything shows how far the industry has come, and how much further it plans to go, it's a formerly anonymous public deputy taking one of the most important positions at one of Wall Street's most storied firms. A different world, indeed.
TEN TO WATCH 2004: THE PROFILES
THE HANDYMAN: DANNY LUDEMAN
Age: 47
Position: CEO, Wachovia Securities
Location: Richmond, Va.
College: Virginia Tech, College of William & Mary
It's put-up time or shut-up time for Danny Ludeman. As the head of Wachovia Securities — now the nation's third-largest broker/dealer, which was born out of the 2003 merger with Prudential Securities — Ludeman is, as one observer puts it, sitting on top of a “monster.”
First, Ludeman is still working out the payout grid for the combined firms, something that the reps have been agonizing over since the merger. Then there's the fact that, well, Wachovia is now a certified giant. Ludeman has overseen the hammering together of a variety of smaller regional firms, along with a couple of large ones (First Union and Prudential), to create an organization with more than 11,000 registered reps and advisors who work in several different channels. It accommodates advisors who have different styles, from independent types, to more typical wirehouse-type reps, to those who work in a bank-oriented practice.
That's nice, but just how, exactly, are Ludeman and his management team going to maintain the broker-friendly culture of a regional firm from which Wachovia sprang? Think of it from the perspective of, say, a former First Albany advisor. He's been gobbled up, and gobbled up again, by bigger and bigger firms, only to find himself, five years on, working for a giant firm. “He's thinking, ‘This is now officially the firm I left five years ago. It's a monster wirehouse,’” says one fund wholesaler who calls on Wachovia. Legacy First Albany and First Union advisors are more than a little nervous.
There are other hurdles. Ludeman must see to it that the tech systems of Wachovia and the former Prudential Securities become one. Then he must close and merge branch offices and, in some cases, assign branch managers where there are still none. All this while serving as the new president of the Securities Industry Association, with a one-year term that begins in January 2005. Working hard isn't any kind of secret for those who know Ludeman, however.
“He's the James Brown of the securities industry — the hardest working man in show business,” says one of the firm's larger producers.
Stephen Winks, a Richmond, Va.-based consultant who formerly worked for Wheat First Securities, sums it up well: “Danny's challenge is to fully deliver on the promise of a bank-affiliated major brokerage firm.”)
Ludeman's fans say he's shown the ability to innovate by embracing new concepts, such as the Envision platform, a statistics-heavy module that helps advisors focus their clients on reaching retirement goals, as well as a built-in technology-based compliance tool that allows managers to audit broker portfolios to make sure they're maintaining standards for client portfolios. He's known for hiring smart people and listening to them. And Ludeman does this without much fanfare, rarely giving interviews (he declined to be photographed for this story unless he was surrounded by FAs, for example). By most measures, Wachovia's team is doing well — the per-rep average of $74.1 million in assets is third in the industry.
— David A. Gaffen
THE GADFLY MERCER BULLARD
Age: 43
Position: Securities law professor, University of Mississippi and president of Fund Democracy
Location: Oxford, Miss.
College: Yale University, University of Virginia Law School
The mere mention of the name Mercer Bullard arouses dyspepsia among mutual fund executives. “I have a hard time with him,” says one. “He's an extremist and is taking these bizarre issues that are b----t, like independent board directors.”
Bullard, a former SEC assistant chief counsel and current head of a mutual fund shareholder lobby called Fund Democracy, is happy playing the gadfly. For instance, on mutual fund disclosure — a topic that should be front-page news in the coming months — he has this to say: “When you buy shares in IBM, you get a confirmation that tells you what you pay, but when you buy shares in Fidelity Magellan, you don't. There's a huge discrepancy.”
As he presses for reform in securities law in Congressional appearances and through his comment letters, Bullard is invariably polite — but never less than tenacious. Bullard, who is also a securities law professor at the University of Mississippi, launched Fund Democracy because he felt fund shareholders needed a resource for demystifying “esoteric” mutual fund issues. The organization has “virtually no budget and no expenses to speak of” and is run from his professor's office in Oxford. Somehow, though, Fund Democracy is a force. Several of his causes — including the push for improved disclosure of fund holdings, for the eradication of misleading fund names and for more accurate ETF market values — have resulted in new rules. Several other issues remain, and Bullard is game to fight them, in good time.
— David A. Geracioti
THE INDEPENDENT: MARK CASADY
Age: 43
Position: President and COO, LPL Financial Services
Location: Boston
College: Indiana University
With its increased focus on broker autonomy and on holistic financial planning, the brokerage industry is traveling down a strategic trail that its independent firms have already blazed.
And among independents, few are moving more aggressively than LPL Financial Services, whose president, Mark Casady, is leading the charge.
“I think the market has caught up to the idea of what we do,” Casady says.
He adds that the firm aims to grow 10 percent to 15 percent each year — a goal it has achieved in each of the two years Casady has been with the firm.
Behind the leadership of Casady and LPL Chairman Todd Robinson, the firm has been aggressively recruiting wirehouse and regional brokers (LPL brokers currently number 5,600) and this effort has in turn helped the firm bring in more revenue — $891 million in 2003, up from $780 million in 2002.
LPL's recent purchase of Phoenix Life Insurance continues its habit of adding platforms for its advisors through acquisition, and, save for some breakpoint violations it attributed to since-repaired technological glitches, the firm has steered clear of the scandals tarnishing many of its peers.
It's all part of a master plan to grow the firm, says Casady.
“We're gonna be as big as we can be, and then we're going to try to be bigger than that,” Casady says.
— Will Leitch
THE CLAIRVOYANT: ERIC DINALLO
Age: 40
Position: Head of Regulatory Matters, Morgan Stanley
Location: New York City
College: New York University
In early 2001, the head of the investor-protection bureau in the New York State Attorney General's office wrote a memo to his boss, Eliot Spitzer. The memo outlined the bureau's top priorities for the coming years, including “investigation of abuses by investment advisors” and “investigation of investment banking firm analysts.”
The author of that document was Eric Dinallo, and his suggestions were, shall we say, accepted. In the wake of the investigations that followed, Dinallo acquired some notoriety, at one point getting profiled in The New Yorker.
Now Dinallo is on the other side of the regulatory fence, having accepted a job as managing director in charge of regulatory matters at Morgan Stanley in August 2003.
Morgan praises Dinallo for his “reputation for professional excellence and personal integrity during a distinguished career of public service.” But insiders have no doubt what else the firm likes about him — his ability to anticipate brewing regulatory problems.
“[Spitzer's office] has been the thorn for everyone,” an executive at a regional brokerage says, “and people are trying every way to stay ahead of the game now. It just makes sense.”
— Will Leitch
THE CLEANER-UPPER: CHARLES HALDEMAN
Age: 55
Position: CEO, Putnam Investments
Location: Boston
Education: Dartmouth College, Harvard Business School
As far as cleanups go, Charles “Ed” Haldeman is in the midst of his very own Exxon Valdez.
Putnam, the nation's fifth-largest mutual fund, has lost 21 percent of its $270 billion asset base since the firm's market-timing arrangements were exposed in October 2003, and its formerly prestigious name has taken on all manner of negative associations in the minds of investors.
As such, restoring the firm's integrity, intensifying its internal governance and tossing the bad apples are tasks sitting high on Haldeman's “to do” list.
When he took the CEO job in November 2003, he immediately ordered a review of trading records dating back to 1998 for all of the firm's 12,700 employees. In the 10 months since he assumed the CEO seat, Putnam has shed no fewer than 10 managers linked to market-timing activities — several of whom at one time ranked among the company's best. The firm has paid $110 million in fines to the SEC and Massachusetts regulators, and it now looks as though it's ready to return to some sense of normalcy.
Russ Kinnel, director of fund analysis at Morningstar, applauds Putnam's progress but is keeping the firm in the “proceed with caution” bin.
“Trying to improve culture, compliance and performance, all at once, at a big firm, is a monumental job,” says Kinnel.
— John Churchill
THE ANTICIPATOR: ROBERT POZEN
Age: 58
Position: Chairman, MFS Investment Management
Location: Boston
Education: Yale University
At first blush, Robert Pozen appears the typical fund executive, complete with finger-pointing responses to government intervention in his firm's business.
At the 2004 Morningstar Conference, for instance, he asserted that the scandals enveloping the industry were “because a lot of people lost money in 2001-02.” In reality, Pozen, the new chairman of MFS Investment Management, is a reform-minded executive whose approach is atypically aggressive. To be sure, his firm's recent history gives him good cause to be tough. MFS was rocked by the late-trading scandal, absorbing a $225 million fine and having to can two top executives. Pozen has since imposed several reforms, including ending soft-dollar arrangements, levying a 2 percent fee on trades in and out of the funds within five days and pushing towards improvements in fee disclosure.
Pozen built his reputation at Fidelity, helping mutual fund assets grow from $500 million in 1997 to $900 million in 2001. Now, he's staked that good name on his ability to change MFS from within. “He seems focused on staying out in front of the SEC,” says Laura Pavlenko Lutton, mutual fund analyst at Morningstar.
Pozen also serving on an NASD-appointed fund task force studying soft-dollar arrangements, directed brokerage, 12b-1 fees and revenue sharing. Therefore, any significant changes in this area will certainly have his name — among others — on it.
— David A. Gaffen
THE BULLDOG: PAUL ROYE
Age: 50
Position: Director, SEC Division of Investment Management
Location: Washington
Education: Dartmouth
The mutual fund world was already in a state of uncertainty back in May, what with debates about soft dollars, 12b-1 fees and directed brokerages raging. Still there was a sense that the hullabaloo would all pass, that the SEC would mete out some fines to the worst offenders and then allow the industry to return to the scandal-free form it boasted for the past 80 years.
In one speech on May 20, the SEC's Paul Roye blew that notion right out of the water. At the annual convention for the Investment Company Institute, the fund industry's main lobbying group, Roye made it clear the investigations were just beginning, because malfeasance wasn't limited to just a few bad apples but was, in fact, rife in the fund industry.
If that weren't enough, Roye then blasted mutual fund companies, accusing them of “resisting, whining and complaining.” He minced no words: “Will the industry blow ‘hot air’ and get ‘back to business as usual’ without taking any real steps toward reform?”
Although Roye isn't the head of the SEC, he has become the agency's public face. “When he says something, everyone's ears perk up,” says an executive at one independent broker/dealer. “It's impossible not to take everything he says at face value, because he has come down real strong, and it has been backed up.”
— Will Leitch
THE REGULATOR: MARY SCHAPIRO
Age: 49
Position: President, NASD Regulation
Location: Washington
College: Franklin and Marshall College
The NASD once had the reputation, deserved or not, of looking the other way on malfeasance. With the hiring of Mary Schapiro that reputation becomes something for the history books.
As president of NASD regulation, Schapiro, a former commissioner for the SEC, has made her presence felt in a big way. In the last year, she has chided and sanctioned firms for their late-trading and market-timing practices, and she has assured member firms that “the progression of regulation is not likely to abate.”
Nor has Schapiro limited the NASD's reach to mutual fund abuses. In recent months, the NASD slapped three Wall Street banks with a $15 million fine for improper commissions on the sale of IPOs, targeted brokers for improper annuity sales, fined several firms for improper sales of municipal bonds and pushed to reform the sales practices that lead to abuses.
Perhaps most ominously, Schapiro and her minions have recently taken aim at 529 college savings plans, investigating 15 different firms for potential misuse. (Many feel 529 plans are the next frontier in regulatory intervention, and Schapiro has been at the forefront of the investigations.)
“There was a time that the NASD was seen as weaker than the SEC,” says one fund executive. “Not any more.”
— Will Leitch
THE LOBBYIST: PAUL SCHOTT STEVENS
Age: 51
Position: President, Investment Company Institute
Location: Washington
Education: Yale University, University of Virginia
The fund industry's problems are Paul Schott Stevens' problems, and at the moment that means he's a very busy man indeed.
In June, Stevens became president of the Investment Company Institute, the mutual funds industry's trade group, and he immediately faced his first setback when the SEC ruled that mutual funds must have independent chairmen.
In the wake of the mutual fund-trading scandals, Stevens now faces the task of rebuilding investors' trust in mutual funds — and of restoring the ICI's clout. It's a role for which he is well prepared. A veteran of the Reagan administration, he served as chief of staff for Colin Powell, who was then the White House National Security Advisor.
Stevens, who went on to be a Washington lawyer and general counsel of the ICI, says he understands the job handed him requires that he choose his battles carefully.
On the one hand, he has supported regulators' calls for abolishing some kinds of directed brokerage. “Funds should pick brokers based on the quality of their service, not on other considerations,” he says. Meanwhile, ICI has been battling to limit disclosure of the salaries of portfolio managers.
With several similar cases in the offing, Stevens is likely to remain very busy making choices in the coming months.
— David A. Gaffen
THE RE-ENGINEER: JOHN THAIN
Age: 49
Position: CEO, New York Stock Exchange
Location: New York City
Education: MIT, Harvard Business School
Everyone loves a winner, which is a good sign for new NYSE Chairman John Thain.
A newcomer to the position vacated by the embattled Richard Grasso, Thain is poised, amid swirling regulatory winds, to allow the NYSE to maintain a measure of control over stock trading that it looked sure to lose only a few months ago. Essentially, Thain managed to compromise with the SEC — allowing looser restrictions on electronic trading, while still preserving the specialist system that sits at the heart of the trading floor's existence. But this hardly settles things down. In the coming year, Thain will continue to grapple with the technological and regulatory threats to the NYSE's continued prosperity.
He's already managed some changes to the board structure. The new arrangement is a dual configuration, with 22 nonmanagement members of the board of executives. This coexists with a board comprised of a dozen directors not affiliated with the exchange. With regard to its trading platform, though, many industry sources believe the NYSE is running a losing race. Specifically, they view Thain — who forged his reputation running Goldman Sachs — as just another insider who wants to preserve an outdated system.
“We have these great cameo shots at the opening and the close every day, and thousands of people running around the room, but that's not modern technology, thank you very much,” says Junius Peake, professor of finance at the University of Northern Colorado, Greeley, Colo. “Until they get modern technology they may not make it.”
— David A. Gaffen
CRAPSHOOT!
A score sheet of potential regulatory changes in the fund industry.
By Will Leitch
Nearly every aspect of the fund industry is being examined by regulators, from the way funds are presented and sold to retail clients to how brokers and broker/dealers get paid. Already the SEC has adopted some of the proposed reforms, but other important issues — such as how advisors disclose and collect fees — have yet to be decided. Here's a guide to what's at stake and our own handicapping of the odds of SEC approval.
Up for debate: REVENUE SHARING
What it is: A “pay-to-play” compensation arrangement in which fund managers “share” some of their management fee with the brokerages in exchange for so-called “shelf space,” usually on a brokerage's preferred or strategic fund list. The money is NOT paid out of mutual fund assets but is paid by the fund manager out of its own revenue.
What regulators say: The SEC has not called for a complete ban of revenue sharing — yet. Firms like Morgan Stanley and Edward Jones have either been fined or are being investigated for their revenue-sharing arrangements, which regulators have claimed were not properly disclosed. That is the main issue, because now such arrangements are disclosed in broad wording in fund prospectuses under the section heading of “Additional compensation to shareholder servicing.” The SEC says revenue-sharing arrangements need to be disclosed “at the point of sale and in transaction confirmations.” But it has not ruled out future regulation on the matter.
What would happen if it was gone: Big bucks would evaporate. According to Financial Research Corp., the 50 largest fund families pay almost $1.5 billion to brokerages; in its 10-K, the under-investigation Edward Jones says it received $90 million in revenue sharing in 2003.
The odds it will be banned: 12-1. Barring a sudden shift in the zeitgeist, regulators seem satisfied with more detailed disclosure. Many feel a complete ban would be unnecessarily cumbersome and punitive.
Up for debate: SOFT DOLLARS
What they are: The industry euphemism is “bundling.” Along with trading of securities, b/ds “charge” fund companies for research they send to analysts and managers. The fee for the added research is not broken out, though.
What regulators say: The ICI has called for a complete ban on soft dollars, but that's not the way the SEC appears to be leaning, at least not in the short term. Various SEC commissioners have blasted some b/ds for spending soft-dollar money on “airplane tickets” and “office equipment.” It's considered a conflict of interest, since trading costs are borne by the shareholders, reducing funds' incentive to shop for best execution and lowest price.
What would happen if they were gone: Greenwich Associates, an independent research firm, estimates that $1.24 billion will be spent on soft dollars by institutional investors in 2004. That's actually down from 2003, when it was $1.52 billion. The largest fear is that smaller b/ds with research departments could be driven out of business if soft dollars were eliminated.
The odds it will be banned: 25-1. At the annual SIA Soft Dollars Conference, SEC officials said it was “unlikely” Congress or the SEC would take action on soft dollars this year. With pressure for regulatory intervention likely to be less fierce in 2005 than it is right now, and with smaller b/ds fighting for their lives to keep the practice legal, it appears regulation will work to curtail the practice, not to ban it.
Up for debate: DIRECTED BROKERAGE
What it is: Also known as “directed trades.” This involves fund managers rewarding brokerages (and, in some cases, individual brokers) for selling their funds by directing stock and bond trades through b/ds' trading desks.
What regulators think: They've been lining up against this one, from the SEC down to individual fund companies. The practice is basically dead. And no wonder: Since the commissions are paid out by the funds' shareholder assets, it's an obvious conflict of interest. The fund manager, so the anti argument goes, has no incentive to seek best price. Many big fund companies, most notoriously MFS, have already banished the practice.
What would happen if it was gone: One major fund family estimated it paid about $35 million in what it calls “strategic relationships.” As for the effect on the average advisor, well, anything that takes money away from the firm ultimately takes resources away from you. Some small b/ds — the ones with only 500 or so reps — could be very hurt by this, since they have business models built on collecting directed-brokerage fees and distributing 80 percent and higher payouts to their reps.
The odds it will be banned: Even money. New rules say directed-brokerage arrangements can only exist if approved by the fund's board of directors, and no board, in this age, would ever consent to that. Directed brokerage, for all intents and purposes, is already dead.
Up for debate: 12B-1 FEES
What they are: Fund 12b-1 fees hardly need an introduction, given their importance to financial advisors' compensation. The problem with 12b-1 fees is that they were invented when the fund industry was young and fund ownership small. In the early 1980s, fund companies were given the right to charge an annual fee from fund assets to pay for “distribution and marketing costs” for radio, television and print advertising. But, as reps now know, over the years, many fund families have used 12b-1 fees to reward brokers for selling their funds and for customer service — whether the fund is open to new investors or not.
What regulators think: The SEC imposed restrictions in February on 12b-1 fees — particularly no-load funds — and has demanded more transparency. But the biggest anti-12b-1 fee advocate has been Sen. Peter Fitzgerald (R-Ill.), chairman of the Governmental Affairs Subcommittee on Financial Management, the Budget and International Security, who has called for the abolition of 12b-1 fees, terming them “absolutely outrageous.” Others have joined the chorus, and the SEC even vetted a proposal for taking the fees from shareholder accounts — which could trigger a taxable event for the client — rather than taking them from fund assets, but has not yet called for their elimination.
What would happen if they were gone: Numbers are hard to nail down — most firms don't break out 12b-1 revenue — but an SEC official has estimated that the industry generated roughly $13 billion from 12b-1 fees in 2003.
The odds it will be banned: 8-1. Eliminating 12b-1? Not gonna happen, according to fund and brokerage executives. Thousands of advisors have screamed bloody murder to the SEC. (Just go to the SEC's Web site and check out the legion of comments on that subject.) SEC Chairman Bill Donaldson has backed off initially strong anti-12b-1 fee statements. Expect changes in the process — specifically the way the fees are deducted — but it's unlikely they will be banned all together, unless Fitzgerald somehow is able to move heaven and earth and push through his legislation.
WHERE THEY ARE NOW
A look back at last year's Ten To Watch
Robert Bagby, Chairman and CEO, A.G. Edwards
Last year, under Bagby's guidance, A.G. Edwards was about to introduce its first-ever nationwide marketing campaign. The firm reported a 66 percent increase in revenue for the first quarter, but reviews on the ad campaign have been mixed at best. Marketing costs have doubled, and the firm still ranks toward the bottom of customer-awareness surveys. And, yes, many observers still wonder if the firm is ready to be sold.
Jessica Bibliowicz, President and CEO, National Financial Partners
This time last year, National Financial Partners was in “quiet mode,” readying itself for an IPO. Its business plan — cobbling together a national distribution chain by acquiring dozens of small broker/dealers — has become a popular approach to the independent advisory business. NFP bought 10 firms in the last year, bringing its total to 138. Its stock has risen 26 percent to about $34 since its IPO.
John Montgomery, President, Bridgeway Funds
Last year, the Bridgeway Funds all ranked in the top quartile of their respective sectors, with an average gain of more than 50 percent, and the firm was busy on the disclosure front, publishing information on managers' compensation. This year, performance has dropped off considerably, though the four largest Bridgeway funds still rank in the top 1 percent of all funds over the past five years.
Charles Grassley, Senator (R-Iowa)
As chairman of the Senate Finance Committee, Grassley was expected to hold sway over H.R. 1000, Rep. John Boehner's (R-Ohio) Pension Security Act, which passed the House in May 2003. The bill, which would provide 401(k) plan participants access to professional investment advice, is stuck in the Health, Education, Labor and Pensions Committee, and insiders say it will likely sit there until the next session of Congress.
William Atwell, Executive Vice President, Client Sales & Service and Schwab Bank
Atwell is still at the helm of the retail side, but the firm's seesawing focus between its retail and institutional units has left observers confused about Schwab's mission. With the recent ousting of Schwab CEO David Pottruck, things might get more confusing before they get clearer.
Michael Rice, Former President, Wachovia Securities Private Client Group
Rice, the formerly high-profile Wachovia Securities executive, has all but disappeared professionally (at least for now). He was a principal architect of Wachovia's 2003 deal for Prudential Securities; this earned the then 37-year-old the second-in-command post at Wachovia, the nation's third-largest brokerage. By October 2003, Rice had departed Wachovia and returned to Prudential Financial. Whatever the reason (some say he was pushed; Rice cites “personal” reasons), things didn't get better on his return to Pru. In November 2003, the state of Massachusetts filed a complaint alleging that Rice, when president of Pru's private client group, knew that traders were engaging in abusive trading. Rice left Pru in April 2004, but didn't return calls seeking comment.
J. Pat Sadler, Former President, Public Investors Arbitration Bar Association
Sadler — either a crusader for investor rights or an ambulance chaser, depending on whom you ask — stepped down from the president's job at PIABA into the treasurer's. His prediction in 2003 that investor complaints to the NASD would skyrocket to 10,000 has come up short. In 2003, there were 8,950 complaints; 2004 is on pace to be lower, with 4,385 through the end of June. Sadler could not be reached for comment.
William Donaldson, Chairman, Securities and Exchange Commission
In a little more than a year on the job, Donaldson has begun to answer charges that the SEC was asleep at the switch while the industry's worst abuses rolled forward. On his watch the SEC has proposed numerous rules and handed out billions of dollars in fines, while continuing to probe the practices of the nation's mutual fund industry. It has also mended some fences with the New York attorney general's office, which now seems more convinced that the SEC can be tough when it matters.
Dick Grasso, Former Chairman, New York Stock Exchange
Under Grasso's leadership, the beleaguered NYSE drastically improved its technology, fended off competition from the NASDAQ and even pulled firms away from the upstart electronic exchanges. But all this took a back seat to his infamous compensation package, which is an ongoing matter of contention, even though Grasso has left the exchange.
Sally Krawcheck, CEO, Smith Barney
Krawcheck's sticking with her “March to a Million” production goal, though the firm's still got a ways to go. At the end of 2003, average revenue per Smith Barney financial advisor sat at $508,000. In the last year, Krawcheck has focused on creating teams of producers, training branch managers and building up wealth management systems platforms. For second-quarter 2004, income and total assets at Smith Barney are both up 13 percent.
