Over a leisurely breakfast in an upscale hotel in Short Hills, New Jersey, on 5 October, Robert J. McCann, former president of Merrill Lynch's mighty thundering herd, sat down with Registered Rep. contributor John Aidan Byrne for this exclusive interview. A week before the interview, McCann settled a bitter lawsuit with Merrill parent company Bank of America over a non-compete agreement. The settlement frees McCann to return to work. Of his next assignment, McCann said he expects to be back in the financial services business in the New York area by the end of October. “I am excited to be going back to work,” McCann said. But he sidestepped questions about reports that he's ready to take the reins at UBS' wealth management unit in the U.S. In this wide-ranging interview, McCann talks about his future plans, recruitment, bonuses and compensation, among many other things. Sounding nostalgic, he also talks about the final days before Merrill was pulled back from the precipice by Bank of America's acquisition of the firm. (This article, an exclusive, originally appeared on RegisteredRep.com on October 7. The interview has been edited for length.)
Registered Rep.: You are now free to go back to work this month and you have a job offer. Reports say you will be running wealth management for UBS in the U.S?
Bob McCann: I can't talk about any specific opportunity, or any specific company. But I expect to be working and fully engaged in late October in a new project back in financial services in the New York area. My family is based here, and we intend to remain here.
RR: You have a job offer?
BM: I have an offer on the table.
RR: Did you have lots of job offers?
BM: I had several different offers that I thought were interesting — some in and some outside of wealth management; some in public, some in private companies. I was fortunate to have had several different options to consider.
RR: Let's turn to compensation. What about how advisors are paid today?
BM: I am a big advocate for client choice whenever possible. Some clients like to pay a fee to their advisors, some like to pay commissions. Back in the summer of 2007, I fought hard against the abolition of Rule 202. [Rule 202 was the broker/dealer exemption that permitted fee-based brokerage accounts.] I was on public record about this, and I went down to Washington and met with SEC Chairman Christopher Cox. I lost and fee-based brokerage didn't get a play. I think it is a mistake to this day because I think all we do is take choice away from the clients.
RR: There is a lot of talk about size and scale in the industry. What do you make of that?
BM: As a businessman, I ran Merrill's wealth management business. I know a fair amount about size and scale and what it can do. But size and scale in and of themselves are not good, or don't automatically result in good things for the client. The organization needs to be run from top to bottom in a way that is focused on the client — by people who understand the client and who know that open architecture is a good thing.
RR: Clients, however, might feel more comfortable with a firm that is “too big to fail” in today's climate?
BM: Wealth management is a bit different. First of all, it is not about a huge balance sheet and capital. Secondly, a firm that is big enough to be relevant but small enough that their clients feel they are important to them, still works. Do you need a different cost structure? Yes, you do. Do you need to source products, maybe research from third parties? Yes, you do. Might you need to use third parties to handle functions like the back office and settlement? Yes, you might want to think about things like that.
RR: What size is this firm you describe? How many FAs does it have?
BM: When I was at Merrill, we had some 16,000 FAs and I figure they have about 18,000 now. Well, I think there are different models that will work today in wealth management: You can have one model that has 200 to 400 FAs focused exclusively on high-net-worth clients, spread out among the major money market centers in the U.S., a model committed to open architecture and dedicated to the $10 million-plus client. On the other end, there is the Morgan Stanley and Smith Barney style of joint venture with 20,000 FAs offering a full range of services for the $100,000 clients and up. Then, there is the boutique with several thousand FAs — plus or minus 5,000 — that might be standalone or tied to a larger institution and dedicated to open architecture.
RR: How do you put together a good team of FAs for these types of organizations, and how do you recruit?
BM: There are two areas I try to keep my focus on in terms of recruiting FAs. I look at the $400,000 to $500,000 producers who can show they are succeeding, have no compliance problems and seem to have good grades and satisfaction with their clients. They want to grow their businesses. That is a group of people I am interested in recruiting. Another group are the $1.5 million-plus producers who are the pros, the stars of their markets. You want to recruit those top names, and you want them to come into and set the right tone in the office. But here is what I am not interested in doing — paying someone a lot of money, and then having them come in and effectively retire. I think some firms made a mistake in the last few years, by frankly paying too much for advisors — giving them far too much guaranteed money. I have no problem with a financial package that recognizes a transition for an advisor. But if you pay the advisor too much, who wins? I think the advisor wins and sets the wrong dynamic. Quite often, the firm loses and sometimes the client loses. So keep the ones you have, and recruit intelligently is my message.
RR: You must be receiving a lot of resumes? You were popular among advisors at Merrill Lynch. Your reputation as a strong leader is well known among the troops.
BM: Advisors are cautious people and they are going to think through very carefully what is the best place for their clients. I would like to think I have made a lot of friends, and earned the respect of my industry. But nobody is going to show up at every firm I go to just because I am there. I'd like to think I am a thoughtful supporter of financial advisors, and that I will run the firm in a client-focused way.
RR: What was it like at Merrill Lynch in your final days? With Merrill in trouble, was it a difficult time for you?
BM: Look, I had long and happy years at Merrill, and I had wonderful mentors, including [former Merrill CEO] Dave Komanksy who is still a great friend. I got my start on the trading floor as an associate, and when I left I was head of global equities. I loved going to work and loved my job. I felt I was part of the best firm on Wall Street. Things started to change and some of it was necessary and appropriate, and other parts of it were not appropriate from a business strategy, or cultural standpoint. New senior management took the firm in a different direction. As the company went down that damaged the wealth management business through no fault of people in wealth management.
RR: What was it like managing 16,000-plus FAs at Merrill?
BM: It was a wonderful challenge. First of all, you don't manage, you lead. You don't affect the FAs' compensation; FAs pay themselves. They effectively are individual entrepreneurs who work for a company as opposed to a trader who you sit down at the end of the year for an evaluation and a year-end bonus. You don't do that with FAs; they are on a grid system. There is another side of this, which took me a while to appreciate. We had 620 offices in global wealth management. One year I traveled widely — I think I visited 42 offices. But you know what the problem was? There were 580 offices I didn't visit. So you have to reach out and communicate in other ways too, besides personal visits. That includes conferences, written communications, e-mail, in-house TV — and it was a wonderful challenge.
RR: After you left, Merrill was demoralized.
BM: I think a lot of it gets over-reported and exaggerated.
RR: What were some of your proudest achievements at Merrill atop global wealth management?
BM: We grew our pre-tax margins in 2007. They were in the mid-20s that year. But the single thing I am proudest of is that, in that same year, we had very, very low turnover of FAs compared with the rest of the industry. We had almost no turnover among our best FAs. Everybody talks about recruiting FAs. Well, here is the dirty little secret: It is about keeping the ones you have, about creating an environment so that the people that already work at your company want to stay. Recruiting is nice and helps you pick up talent - you should do that at intelligent prices. But the bottom line is you keep the talent you have and create an environment that they feel good in. Give the FAs the tools to take care of their clients. At Merrill the turnover started to pick up when Merrill started to have problems [in its final days].
