The most influential leaders in wealth management today expound on evolution, revolution, moving the debate past wirehouse versus independent, crisis as the new norm, the importance of customizing portfolios to fit both emotional and financial goals, the increasing value of the financial advisor and the future of technology — involving, oddly enough, man, dog and machine.

Finding Our Place In A Changing World

Sallie Krawcheck
President, Bank of America Global Wealth and Investment Management
Years in Securities Business: 24

1. What, in your opinion, are the biggest challenges facing the advisory industry right now?

As markets have improved, wealth management companies have had to fight a tendency toward business as usual and not squander the opportunities presented by the economic downturn to become stronger and better organizations for clients. At least for us, it is about finding our place in a changed world — more importantly, taking the opportunity to really listen to, observe and act upon what clients told us they wanted from their relationships with us. We believe wholly that this approach is the only way that we will remain relevant to a forever-changed client base and a next generation that wants to be served in a changing way. In fact, we clearly set a course to measure ourselves — not just by our might, our size and the traditional metrics — but by the satisfaction of our clients and measures that matter to them.

Currently, the biggest challenges are continuing to address client unease over uncertainty about the U.S. and global economy, geopolitical risk, inflation, potential political gridlock, the deficit ceiling and policy decisions to reduce the deficit. It's a more complex environment, due to growing interdependencies in the global economy.


2. How has the financial crisis changed your view of the industry?

Even though much of the investment wealth that was lost in 2008-2009 was recouped by 2010, and many of the major investment indices have returned to pre-downturn levels, there has been a sea-change from the client's perspective. They had a "near-death experience" — seeing their wealth evaporate before their eyes. Their assets have recovered, but they haven't forgotten.

A volatile market has many clients feeling more conservative and vulnerable. They have a lower tolerance for risk. They are telling us they are more cautious and conservative than the industry has recognized. Now, clients need assurance that their goals and values are being heard, understood and reflected in the advice they receive. For many, wealth management is no longer a spectator sport. Clients want to be more directly involved in the process, or at least feel they can, should they want to. They want to better understand risk products, valuations, performance and fee structures. Primarily, they want integrity, simplicity and transparency.


3. Can the big wirehouse system survive the onslaught from the independent world?

I'd like to debunk the "onslaught" myth. In 2010, Merrill Lynch lost 16 out of its 16,000 advisors (net) to the independent channel. No, that's not a misprint. By spending so much time and attention on this myth and the relative merits of full-service and independent firms, as an industry we're again taking our eye off the client and missing a powerful opportunity to elevate the profession of financial advisors everywhere. We should instead strive toward a fiduciary standard that preserves client choice, while protecting clients through harmonized regulation and oversight. We need to move the debate past wirehouse versus independent to one single standard for the whole industry.

4. What attributes does a leader in this industry need to have?

A leader in this industry has to be willing to challenge the status quo, be open to change and sometimes risk their popularity for what they believe is the right thing to do. Having a little luck doesn't hurt either.


5. The industry, like the rest of America, is experiencing an aging population. What are firms like yours doing to create the next generation of advisors?

I agree and would add that a gender gap also exists. The financial concerns and investing styles of affluent women and young adults differ markedly from those of the typical aging male wealth management client. Advisors need to address women's worries about financial security and take a collaborative approach to working with the next generation. Our advisors are strongly encouraged to include relatives of current clients into discussions about family investments and planning goals. In addition, we have the longest-running and most comprehensive financial advisor training program in the industry and are working very hard at developing the next generation of financial advisors. Younger investors are often self-directed and reaching out to them not only expands our reach but also establishes a relationship that may eventually include an advisor. Merrill Edge, introduced last June to serve non-traditional clients, provides easy-to-use online research and trading for self-directed investors, as well as for clients who have an advisor but may also want to invest part of their portfolio on their own.


6. What is the secret to finding and retaining the best talent in this industry?

Bottom line is that you need to build a reputation for significant, strategic investment in the business during all market cycles. At the end of the day, advisors want to come to and stay at the absolute best environment for them to serve clients. This translates into significant investments in technology, services, and solutions that set us apart from our competitors. An example is the ability of our advisors to have a 360° view of their clients' accounts. While this seems simple enough, integrating the banking and brokerage sides of our business involved more than 2 million hours of coding and more than 400,000 testing scenarios.


7. How do you deal with merging different firm cultures?

Frankly, this has been far less of an issue or hurdle than it has been made out to be. In fact, what people are realizing over time is that the core values of Merrill Lynch, US Trust, and Bank of America are strikingly similar, with client focus, integrity, and trust all being major tenets. They are also driven strongly from the top of the organization, which helps colleagues-regardless of background-rally around them and live with them in their interactions with clients and each other.


This Time, It's Different

Gregory J. Fleming
President, Morgan Stanley Smith Barney and Morgan Stanley Investment Management
Years in Securities Business: 18


If a market prognosticator surveyed the industry in May 1991 and predicted that in 20 years, Merrill Lynch, Lehman Brothers and Bear Stearns would cease to exist independently, or at all; Fannie Mae and Freddie Mac would be functionally bankrupt; Morgan Stanley and Goldman Sachs would be Fed-regulated, bank holding companies; and the fate of the dollar as the world's reserve currency was open to debate — that person, in all likelihood would be laughed out of the room. The howls would be positively deafening if this prophet further predicted that — in an age of instantaneous global information and low-cost electronic trading available to everyone and his mother — the role of the financial advisor would be more valuable than ever. Yet, as we now know, all of these things have come to pass.

It's worth remembering that in 1991, the financial system was just beginning to recover from a chain of events that began with the stock market crash of 1987, the subsequent disintegration of the junk bond market and the collapse of the savings and loan industry.

Since then, we have lived through two major boom and bust cycles. The first was the dot-com bubble, when any IPO with an Internet-related business model soared to astronomical heights, only to crash and burn starting in 2000. The second, of course, was the financial crisis of 2008, caused, at its core, by too much mortgage lending to too many people who couldn't repay it. The events that took the global economy to the brink of depression are fresh in our minds and require no retelling here.

So what have we learned from all of this turbulent and relatively recent financial history? For one thing, we've learned that this time, it is not different. Quality of earnings matter, valuations matter, rigorous lending standards matter, hard-headed credit analysis matters, liquidity matters. We've also learned that objective, unemotional financial advice, applied both strategically and tactically, matters a lot.

Thanks to the resilience of the global economy many investors have recovered from the grievous portfolio losses they experienced during the crisis. As the saying goes, they are sadder but wiser — less prone to chasing financial fads du jour, and more attuned to diversification, risk management, rebalancing, planning.

It is no accident that companies with client-focused business models — able to proficiently deliver professional wealth and investment management — have traditionally commanded a premium share valuation. This will not change, and I have no doubt that financial advisors with the right set of skills, work ethic and integrity will be very busy keeping up with the demand.


Contributing To Our Clients' Lives


Danny Ludeman
President, CEO Wells Fargo Advisors
Years in Securities Business: 32

The past two decades were a truly transformative time for our industry. As recently as 1991, a few mega wirehouses based in New York represented the virtual power center of the financial industry. At the same time, hundreds of smaller and mid- sized regional firms — with histories dating back to the 1800s and deep-rooted relationships in their communities — served investors of all sizes in small towns and big cities all over the country.

Yet, as different as these firms were, they were united in the belief that clients have relationships with people, not companies.

By the mid 1990s, though, the regional firms found it increasingly difficult to afford the investments in people and technology necessary to compete. They began to look for partners that would provide them with the scale required to invest in their futures, while permitting them to retain the client-centered values that made them successful. This is how Wells Fargo Advisors was created.

While the names on the doors have changed, these regional firms didn't just fade into our industry's history and lore, they became part of who we are today. Their rich cultures remain and continue to influence our work.

Today, we stand near the end state of our industry's structural change with the emergence of firms that represent a combination of retail banking and retail brokerage. This is the model on which I staked my career as part of the management team at Wheat First Securities, which decided to sell our firm to what was then First Union Bank 1998. That decision represented a risk at that time because brokerage firms and banks operated as opposing forces in the marketplace; with brokerage firms focused on diverting money from savings accounts into investment accounts. But that dynamic changed as banks and brokerage firms began to merge, and disintermediation became a moot concept.

Today, as the impact of the "Great Recession" on investor attitudes and behavior becomes clear, the implications of regulatory reform unfold, and a new generation of investors enters the marketplace, our work has never been more important. The role that financial advisors play in helping clients live better lives and succeed financially — while giving back to their communities and driving the economy — is a source of pride and inspiration

Our clients are at the core of our business, and when we put their needs first, everything else falls into place. It is vital that the public, community leaders, legislators and the media know what our industry stands for and how we contribute to the lives of our clients and the economic health of our communities and our nation.

Culture, Complexity & The Future Of Wealth Management

Robert J. McCann
CEO, UBS Wealth Management Americas
Years in Securities Business: 30

There are two closely-related trends that have reshaped the wealth management business in the last 20 years — and they are not globalization and the Internet. The growth of complexity and the evolution away from truly financial advisor-centric and client-focused corporate cultures have defined our industry for nearly a generation, and they will continue to pose the most significant challenges we face for the foreseeable future.

Wealth management has always been a people-centered business, characterized by strong firm cultures and close personal bonds between advisors and clients. I believe that over the last two decades our industry has devalued the former and placed too many impediments in the way of the latter. If those trends continue, especially as the depth and complexity of our client needs grow, they will threaten the long-term health and strength of our industry.

I don't know if there is any job satisfaction data around from 1991, but few in the industry would disagree that the big scale players no longer command the loyalty or commitment they did from their advisors 20 years ago.

Ironically, the shift was gathering speed at the very time clients were coming to us with more sophisticated and highly individualized needs. The conversion of defined benefit plans to defined contribution plans, for example, made millions of employees into individual investors, seeking trusted advice on how to address their unique wealth management goals and circumstances.

Complexity is not going away; nor is the individual investor's need for help sorting it all out. Unfortunately, the experienced financial advisors best suited to help clients manage through the complexity are leaving the industry at an alarming rate. Many will soon be old enough to retire themselves.

Still others look back over the last few years and feel their firms failed to adequately stand up for the thousands of honest, hardworking advisors and allowed a disproportionate share of the blame for the market turmoil to fall on their shoulders. They see the prospect of still more government involvement in their client relationships and ask whether it's time to strike out as an independent or consider a new career altogether.

Our industry will need thousands of new advisors in the next few years. Who will the next generation be and how will we attract them? I believe they will have to be a very special breed of entrepreneur — a business builder who can assemble and deliver diverse teams of expert problem solvers to clients whose needs and expectations will continue to grow.

In the years to come, success will not be determined by size, but by the ability to attract the best advisors. They will be drawn to firms with strong FA-centric cultures; firms that offer the rewards, flexibility and infrastructure, including dedicated research, product specialists, and the overall support that advisors will need to help their clients succeed.


Understanding Financial And Emotional Needs

Mitch Cox
Managing Director, Head of Barclays Wealth in the Americas;
Head of Global Research and Investment for Barclays Wealth
Years in Securities Business: 21

The notion of "wealth management" did not exist when I entered the industry two decades ago. Too many clients came to Wall Street to trade, and the emphasis throughout the 1990s was to give them direct access to the markets. The tech boom made investing look easy, and unrealistic expectations of consistent double-digit returns lured many to bet on equities with reckless abandon.

All of this, of course, ended badly when the tech bubble burst in 2001 and individual investors were reminded just how risky and volatile the markets could be. Investors turned to professional guidance, and the ranks of those offering fee-based advisory relationships or separate account management swelled. The concept of "planning" became mainstream and financial modeling advanced from simple, straight-line projections of historical averages, to probability-based "Monte Carlo" simulations of expected returns. While investors may have benefitted from financial planning and the diversification it provided, this still was not enough. Economic recovery after 2001 was fueled by artificially low interest rates, and these in turn created the even bigger, more fundamental problem of excessive leverage that led to the credit crisis of 2008. As a result, asset classes that historically had shown disparate returns became correlated, and investors, to their great detriment, were exposed to the unlikely "fat tail" results that occur only 1% of the time.

Observing this evolution over the past 20 years has informed my views about what constitutes true wealth management. It begins with an assessment of a client's financial situation and tolerance for risk, but it should not stop there. We all have different degrees of composure, financial experience, and desires to delegate. At Barclays Wealth, we call this an investor's "financial personality," and no two people are exactly the same. Consequently, we believe that no two portfolios should be exactly the same. Clients should have customized portfolios that meet both their financial and emotional investing needs. Portfolio construction should begin with a strategic asset allocation that seeks to balance longer-term results with appropriate protections from volatility. We also believe that clients should have access to the best investment ideas and investment vehicles available in the market.

Over the next 20 years, I believe providing truly customized wealth management will become more scalable. Technological advances in individualized portfolio management and performance reporting will enable elite firms to deliver thoroughly personalized services with more predictable results. Firms that understand the need for financial and emotional customization, and can provide their clients with the most cost-effective, personalized investment and service experience will emerge as the leaders of the next two decades.


Technology: The Engine Driving The Future

Greg Quental
CEO, J.P. Morgan Securities
Years in Securities Business: 21

It's an understatement to say there have been many changes over the past 20 years in the wealth management business. Investors are more sophisticated and their needs are more complex. Products are more complicated and the regulatory environment has become increasingly challenging. Crisis has become the norm. The competitive landscape has been reshaped by industry consolidation, the growth of independents and the introduction of a range of non-traditional competitors. The way we do business today is far different from how we did business in 1991, and its likely to be far different from the way we'll do business in 2030.

The single most important change is debatable, but it is easy to argue that technology has been the engine behind many of the most significant changes in the industry in the last two decades. In 1990, advisors provided two valuable services to their clients: access to information and access to trading capabilities. Clients were willing to pay for this access and firms built their businesses around these capabilities.

Technological advances continue to shape the wealth management business. American scholar, Warren Bennis once said: "The factory of the future will have only two employees; a man and a dog. The man will be there to feed the dog. The dog will be there to keep the man from touching the equipment." I can accept that the factory of the future may look like this, but I don't believe that the wealth management business will look anything like this.

Investors have never needed financial advisors more than they do today. Technology has reinforced the importance of human interaction in many situations, and nowhere is that more apparent than in the wealth management business. The staggering amount of information (and disinformation) available to investors today, combined with the complexity of the global marketplace, presents investors with challenges that were unimaginable in 1991. Clients turn to financial advisors who combine information, experience and knowledge to help them navigate these challenges and achieve their financial goals.

It's impossible to know the opportunities and challenges that will shape the financial industry in the coming years, though regulatory changes will most certainly have an impact on how we do business. Successful wealth management firms will integrate leading technology and offer robust product capabilities, but the differentiator will be delivering the best possible experience for clients and their financial advisors.

In our rapidly changing environment, this will require the ability to make decisions quickly. Execution must be consistent and communication must be clear, concise and transparent. Lastly, financial advisors and their support teams must know that their contributions are important and appreciated. For those firms that can create this environment, great success will follow.


Closing An Important Chapter, Welcoming A New Era

Dennis Zank
President, Raymond James & Associates
Years in Securities Business: 32

Our industry has seen it all over the past 20 years. From the ecstatic rise and sobering burst of the dot-com bubble, to Wall Street's more recent unprecedented fall and rebound — we've set records and learned lessons and we've certainly given On Wall Street magazine plenty material to report on. Ultimately, it's been a fascinating two decades to be a member of the financial services community — frequently maddening and sometimes harrowing, but always thoroughly rewarding.

As On Wall Street celebrates its 20th anniversary, we're entering a new era as an industry. An era that will be shaped by professionals who have weathered some of the markets' wildest swings and who will serve a world that is more wary but also more full of possibility than ever before.

When Robert A. James founded the firm that would become Raymond James in 1962, the financial landscape looked quite different than it does today. Investing was still the primary domain of large institutions, and financial firms focused their services accordingly. The industry was dominated by a transaction-oriented mind set, which has transformed over time to a more consultative approach. And we at Raymond James applauded that evolution, as it supported — and continues to support — the core of our business.

Through the "new economy" of the 1990s and the dot-com frenzy of the turn of the century, our conservative philosophy and private client focus allowed us to enjoy steady growth and avoid the worst of the collapses and scandals that began in 2000. This same sensible, responsible philosophy kept Raymond James on solid ground throughout the turmoil of 2008, and it's placed us in an enviable position as we move into a full recovery.

Our industry was originally founded on the premise that professional financial advice was critical to an individual's financial well-being. In fact, our founder often said we were in a "necessary and worthwhile" business. It seems that the considerable turmoil in the financial markets over the last decade only reinforces this belief.

Financial services have evolved considerably and expanded exponentially since On Wall Street published its first edition. And, in spite of frequent stumbles and setbacks, we expect this growth will continue, driven by demographic trends and seasoned professionals.

So, congratulations to On Wall Street for 20 fascinating years. Here's to the next 20.


Accelerating from Advisor to Wealth Manager

John Taft
CEO, RBC Wealth Management U.S.|
Years in Securities Business: 30


The single biggest change I have witnessed during my 30 years in the financial services business is the dramatic increase in the role and importance of technology. When I first started in the public finance department of a regional investment banking firm, computer capabilities were accessed through a modem-based timeshare connection. Spreadsheet technology was in its infancy. Orders for new issues of municipal bonds were penciled in on smudged, dog-eared maturity schedules, taped together and passed around the desk from trader to salesperson to trader. There were no cell phones or mobile devices. Fax machines were considered transformational technology.

Another enormous change has been the evolution of the financial advisor to the holistic wealth manager. The private client industry, last year, supported a harmonized universal standard of fiduciary care for "personalized investment advice" — not so much because we, as an industry, believe we needed to change the way we operate, but because a fiduciary standard is consistent with current best wealth management practices in the private client segment.

Financial advisors today initiate an increasing number of their client relationships with some sort of discovery process, which may or may not take the form of a full financial plan. And they aspire to meet many more of their clients' financial needs than ever before — going beyond investments in stocks, bonds and mutual funds to discretionary asset management; alternative investments; credit, lending and cash management; trust services; estate planning; life, health and long-term care insurance; and retirement income planning.

Over the next decade, that evolution of advisors into wealth managers will continue — and possibly accelerate. Financial advisors will continue to offer and provide a broader range of products and services, meeting even more of their clients' needs, building deeper and more retentive relationships, thus adding more value. Technology will evolve to enable advisors to more effectively and seamlessly navigate across the various products and services they offer. It will also allow advisors to see, review and present a 360-degree view of the client's financial situation. Teams will continue to become the best practice model to deliver comprehensive wealth management because teams allow advisors to operate more effectively and efficiently.

The good news is, all of these changes have the potential to translate into more value-add for our clients, a higher quality client experience, more satisfied clients and more productive advisors. Wealth management is and will remain a growth business.


Required: Scale, Capital And A Global Presence

Michael J. Schroeder
President of Baird's Private Wealth Management Group
Years in Securities Business: 25


Without question, the financial services industry has seen a tremendous amount of change over the last two decades. When I began my career as a financial advisor at Baird 25 years ago, we were still using pneumatic tubes to send handwritten tickets down to the trading floor. Today, orders are entered electronically from anywhere in the world. Broadly speaking, the last 20 years has seen the markets become globally intertwined 24/7, technological advances rapidly speed the flow of communication, and our clients' needs have become increasingly sophisticated. As a result, financial advisors and their firms had to dramatically change the way they do business, service their clients and respond to investment opportunities around the globe.

So what hasn't changed? For the most successful advisors and firms, it's an intense focus on our clients — the most important asset we have in this business. While this business was very heavily transaction and commission oriented 20 years ago, today it's evolved to a predominantly comprehensive wealth management business. The client service model is unquestionably more complex than it was 20 years ago, and most advisors have come to realize they can't be all things to all people. Teams of advisors and in-house specialists with complementary areas of expertise, now work closely together to focus on a broad spectrum of life cycle changes for our clients — from portfolio management and asset allocation, to estate planning and philanthropic gifting, to retirement income planning and generational planning. While these issues existed 20 years ago, they are addressed today in a much more sophisticated fashion, leveraging technology and involving our clients' other tax, accounting and legal advisors to provide the best service and advice.

Overall, change has been very good for our industry, and the future of this business has never been brighter. While we've witnessed massive consolidation, we're reminded of the lasting lesson that bigger is not necessarily better. A tightening regulatory environment and the significant investment in technology required to meet our clients' demand for new capabilities present formidable challenges, but firms with sufficient scale, capital and a global presence, will be able to adapt quickly to change. They will be well positioned to expand wallet share and mind share with clients, particularly higher net worth relationships.

In the coming years, I'm confident the advisor career path will become even more attractive to creative, entrepreneurial people of all backgrounds who are seeking a successful, rewarding career that doesn't require them to sacrifice work/life balance. After all, as I'm sure you can agree, this is the best business in the world. I look forward to all the next 20 years has in store!


Improving The Quality Of Financial Advice To Help Clients Reach Their Goals

James Allen
President, Chairman and CEO, Hilliard Lyons
Years in Securities Business: 30


As I reflect on the last 20 years of changes in the securities industry, it's easy to start the list with the name, "securities industry," — a name that just doesn't apply the way that it once did. Our industry is so much more, and securities are just a part of what we do. Technology has been instrumental to — perhaps even the primary catalyst of — changes that have produced, if not forced, a much broader array of client services and a business model that is much more comprehensive and professional.

In the old days, the client value proposition of our industry was essentially a three-legged stool that included information like research reports, the processing of securities transactions and advice that supported the interpretation of the information.

As technology has evolved investors have gained broad access to financial information through an increasing number of low-cost, largely electronic sources, as well as the ability to have transactions processed inexpensively. As a result, today's value proposition is now increasingly centered around advice or the advisory aspects of the client relationship, under the broad heading of "wealth management."

I believe that this is where the true value has been all along, but when the industry had greater control over the flow of information and transaction pricing, the advisory component didn't receive the attention it is receiving today. Although many long-term industry professionals successfully navigate with an old-line approach to the business, there has been a surge in the direction of the advisory business model, which includes client profiling, financial planning, investment policy statements and the various activities related to the accumulation, preservation and ultimate transfer of wealth.

Some might argue that the business has become much more challenging and isn't as much fun as it used to be, as regulatory scrutiny has been ratcheted up to keep pace with an increasingly complex industry. However, I would contend that the business and the quality of work that is being delivered on behalf of our clients have improved immensely over the last two decades.

Today's industry is less about individual securities and more about helping investors reach their financial goals. This shift in focus, which had technology as its primary catalyst, now positions our industry to grow and prosper as we provide advice to our clients, allowing them to grow and prosper as well.

Regionals: Emerging Winners Of Tomorrow

Jerry Lombard
President, Private Client Group Janney Montgomery Scott LLC
Years in Securities Business: 28

The most notable changes in our industry over the past two decades have been the rapid advancement of top advisors' professionalism and their productivity, technology and consolidation. These factors have changed the competitive landscape and has had a positive effect on the nature of the advisor/client relationship.

Long gone are the days of the "stock jocks," product sales and large front-end loads. Clients are now treated to tailored, comprehensive financial planning, asset allocation, risk management and sophisticated wealth strategies. Credentialed advisors and their teams provide five-star concierge client service. Not only has the quality and range of advice and service improved, the "cost" of advice, as a percent of client assets, has dropped materially.

Professionalism and productivity have been hastened by the shift to investment advisory lines and asset based fees. In 1991 — the first year Janney began offering separately managed accounts — many firms were in the very early stages of developing fee-based platforms. Multiple types of advisory programs and billions of assets later, the advisory business is the foundation of most successful financial advisor practices. The service, advice and depth of firm resources — when coupled with lower costs — provide investors a value unimaginable 20 years ago.

Two other profound shifts that come to mind are technology and consolidation. The inability of once-revered firms' to master technology was precipitated by their sale to better-positioned rivals. Changing priorities by some broker-dealer owners was another reason, and this highlighted the importance of ownership structure and resources for long-term viability.

Technology allowed some smaller, more nimble firms to compete effectively with larger ones, as rapidly declining technology costs eliminated major elements that once favored scale. Technology has also hastened the flow of information to clients, thus changing the dynamic of the advisor/client relationship. Advisors — once providers of hard-to-get information to clients — are now filters and managers of data from multiple sources.

Some trends of the past 20 years will continue to influence the industry, while others may reverse by the year 2031. A new factor, a uniform fiduciary standard governing broker-dealers and investment advisors, will blur the lines between these segments of the industry — boosting investor trust and confidence. Technology will continue to accelerate the pace of industry change and how advisors communicate with clients. Rather than drive further consolidation, technology will foster new platforms and change where advisors "work" — splintering the market share held by the largest firms. Firms offering a compelling culture advantage, like today's surviving regional broker-dealers, will continue to take market share. And the new players, and some of today's less prominent providers, will emerge as the future's winners.


Capturing Potential Through Revolution and Evolution

Michael Gardner
Executive Vice President, Head of Private Client Service Group Wedbush Securities
Years in Securities Business: 17

During the past two decades, we've experienced both a revolution and evolution of changes in the securities industry: The globalization of markets; advancement of technology and communications; proliferation of new products; decimation and the consolidation of firms and exchanges.

Technology and communications have been the key drivers enabling electronic trading to provide investors the ability to purchase securities worldwide with increasing ease. The explosive growth of the Internet has given those same investors the ability to disseminate or receive market news in real time and make investment decisions from anywhere in the world.

However, rapid progress generates challenges. Increased trading volumes, hair-trigger use of instantaneously available information, the proliferation of products, the overuse of leverage and the lack of transparency, have led to increased market volatility. And in the past decade, we experienced less stable markets, as evidenced by the "Tech Wreck," "the Great Recession," and more recently, the "Flash Crash."

Looking ahead, what can we expect to be the big game changers? The recently signed Dodd-Frank Wall Street Reform and Consumer Protection Act will certainly play a significant role in how business will relate to the public going forward. This is one of the most sweeping reforms in the history of the industry. Approximately 250 new regulations need to be written and implemented over the next several years, including a fiduciary standard of care for brokers and investment advisors. These new regulations aim to restore and build investors' trust toward the industry.

Expect rapid technological developments and methods of communicating to continue to advance. Social networking promises to have a profound impact on the way business is conducted and we are in the early stages of capturing its enormous potential. The continued consolidation of firms, especially those that are undercapitalized, will take place, as companies struggle with the ever-increasing complexities of the business. Continued rapid globalization of markets will occur, as clients demand cost effective access to markets and investment opportunities around the globe. We are also likely to have only one or two primary global exchanges with worldwide access in the not too distant future.

French author, Frances de la Rochefoucauld once said: "The only thing constant in life is change." And in that vein, only investment advisors with initiative will be able to take advantage of the myriad changes occurring in the industry. They will need to maintain their knowledge about market and regulatory innovations. They will also need to engage technology to effectively and efficiently reach and connect with the client. Continuing education, life-long learning and being willing to embrace change will help distance the successful advisor from the average. For advisors who are able to develop deep trusting relationships with their clients and provide valuable services and advice, the future will be bright.


The Key To Future Success: Stick To Your Knitting

Jim Weddle
Managing Partner, Edward Jones
Years in Securities Business: 35

Events of recent years hit the financial services industry like a tornado, leaving behind destruction and a landscape stunningly altered. The crisis precipitated a massive consolidation within the industry and the advent of the big-bank, big-brokerage combination.

One result is that traditional brokerage firms can now broaden their offerings to include a full suite of banking services and insurance products. Conversely, one backlash from the issues assailing many firms, has been a large loss of representatives to a number of independent financial advisor platforms.

Business has changed in other, less sensational ways over the past 20 years. For better or for worse, we now have retail distribution of derivative securities. The commission structure has been compressed, leaving it far lower than it was 20 years ago. The way we charge for services has significantly evolved, shifting from transaction-based to fee-based.

Technology has brought us program and high-speed trading, while exploding media outlets offer a 24-hour financial news cycle. The world has shrunk, making our economies more interconnected and international interdependencies increasingly more pronounced. Instant information means problems are now globally contagious. Because financial markets are based, in part, on confidence, the result has been increased market volatility.

Looking ahead 20 years, we can predict even more changes. The first is accelerating global interdependency. The significance of New York and London as centers of finance will diminish; in fact, physical exchanges, as we know them today, will continue to lose importance.

In the next decades, individual investors will have to assume even more responsibility for their financial security in retirement.

Changes will also occur within our industry. Although the synergies of the big-bank, big-brokerage combination are yet unproven, there will be more realignment within the financial services industry, and more U.S. brokerage firms acquired by domestic and foreign banks. In the end, economies of scale will create a barbell effect, squeezing out the middle and making retail firms either extremely large or very small.

Transparency will remain a key regulatory goal. However, implementation of financial reformoffers no inoculation against future mistakes. In fact, every five to 10 years, the industry seems to forget its previous lessons by self-inflicting new damage with strategies that are poorly executed or little understood.

The next 20 years will bring new investment fads and schemes, reaffirming once again that if the law defines your ethics, you don't have any. Successful firms will stick to their knitting rather than allow themselves to be seduced by the marginal dollar of profit in areas where they lack expertise. The future holds tremendous opportunity for those who stay focused on what they do well.

Twenty Years And Counting...

Ronald Kruszewski
Chairman of the Board, President and CEO, Stifel Financial;
Chairman of the Board and CEO, Stifel Nicolaus
Years in Securities Business: 26


Happy 20th birthday to On Wall Street magazine! You first published in 1991, and what a 20 years it has been. What has changed since 1991?

In 1991, Iraq was attacked by U.N. forces and the Soviet Union ended. It was just 20 years ago that Tim Berners-Lee released files describing his idea for the World Wide Web: no, Al Gore didn't invent the Internet! And for us hopeless romantics, we were shocked when Prince Charles and Princess Diana announced their separation.

The change in our business since 1991 may be best illustrated by words or phrases that are commonplace today, which were not so commonplace, or even in existence then. Collateralized debt obligations; CLOs; CDO squared; broker protocol; raiding cases; inactive account fees; annual account fees; client service call centers in far away places; Universal Bank Model; and Flash Crash — these are all concepts which really didn't exist 20 years ago.

Also, in 1991, the NYSE was the center of the financial universe. Today, it is a fading picture of Wall Street nostalgia, as ever-increasing volumes trade in electronic markets, dark pools and crossing networks. In 1991, electronic trading was a clunky, fragmented fringe industry, while today consumers trade with amazing power and precision, using merely their iPhones, as they race between meetings. In 1991, we called when running late; today, we text. Twenty years ago, we shared cherished pictures with friends and told stories by the fire; today, this is accomplished via Facebook. As we look back over the past 20 years, should the question be: Have we gone too far in this race to impersonalization?

Despite all of these changes, maybe a better question to ask is: What hasn't changed? To me, this would be our clients' wants, desires and investment objectives, as well as the importance of the relationship with our clients. First, while our clients may be better informed, due to web-based information, they are still looking for quality advice to help them achieve their goals. And these goals are universal: to educate their children, increase their quality of life and save for retirement. Second — today as well as in 1991 — the cornerstone of our industry is our client relationships. This is, and will always be, defined as the trusted relationship between the financial advisor and their client.

What has changed, however, is the method by which many of today's firms meet these basic investment goals. At Stifel, our business model has always embraced the importance of the relationship between the financial advisor and his or her client. The importance of this relationship, however, appears to have diminished for some of our competitors. Twenty years ago, firms were privileged to serve their clients and be entrusted with their investment assets. Today, some firms view clients as "customers," who can be charged a dizzying array of fees to meet wallet share goals. Looking forward to the next 20 years, I hope for a "back to the future" embracing of client relationships and personal relationships.


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