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Reducing Distance between Bank and Customer


As one of the most prominent women executives in banking, Sallie L. Krawcheck has long been something of a pioneer. As chair of Ellevate, a global women’s professional network, her latest venture is to create the Pax Ellevate Global Woman’s Index Fund, focused on the top 400 companies in the world for advancing women, the first such investment fund of its kind.

The former head of wealth management units at Citigroup and Bank of America Corp. will appear at BAI Retail Delivery 2014 in Chicago on November 14 to discuss her ideas for restoring customer trust in banking and reinventing the traditional retail banking model. As Krawcheck explains in the short pre-conference interview below, reducing complexity is one key to achieving those goals. She also provides some helpful advice for bankers looking to bring their institutions into the wealth management business.

Q: In the wake of the 2008-2009  financial crisis, how can the banking industry improve its business model?

Krawcheck: I will never forget my father calling me at one point when I was at Citi and asking me if he should pull his non-insured money out of the former Wachovia Corp. And I remember sitting there and actually saying, “Oh, my gosh, yes, you should!” How did I not think to call my dad and tell him to do this? It was a kind of surreal moment.  

So, we need to rebuild the trust between the institutions and the public at large. The challenge we face is that the crisis was so significant and left such a deep scar that it’s constantly showing up in the news with one $X-billion settlement after another. Rebuilding trust will take time.

Q: Any thoughts about how banks can rebuild that trust? 

Krawcheck: Yes. Reduce complexity. One thing that puts distance between banks and their customers is sense that if I don’t understand the product, there must be something wrong with it. About a year ago, I sat down with one of the top financial advisors in the industry to look at my investment earnings statement and said, just for fun, lets the two of us figure out how much I paid in fees last year. And we couldn’t do it, despite all our expertise in the business!

That sort of level of complexity puts distance between banks and their customers, which provides an opportunity for start-ups.

Q: And yet financial start-ups have their problems too, as recently reported by Simple Bank.

Krawcheck: The challenge for start-ups is that banking is highly regulated and capital-intensive. This is not an industry where two young people who sit in a room coding all day and don’t shower for some period of time can come out the other side billionaires. There’s also a bit of a geography issue. There’s all this banking talent on the east coast and so much technology talent on the west coast; how do the twain meet?

Another challenge is the flipside of the brand challenge that the big banks face, which is trust. You’re dealing with other people’s money so you have to build trust. Banks, of course, are rebuilding trust they once had.

Q: You mentioned the regulatory challenge that banks face, which has grown exponentially since the financial crisis. What sort of mindset should bankers adopt when dealing with this challenge?

Krawcheck: There is, within the industry, a deep sense of regulatory fatigue and a feeling of, could somebody please stop hitting us? That being said, the need for additional regulation is also understandable. Look at the financial crisis. Is every last regulation that’s come into place the right regulation to avoid the next crisis? Of course not. The issue is going through the process of getting the correct regulation. And there are still gaps. The regulation of money market funds, in my opinion, took way too long and is still not as comprehensive as it should be.

It really behooves the banking industry to figure out if there are spots that still present undue risks that we need to work with the regulators to fill. After all, we’ve seen what happens when we don’t do that. We need to engage proactively with the regulators and point out gaps that they might not see.

Q: You spent much of your banking career in the wealth management industry. Do you think major retail banks can compete with the likes of Fidelity and Schwab in this arena?

Krawcheck: The wealth and asset management businesses are great businesses. When you compare them to the rest of banking, they’re less volatile and their returns on capital are quite high. So, on the face of it, these are quite attractive businesses; you manage assets and earn a fee.

But, just because it’s straightforward and simple doesn’t mean it’s easy to do. It involves a lot of customer trust, it involves a good brand and, in some cases, it involves good investment performance. Bankers sometimes think, oh, I’ve been successful in trading and investment banking, which is so hard, so we’ll go into “arts and crafts” wealth management and it will be easy. Yeah, good luck with that.

So, it’s an individual decision for each institution. What is your expertise, what are your capabilities, what are your other growth opportunities and what are your clients looking for? It’s not a one-size-fits-all business. Software is a great business, but that doesn’t mean everybody should go into it. You have to know yourself and know your capabilities.

Q: The most recent part of your work is involved with helping promote careers of women in banking. How can the industry do a better job in this area?

Krawcheck: Bankers, and everybody else, need to change the question they ask when making promotions. Right now, the question is: who is the best person for the job? To make progress, they need to ask a different question, which is: how can I put the best team in place?

There’s a difference because we all tend to be more comfortable with, and have more faith in, people who are like ourselves. In my own situation, I found again and again, when I looked to promote someone, it would often be a middle-aged female who comes from a southern state.

An analogy I like to use is basketball. If you’re looking to assemble a team of the five “best” players, you might end up with an entire team of point guards. Instead, you want diverse skills on your team, which in banking means gender diversity, diversity of perspective, diversity of disposition, etc. That’s the way to build a strong team and that’s how to make progress in diversity – to actively look for people who are different from you rather that people you are most comfortable with.

Mr. Cline is managing editor of BAI Banking Strategies and can be reached at [email protected].