CEOs of BNY Mellon, Lincoln Financial and Legg Mason are stubbornly glum on Pershing INSITE panel
Bloomberg interviewer finds it tough getting Kelly, Fetting and Glass to answer about where the dark economic tunnel ends
4 min read- CEOs Expressed concerns about regulatory uncertainty and its impact on investor confidence.
- Insurance Industry may avoid the brunt of new regulations, according to Lincoln Financial CEO.
- Firms are shifting focus to new products and fee-based services amid economic challenges.
- Investors now demand more advice and guaranteed income, signaling a major market shift.
It’s not a sight you see every day: humbled CEOs.
Day two of the Pershing INSITE conference ended on a decidedly somber note with the much-anticipated general session featuring the leaders of three major financial groups: CEOs Robert P. Kelly of BNY Mellon; Dennis Glass of Lincoln Financial Group; and Mark Fetting of Legg Mason.
Moderator Michael McKee, co-host of Bloomberg on the Economy, tried his best to elicit optimistic predictions regarding the end of the Great Recession that is now approaching its third year – without much success.
Dodd Frank double take
The Dodd–Frank Wall Street Reform and Consumer Protection Act, passed last year is such a pressing issue that the same breakout session on the topic, moderated by Pershing chairman Richard Brueckner, convened on both Wednesday and Thursday. It was also a recurring theme in the CEO summit.
Dodd Frank is hanging fire due to implementation issues and a Republican-controlled House of Representatives. It’s a constant source of anxiety to the industry, as are failed attempts to harmonize regulation internationally.
“We’re in global economy, we need global standards, said Kelly. “[America] had big advantages [over other countries] because we’ve cleaned up our balance sheets, but [ultimately] we’ll [end up with] more regulation than Europe and China. It scares me that regulators are building walls around their countries. If pools of money are trapped, when trouble comes we may not be able to fix it.”
The industry will not bounce back, Kelly said until investors see regulatory uncertainty resolved.
Advisors flock to steamy South Fla. for Pershing's conference and get a glimpse of web-based NetX360
All agreed that some curbs are needed to deter the industry’s bad apples but Kelly warned, quoting Fed chief Ben Bernanke, “monetary policy is not a panacea.”
Bullet dodged
Dennis Glass: The insurance industry may
dodge the [regulation] bullet.
“The insurance industry may dodge the [regulatory] bullet,” said Glass. “We’re not seeing the same kind of intrusion.” But he added: “Something bad happened – some of it had to do with inadequate regulation.”
McKee’s queries as to how the industry might mitigate the effects of the soured economy elicited no hard solutions.
“As one who makes money on interest, how do you make up the shortfall?” McKee asked Fetting.
Story Timeline
The Legg Mason chief’s reply was short and to the point: “You don’t.”
Mark Fetting: We’ll focus on new
products and fee-based services.
“[There is] scary inflation, he added. “We can’t see the future. We are being very cautious staying short on the curve and if rates back up it will be good for clients. But until then we’ll focus on new products and fee-based services.”
A massive shift
BNY Mellon’s CEO also sees little shelter from the storm.
“[Investors’] pre-crisis belief was that bonds and mutual funds are without risk,” said Kelly. “We [now] know that’s not true.” Investors now want more advice and guaranteed income. Kelly called the latter factor a “massive shift.”
Regaining investors’ and the public’s trust will take some doing, all agreed.
It’s particularly important to change the image of over-compensated CEOs who have no financial stake in their companies, said Glass. Company leaders must instill the idea that “I’m only winning if you’re winning,” he said.
“The worst players were paid huge amounts of cash up front, then sold shares,” said Kelly. “[There was] too much short-termism. Shame on us.”
Consumer confidence won’t return, he added, until Americans get back to work.
Glimmers
To be sure, the CEOs did see some favorable signs for the industry. One is an aging demographic that will cause a huge increase in investible assets in the coming years.
And despite the recent troubles, they haven’t written off the ingenuity, work ethic and resilience of the American people. “We have [about] 23% of GDP,” said Kelly. “We’re the only ones who could create a Google or an Apple. Balance the books. Fix the [high U.S.] corporate tax regime. If we can do that, we’ll be OK.
But Fetting best captured the mood of the panel when he summed up his tenure as leader of Legg Mason.
“I’ve been CEO for five years. It’s been the best 35 years of my life.”
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