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Mark Kolakowski

Financial Careers

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Where the Wealth Is

Wednesday April 16, 2014

I'll be appearing on "Secret Societies of Hollywood," an E! Channel series premiering tomorrow, Thursday April 17, at 8:00 PM EDT. In tomorrow's episode, "Deals and Dealers," I discuss my experiences with rich and famous clients during my days at Merrill Lynch.

Throughout my business career, both in financial services and in other industries, I've been astounded by how frequently senior managers harbor completely erroneous notions, despite empirical evidence to the contrary. While I was at Merrill Lynch, for instance, a key executive was fixated on luring Hollywood celebrities and pro sports stars as clients, insisting that this would be a highly lucrative market. He ignored copious internal intelligence that suggested just the opposite. Moreover, an influential book entitled The Millionaire Next Door offered observations much in line with what the internal analysts had uncovered: a surprisingly large trove of wealthy clients who resided in unfashionable Zip Codes and/or who pursued unglamorous lines of work. Meanwhile, amazingly few of the A-list celebrities we counted as clients had especially large accounts, or appeared to be adequately profitable.

Desperate to mine illusory opportunities in the celebrity market, this executive wasted countless staff hours on pursuing ill-advised deals with Hollywood accounting firms. Luckily for Merrill Lynch, the paltry financial assets on offer killed these initiatives. Unfortunately, he unwisely gave away the store in a deal with sports superagent Mark McCormack, founder and CEO of the mighty IMG agency. The deal proved to be a sinkhole for Merrill Lynch and a career killer for the executive.

Whether the wealthiest clients are indeed the best and most profitable financial services clients is another question, for another day. The point here is that finding clients with large sums to invest often requires looking in unexpected places. This is a lesson both for business strategists and for financial practitioners.

The Millionaire Next Door was an enormously useful and instructive book from the standpoint of my financial services career. Please feel free to visit my forum and share your own recommendations on books or websites that can be helpful to someone pursuing a career in financial services.

Should You Take the Bloomberg Aptitude Test?

Monday April 14, 2014

The Bloomberg Aptitude Test (BAT) is gaining prominence as a means for young workforce entrants to get started in financial careers. Going beyond a mere resume enhancing credential, it is part of a larger process that matches students and recent graduates with employers in the financial field. Moreover, depending on the testing venue that you select, it can be free of charge. Follow the link for full details.

There are no guarantees, of course, that taking the BAT and registering for its associated job matching service will get you started in a financial career. Nonetheless, given the competitiveness of the current job market, it is a low risk (no risk if you avail yourself of one of the free options for taking the test) option to consider. More and more leading colleges and universities are promoting it to their students in business and finance.

Managing Wealth

Thursday April 10, 2014

Much of the financial services industry fancies itself as being in the wealth management business and market, focusing on serving the upper crust of investors. A subset of these are so-called accredited investors or qualified investors, those deemed sophisticated enough by law or regulation to make certain high risk investments typically denied to the general public. Follow the links for some core concepts in the field.

The real question is whether this is the appropriate strategic focus. As leading financial firms trip over themselves in trying to entice the clients from the same limited pool of the very wealthy, are they making a big mistake? Are these really the most profitable and desirable clients?

Extras for Clients

Monday April 7, 2014

According to various surveys, growing numbers of clients appear to be disenchanted with their investment firms and investment advisors. One way that firms and advisors are responding is through the aggressive offering of client perks that may attract some new business and solidify existing relationships.

Curiously, though, the same firms often are cutting back on established loyalty programs, such as rewards points on the credit and debit cards that they issue to the same client base. While Morgan Stanley has followed this trend, its Morgan Stanley Reserved loyalty program nonetheless stands out as a fairly robust example. Follow the link for details.

Cloud Computing

Friday April 4, 2014

In most companies, controllers and CFOs would do well to have at least a rudimentary understanding of key IT concepts and issues, the better to evaluate IT proposals and plans, which can have huge financial and strategic impacts. Take cloud computing, one of the hot topics in IT these days.

Indeed, cloud computing in finance is a particularly contentious matter. It's an especially attractive option for cost-constrained smaller firms, particularly those that are growing rapidly and/or those that have wide swings in their demand for computing capacity. For larger, more established players in the financial services industry, it has the potential to yield huge cost savings. Use of the cloud, however, meets resistance from compliance officers, who may be constrained by regulation on the protection of client data, and the movement of such data across national borders. Follow the link on cloud computing in finance for details.

Business Principles

Tuesday April 1, 2014

Can a company have a soul? A highly-respected former SEC chairman once remarked that Merrill Lynch was the lone Wall Street firm with one. The clear, forthright Merrill Lynch Principles were the distinguishing mark of this organizational soul.

Pre-2001, before the company began its slide due to the disastrous choice of a CEO who disdained them, the Merrill Lynch Principles really were taken very seriously in the firm. Particularly noteworthy are these, which are worthy of extended discussion (which you will get by following the links):

What does your employer, or prospective employer, have to say on these matters? Better yet, how does it act? Indeed, you would do well to incorporate these values into your own personal code of conduct, and that of your own work group.

How Are You Measured?

Wednesday March 26, 2014

The annual performance review is a staple in the financial services industry, as it is in the vast majority of companies. Problem is, large majorities of people, including both participants in the process and expert observers, find that very few companies do performance reviews reasonably well. What do you think about the process in your firm? Follow the first link for a discussion of the most common problems, and some suggested changes.

Given the reputation that the financial industry has for fostering innovation, might this not be an area where a radical rethink of existing modes of operation is in order? Might creative (and aggressive) human resources professionals and consultants have key roles to play here, if they can find receptive ears in executive management?

If you're in the financial function, as a CFO or controller or analyst, don't discount the role that you can play in spurring reform of performance reviews. You are in precisely the right spot to advise line management on performance measurement systems, the key metrics that they capture, and how they can used to create the right employee incentives. Indeed, employee compensation systems often are designed with heavy input from financial staff. Once issues of metrics are cleaned up, discussion of how to make the formal performance review process a better feedback mechanism can begin.

Greed Kills

Friday March 21, 2014

Reaching for yield is an old story within investing, and is the underpinning of many sad stories about financial scams and financial crashes. Unfortunately, retail investors aren't the only ones who fall into this trap. Desperate professional investment managers also are prone to make this mistake, with wide reaching ramifications both for their own clients and for the financial system as a whole. Read on for a summary of recent academic research into this matter.

I recently was interviewed for an upcoming cable television program about Hollywood celebrities who get taken in by crooked financial advisors and money managers. Among the questions posed to me: are big name celebrities natural targets for various leeches and crooks? Well, the scammers certainly are expected to go where the money is. And greedy people sure make excellent marks for the Bernie Madoffs of this world who promise outsize, too good to be true, investment returns.

A related issue involves the travails of insurance companies that offer fixed annuities, spurring them to sell these contracts to more aggressive money managers.

Whether you are a personal investor or a professional money manager or risk manager, learn to recognize the signs and the implications of undue reaching for yield.

Playing it Safe

Sunday March 16, 2014

Very early in my Merrill Lynch career, while I was working on refining transfer pricing systems, my immediate superior and I had cause to converse with various securities traders and the controllers supporting them. A big eye opener was learning that these people tended to engage in highly conservative investing practices of their own. Follow the link for details, based on discussions of this matter in the financial press.

For example, a top Merrill equity trader said flat out that he rarely, if ever, put any money of his own in the equity markets. Instead, he was nearly 100% invested in tax free municipal bonds. His reason? Since he already had accumulated a huge pile in bonuses over the years, he had more than ample financial cushion, and saw no need to put any of it at risk. Better, he thought, to play it safe and be satisfied with a steady stream of tax free interest.

Is this hypocrisy, or rationality in face of the trader's own unique circumstances as a high net worth individual? Follow the link also for some takes on this question.

What's New This Month

Saturday March 15, 2014

In case you've haven't noticed already, we have several new articles this month. Here they are, by topic.

Corporate Incentive Stock Options:

Corporate Budgeting Issues:

Financial Regulation: Implementing the Volcker Rule

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