As I said, I've seen the power of the wealth management business literally since early in my career, and it's a business that grows with markets, that grows with the success of your clients. The world GDP is continuing to grow, and wealth management is aligned with that. So, I think yes, it's been a good run in the marketplace. And yes, there's a lot of interest in these businesses and they're highly valued, but if they grow, I think the valuations are justified.
We continue to add debt in the United States at an alarming rate. Candidly, it's the issue that I worry most about. One of the ways to deal with that is to have nominal GDP growth higher, more in the 6% range with 3% inflation and 3% real growth if we can get there. And hopefully with AI, we can. So I think there's built into the system more willingness for slightly higher inflation. You're not going to hear this from the Fed governors. They won't say this, but I think that's kind of built into the system now.
It's very hard for any human being. In fact, I'm not sure over a lifetime that anybody does it well to try to time where the AI correction is, where markets are going moment to moment or year to year. So the advice is so important. You want to put in place a long-term plan and stick with it and listen to the people who have the professional expertise to stay calm and constant through everything.
Welcome to the Master Investor podcast with me, Wilfred Frost, where we celebrate and learn from the success of the greatest investors and business leaders in the world, giving you, our listeners, the edge. The Master Investor podcast is sponsored by Interactive Brokers. Please do remember the views expressed in this podcast are for general informational purposes only. Nothing in the podcast constitutes a financial promotion, investment advice, or a personal recommendation. More on that in the show notes.
My guest today has led and built some of America's finest wealth management and brokerage businesses with roles that have covered Merrill Lynch, Smith Barney, Morgan Stanley, many more, and now Rockefeller Capital Management, which he leads. I am of course talking about Greg Fleming, who I am delighted to welcome to the Master Investor podcast. Greg, it's a joy to see you.
Wilfred, thank you very much for having me. It's great to be here.
We talked there about some of those wealth management roles you've led and also at some extraordinary times as well, some real defining times for those companies in and around the financial crisis and elsewhere. And I want to get into some of that history in a moment, but just to start with a sort of broad question: given what you do and what you're building now at Rockefeller, what ultimately makes for a great wealth management business?
You know, for years, Wilfred, and this has been true for really the full duration of my career, 37 years now, wealth management is one of the better forms of financial intermediation. That's how I put it. And what I mean by that is it's a business that first and foremost is directly tied to the client. So in its best form, wealth management, you're providing advice and counsel to clients. In our business at Rockefeller, families across generations, which is a really important relationship for you to have with the client. So it's directly tied to the client. It's recurring revenue and fee-based. So that's aligned with the client, and from a market and investor standpoint, they like recurring revenues. They like predictability.
And it also avoids a lot of the risks that, you know, we'll talk about this as we get into Merrill and some of the credit crisis issues that larger full-service firms take on. Credit risk, counterparty risk, liquidity risk. A lot of those risks are not embedded in wealth management. It's low capital intensive. You know, in 2025 you need to have a great technology platform, but with a lot of the innovation that exists in the technology world now, you can do that, build it in the cloud, and that's still not tremendous capital expenditure. So there are many aspects of it that make it attractive for investors as well as a business that's very, very important for the client. And you have that direct interface with the client, you're providing the advice directly to the client.
It's so interesting to hear you focus so much on that client relationship because I was going to assume the most important thing ultimately would still come back to the performance of the underlying portfolios. Is that the most important factor or not? Is it the relationship?
That's a great question. It's important because in the final analysis, you're trying to take care of their money and grow it for them. But for us, at Rockefeller, we're providing comprehensive advice across all the different needs of the client. So the performance is very important and we spend a lot of time focusing on that and we have an investment and client solutions group that looks at and evaluates outside managers to pick the best in each category because we're open architecture. Most of what we do for our clients is put them in the best strategies that other managers take care of. But we also provide generational advice. We provide tax insight. We're trying to maximize after-tax returns for clients. We'll provide family office services, we'll take care of paying bills and things like that. We provide financial education for second and third generations that may not be as financially fluent as the founding generation. We have a boutique investment bank to provide families that built the wealth through growing a business advice on the business. So, we're trying to provide the full cross-section of services and advice, really everything for the client from a financial standpoint. And yes, investment performance is a key part of that, but we do a lot more than that for the client and the client appreciates that. They want that comprehensive advice.
One word which I think is so fascinating I haven't heard you say yet is brand. You know, in any other sector, all the successful businesses obviously, hopefully they have a great product as well for the consumer. That's sort of a requirement, but they have a phenomenal branding. Rockefeller, which we'll come to in more detail in a moment, is obviously quite a high-end product. So I guess it doesn't matter as much, but when you think of Merrill or Smith Barney or Morgan Stanley or BlackRock or all companies you've been heavily involved with, are there brands there important like a consumer products company or is it not quite as relevant in wealth management?
You know, I would argue it's very relevant. I won't draw the correlation maybe to a consumer brand that's purchased every day and evaluated every single day, but I think that the names that you just mentioned, they've developed fantastic brands. I mean, BlackRock, I've had a long history with BlackRock. Took the company public in 1999. I always point out at $14 a share given where it is today, the incredible success by Larry and team. But that's a...
And you're on the board of BlackRock now.
Yeah, recently rejoined the board. That's a great brand. You know, and some of the other names you mentioned, Morgan Stanley is a great brand built over many, many decades. And Merrill Lynch was a brand, when we sold it in 2008, it was a 94-year-old brand and they come to signal and represent things to the people that are looking to potentially, you know, buy the services. So I think brand is still very, very important in the financial industry, in the wealth management industry, asset management. And I think clients look to those firms for certain things and they have a predisposition to be positive to those firms because the brand stands for something.
I'm really interested in the branding of, I guess, Merrill Lynch, which you were at from 1992 till 2009. You rose to be president and COO in 2007 and oversaw its sale to Bank of America during the financial crisis, and Smith Barney, which you then oversaw Morgan Stanley's purchase and integration of after the financial crisis. The reason I bring up the brand of those two as well is because they had such a sort of reach across America, particularly coming from the British point of view where engagement in the financial markets is not as important. When I moved to America in 2015, you'd drive around small towns and you wouldn't just see a bank like you'd see in the UK. You'd see wealth management brokerage physical offices. So they did reach out across the country in a way that is very un-European at least, and I guess gives a legacy branding which might not be as relevant today in the digital age. That is probably kind of a one-off now that BlackRock's got a brand, other trading firms have a brand in people's pockets. But what was so special about Merrill or Smith Barney, do you think?
And before I get there, just on the Smith Barney side, the acquisition was done when I joined. I took it over and helped build it into the business it is today. But the acquisition took place during the credit crisis and James Gorman oversaw that. Look, I think you're right, Wilfred. I think these were firms and brands that were embedded in American culture. And you know, Merrill Lynch was known for that. Bring Wall Street to Main Street. That was one of the phrases around Merrill Lynch, or you know, one of the taglines. Smith Barney had some famous advertisements over the years that people knew. So they were advertising to consumers on television, and this is in the pre-everything days, even pre-cable. So they became brands not unlike bank brands, and they stood for something over many decades, which was part of the success of those firms. So, and I do think, Wilfred, to your point, I think it was a point in time. I think, you know, given the digital age and the fact that, you know, physical branches are less pervasive everywhere, even for banks. I think that time was a unique time and has probably passed in that sense.
I just want to dwell a little bit on the financial crisis, and I guess most of the coverage now implies any of the acquisitions that the big banks did were terrible because they led to write-downs. They led to having to raise capital at depressed prices. And you can well, Bank of America is an interesting one. You know, Countrywide, I think you'd put in that bracket. Merrill Lynch, which they bought, did involve some write-downs to come. But had they not done that acquisition, would they be the full-service bank that they are today? Were these acquisitions game-changing for some of these institutions?
Well, I would state unequivocally that Merrill Lynch was game-changing for Bank of America. And the business that we sold, and I did oversee the sale of Merrill Lynch, which was a difficult thing to do. It was 94 years old and I was the president and I was proud of the 17 years I'd been there and proud of the firm, so it was hard to sell it. It was a great set of businesses. And just to remind you, Wilfred, that Merrill Lynch at the time owned half of BlackRock, 49% of BlackRock, which was a deal that I'd helped put together in 2006 where we sold our investment management business, Merrill Lynch Investment Management, with the Merrill Lynch brand to BlackRock and took back a 49% ownership stake. And I went on the board at that time with my boss, Stan O'Neal at the time. That stake today would be worth $80 billion. Bank of America doesn't still have it, but that was a tremendous asset to Merrill Lynch. We had at the time, Merrill Lynch had a great wealth management business, arguably the best. Maybe Smith Barney was right up there, which would be worth a tremendous amount, is worth a tremendous amount to Bank of America today. A top three or top five, if you want to be conservative, investment bank. I think that was a fantastic deal for Bank of America and it's played out that way. And then on the Morgan Stanley side, acquiring Smith Barney during that time, which they did from Citibank, and that, as I said, James Gorman led that, that turned out to be a business that we merged. And I was part of running the combined entity and kind of building it up into Morgan Stanley Wealth Management, which is, you know, a crown jewel for Morgan Stanley today. So, I think some of these transactions were absolutely transformational for some of the firms.
I guess the other one that really jumps out always to me, which you're maybe involved with from afar, but is BlackRock's acquisition of Barclays Global Investors. What I kind of, to round that section off, come back to is all of this kind of comes back, you said at the top, the sort of stickiness, the fee-generating aspect of wealth management. The successful deals had that in a way that buying outright banks or just pure investment banks perhaps didn't. You know, we could look at the share price, as you said, of BlackRock perhaps as a proxy since then. Do you get worried that we've just had 15 extraordinary years where people have woken up to what a great business wealth management is, that they already pay up for that sort of business, which is why Morgan Stanley trades at a premium to Goldman Sachs, and therefore not start to worry that we might have a downturn to come?
And just on the last deal you mentioned, BlackRock and the ETF business they bought, that was a fantastic deal for them, which was another gutsy deal that Larry Fink did at the time. That was just after the crisis and that's been transformational for them. You know, Wilfred, I really don't worry about the fact that it's been a great, you know, a strong 15 years in the marketplace and that wealth management is such an attractive business that so many are interested in it. As I said, I've seen the power of the wealth management business literally since early in my career. You know, I joined Merrill Lynch in 1992 and Merrill Lynch wealth management was the crown jewel there then. And it's a business that grows with markets, that grows with the success of your clients. So you're aligned with your clients. The world GDP is continuing to grow and there's, you know, we'll get to AI, but there's a lot happening that's extremely positive in the macro economy and wealth management is aligned with that. So I think yes, it's been a good run in the marketplace and yes, there's a lot of interest in these businesses and they're highly valued. But if they grow, and that might be the one caveat I give, organic growth is key to high valuations in anything and the most highly valued companies in the financial space, but anywhere in any industry, this technology as well, tied to organic growth. If your business is growing organically, meaning you're doing more for your existing clients or you're bringing in new clients, I think the valuations are justified. And the cycle has proven that over three or four decades, not just 15 years.
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So, let's talk about Rockefeller. You obviously left Morgan Stanley in 2016, quite a high-profile departure. Were you confident what you were going to do next at that point? And were you nervous about going from leading a huge department at a huge company where you might rise to the very top to something a lot smaller?
You know, I was ready for... The years at Morgan Stanley were terrific. And when I left, the wealth management business was in very good shape. We had taken it from mid-single-digit margins to 22 or 23 and there was momentum there. So, it was a good time to go. And I really wanted to do, you know, at least one more thing. And I really was looking to do something different this time. I'd been with two great firms and they'd been great runs and, you know, I'd enjoyed success and worked with a lot of great people. So I wanted to try something that was more entrepreneurial. So I was looking around at the time for what that might be and getting a lot of advice from a lot of different people. And I found out that we could acquire, potentially acquire, Rockefeller & Co., which was originally the family office of John D. Rockefeller Sr. in 1882. So it's arguably the oldest family office in the US. And when I found out that we might be able to purchase that and build a business around the iconic and incredible Rockefeller name, I went at that hard and we ultimately were successful in acquiring it. I did it in partnership with a capital partner, Viking Global Investors, who's still with us today and been a tremendous partner in the building of Rockefeller Capital Management. We changed the name from Rockefeller & Co. to Rockefeller Capital Management to make it clear that while the Rockefellers are a very important part of this and they are, we take care of... there are over 300 of them alive today. Many of them are our clients. Two of them sit on our board, David Rockefeller Jr. and Peter O'Neal. They own a piece of our business. So, they're a very important family to us. But we wanted to build the business for many other families, particularly in the United States. We wanted to take this incredible name and build it out across the US in major wealth centers and build a business taking care of many successful American families. So, when I realized I could get this Rockefeller partnership, I went after that hard.
And I think, reading it, you've just finished a recapitalization. So the value of the company is at $6.6 billion. But I think I'm more interested in and more impressed by the AUM. You now have $190 billion of assets under management.
In that neighborhood. We're coming up on that $200 billion.
Okay. So already better than when I last checked in with your team. And where was it when you took it over? I mean, in terms of, I don't know, you're talking about percentage growth or relative growth over the last five, six years. That's got to put you right up there with all of the best wealth managers, right?
Yes. And we're quite proud of the growth. We started with $18 billion in assets.
It's a significant increase. Now, some of that is what we call inorganic. We hire teams. We call them elite advisers. We look for the best teams in the industry that have experience in working with high-net-worth and ultra-high-net-worth clients, which is our focus. So we bring them on board and they typically bring their clients with them, but then we grow organically. And the organic growth that we've been able to achieve at Rockefeller Capital Management is the thing I'm probably most proud of because it's the ultimate compliment from clients and new clients. If you're working with a client and they trust you with maybe the rest of their wealth, so they're working only with Rockefeller, or you get a new client, that says a lot about the services that you're offering and how they view you. So we've had tremendous growth. We've had to invest in the business, Wilfred, to make that happen. When we started, you know, most of the capabilities we have today weren't there. So in the early years and right through today, we've invested a lot in building a world-class technology platform, all in the cloud, and building out our investment platform that I talked about. Family office services, financial education, we have philanthropic advisory, we'll help you set up a foundation, and so many of our clients are philanthropic. We have our investment bank, we have an asset management business with some very focused, high-quality strategies that are offered to our clients on an open-architecture basis. I emphasize open architecture because our whole focus is on what's best for our clients. We want to make sure that we do the best job for them. It's not on whether it's a Rockefeller product or, you know, a product from a different asset management company.
Before we get into the sort of talk about current markets and your views there, I just wanted to dwell on John D. Rockefeller because, as you said, you're obviously trading off that name. And it's always great to reflect with someone who knows so much about him and what he achieved. I mean, we talk today about some people who are supremely wealthy, from Bezos to Musk, and, you know, you're talking about more money than God type aspects. John D. Rockefeller was even more wealthy relative to other people in his day than they are. Is that fair?
100%. The wealth of the Rockefellers at the peak was the equivalent of 4% of GDP. So it would be north of a trillion dollars today. So they still, you know, have that number one slot in terms of wealth.
And is he someone who was universally liked? I mean, obviously it's a word that you can trade off in the world of wealth for sure, but were there negatives that you could point to as much as the positives? What kind of lessons have you drawn from studying him?
You know, I take the positives away, and I obviously didn't know the man personally. There's the incredible biography, the Chernow biography, Titan, and I talk a lot to David Rockefeller Jr. and Peter O'Neal, who sit on our board. I know so many of the family and they have memories and stories. But the positive was enormous. He was incredibly driven. He was really never satisfied and always focused on continuing to move forward. You know, he once said, quote, 'I never expected to lose.' He also had so many positive other aspects to him. He once said, I think this is the quote, 'Your destiny is a product of your actions, not your origin,' which I love. And as an American, I'm particularly proud of so many in our country who fit into that category. But yeah, he set a very high bar and he drove people hard. But you're not going to create 4% of GDP as wealth in a family without setting a very high bar. And, you know, we talk about that at Rockefeller Capital Management today, and I use his quotations all over the place all the time, and there are so many of them. There are letters that he wrote to John D. Rockefeller Jr., his son, where he says so much of his worldview, and it's fascinating. I'll send them to you. But at Rockefeller, we talk about excellence in everything. And one of my favorite quotes is Vince Lombardi, a football coach from the '60s, the, you know, Green Bay Packers, who was paraphrasing Aristotle. And almost everybody at Rockefeller can give you this quote now. I've used it so many times. But Lombardi said, quote, 'Perfection is not attainable, but if we chase it, we might just catch excellence.' And I love that. And John D. Rockefeller Sr. would have loved that. And that really embodied his life. And, you know, so I find so much of reading about him and the bar that he set to be very admirable. At Rockefeller, we like to, last point on this, balance the excellence with a focus on a collaborative, collegial culture. We want to go after it in a way where people feel upbeat every day and they treat their colleagues with respect. And one of my other favorite quotes that I like to disavow is Leo Durocher, the baseball manager, this is 1950s now, said, 'Nice guys finish last.' And I have said for years that nice men and women can finish first, but they better shoot for excellence if they want to do that.
