Jones: Consumers will benefit from financial services consolidation trend

Durland Lecturer Thomas W. Jones, one of the top asset management executives in the nation, explains why he favors broker-managed funds over indexed funds. Frank DiMeo/University Photography

By Linda Myers

Thomas W. Jones, co-chairman and CEO of Citigroup's SSB Citi Asset Management Group, delivered this year's Durland lecture April 8 at Cornell in Rockefeller Hall's Schwartz Auditorium. The lecture is sponsored by the Johnson Graduate School of Management and is considered the most prestigious business leader speaking event at the university.

Jones received his A.B. degree in 1969 and his master's degree in regional planning in 1972, both at Cornell. He went on to earn an M.B.A. from Boston University and gain his Certified Public Accountant accreditation before rising through the ranks to become one of the leading African-American executives in financial services in the United States. He was vice chairman and director of TIAA-CREF, one of the largest pension funds in the United States, before joining the Travelers' Salomon Smith Barney Asset Management group in 1997 and moving over to SSB Citi in 1998 when Citibank and the Travelers merged to form Citigroup.

Speaking to an audience of about 150, Jones commented on the trend toward consolidation in the asset management industry.

"The more assets a firm has under management, the cheaper it is to invest those funds," Jones observed. He asserted that "mega-mergers should yield major savings," particularly for consumers on the high end of the investment spectrum. And he predicted "the gradual transformation of investment management to a retail-driven business shaped by consumer decisions," as baby boomers enter their pension years.

Jones characterized SSB Citi as a group of skilled professionals selling a dependable, high-quality "advisory-intermediated product," rather than an investment bargain. He compared its positioning to Cornell's. The university, he noted, focuses on delivering a first-rate education to exceptional students, rather than lowering its tuition to attract more applicants.

When asked why indexed funds -- low-cost funds like Vanguard, which are automatically invested in an array of financial products that represent a cross-section of the market -- had outperformed higher-priced, broker-invested funds in recent years, he responded: "Indices do well in a bull market, but it's not clear they'd do that well in a more volatile market because everything is fully invested all the time. In volatile market people tend to turn to the experts because for most people, the pain of losing money is three times greater than the thrill of gaining an extra dollar."

During his remarks, Jones praised the late Cornell President Emeritus James Perkins for opening the university's doors to increased numbers of black students. Perkins, who died in August 1998, was president of Cornell when Jones was an undergraduate and campus activist. Jones, who has endowed a Cornell prize for interracial harmony and understanding named for Perkins, also was on campus to attend the announcement of this year's Perkins Prize winner -- Cornell's Multicultural Living and Learning Unit -- on Wednesday, April 7. (See story.)