Masters in Business: Wealth Management and the 'Great Normalization' with Lisa Shalett

Introduction

In the April 3, 2025 episode of Masters in Business, hosted by Barry Ritholtz of Bloomberg, the conversation centers around the evolving landscape of wealth management under the lens of Lisa Shalett, Chief Investment Officer (CIO) at Morgan Stanley Wealth Management. With a rich background spanning leadership roles at Sanford Bernstein and Merrill Lynch Asset Management, Shalett offers a unique perspective on the industry's past, present, and future.

Guest Background and Career Path

Lisa Shalett's journey to Wall Street is unconventional. Despite holding degrees in applied mathematics and economics from Brown University and an MBA from Harvard, her initial career aspirations were far removed from finance. “[...] I was a drive time disc jockey,” Shalett shares at [03:25]. Her shift towards finance was driven by a combination of personal realization and external encouragement. After experiencing the grueling demands of management consulting, she took a leap into finance, ultimately landing at Sanford Bernstein, where she felt an immediate sense of belonging ([03:52]).

Leadership at Sanford Bernstein and Merrill Lynch

At Sanford Bernstein, Shalett climbed the ranks to become CEO and Chairman, navigating the firm through significant mergers and the tumultuous financial crisis. “[...] our deep value exposure to financials kind of helped unwind us quite a bit,” she reflects at [06:12]. Her tenure at Merrill Lynch Asset Management as CIO further diversified her expertise, particularly in adapting to an “open architecture platform” that allowed financial advisors to access a broader range of products ([10:35]). This experience honed her ability to collaborate with financial advisors, a skill she emphasizes as crucial in her current role at Morgan Stanley.

Transition to Morgan Stanley and Role as CIO

Shalett's move to Morgan Stanley was catalyzed by the departure of her close colleague, Sally Krawcheck, from Merrill Lynch ([23:08]). Recruited by Greg Fleming, co-president at Morgan Stanley, she embraced the opportunity to build and integrate the CIO office, contributing significantly to Morgan Stanley’s expansive wealth management strategies. “[...] we're serving every type of wealth client, internationally, domestic, self-directed through a brokerage account, all the way through complete discretionary,” she explains at [14:48].

Asset Allocation and Wealth Management Strategies

Central to Shalett's approach is the integration of financial planning with asset allocation. “All asset allocation starts with financial planning and all financial planning starts with the client,” she states at [25:36]. Her methodology emphasizes understanding clients' cash flows, aspirations, and personal definitions of wealth. This personalized approach ensures that investment strategies align with individual goals, whether they involve philanthropy, generational wealth transfer, or retirement planning.

The Great Normalization and Market Perspectives

One of the episode's focal points is the concept of the "Great Normalization." Shalett highlights the unprecedented financial environment post-Great Financial Crisis, characterized by extensive Federal Reserve intervention and prolonged low interest rates. “[...] the past 15 years have been extraordinary in financial history,” she asserts at [40:27]. She contrasts this period with the current shift towards normalized interest rates and economic policies, predicting a transition back to historical norms where long-term rates stabilize around 5-6% and market multiples begin to mean revert ([44:50]).

A notable quote encapsulating this sentiment is, “We're all long term investors until the market goes down,” reflecting the challenges investors face in maintaining long-term strategies during market volatility ([37:51]).

Impact of Technology and AI on Investing

Shalett delves into the transformative impact of technology and artificial intelligence (AI) on the investment landscape. She discusses how AI is revolutionizing sectors like healthcare through personalized medicine and diagnostics, and defense through advancements in autonomous systems. “[...] we're super excited about some of these AI adopters. We're looking at areas whether it's document recognition, voice recognition, all these various applications,” she explains at [56:22]. Shalett also emphasizes the need for investors to stay ahead of technological revolutions by identifying and supporting the next wave of "killer apps" and innovation-driven winners.

Behavioral Economics and Investing Principles

Touching on behavioral economics, Shalett underscores the emotional biases that derail long-term investment strategies. “Emotional losses hurt four to five times more than gains satisfy,” she notes at [38:23]. This insight aligns with her advocacy for disciplined, consistent investment plans over speculative, emotion-driven decisions. She champions the power of compounding, advising investors to focus on steady growth and strategic asset allocation rather than short-term market fluctuations. “Being right is not what matters. What matters in the long run is the power of compounding,” she advises at [74:19].

Advice for Upcoming Professionals

For recent graduates eyeing a career in wealth management or finance, Shalett offers a refreshing perspective. She champions the liberal arts education, stressing the importance of adaptability, continuous learning, and self-discipline over specialized financial training. “Study what you love, study what you're passionate about. Learn how to learn and never lose that hunger for knowledge,” she advises at [72:54].

Personal Insights and Day in the Life

Shalett provides a glimpse into her disciplined daily routine, illustrating the importance of structure and mindfulness in her high-stakes role. Waking up at 5:07 AM every day, she combines physical exercise with strategic planning to stay grounded and focused. “[...] I wake up at 5:07 every day and the very first thing I say is I am blessed that I have the career that I have,” she reflects at [64:51].

Significant Shifts in Wealth Management

Reflecting on her three-decade career, Shalett identifies the democratization of sophisticated investment products as the most significant shift in wealth management. From mutual funds to direct indexing and private equity inclusion in retirement plans, she highlights how access to complex financial instruments has become more widespread and user-friendly. “The democratization of very sophisticated access, of access to sophisticated products,” she states at [66:04].

Conclusion

Lisa Shalett's insights offer a comprehensive view of the current and future state of wealth management. Her emphasis on personalized financial planning, disciplined investing, and the strategic integration of technology underscores a holistic approach to managing vast assets and serving diverse client needs. As the financial landscape continues to evolve towards the "Great Normalization," Shalett’s expertise provides invaluable guidance for both seasoned investors and newcomers navigating this complex environment.

Notable Quotes

• “We're all long term investors until the market goes down.” ([37:51])

• “Emotional losses hurt four to five times more than gains satisfy.” ([38:23])

• “Being right is not what matters. What matters in the long run is the power of compounding.” ([74:19])

• “Study what you love, study what you're passionate about. Learn how to learn and never lose that hunger for knowledge.” ([72:54])

• “The democratization of very sophisticated access, of access to sophisticated products.” ([66:04])

Further Listening

Listeners interested in deepening their understanding of wealth management and investment strategies are encouraged to explore past episodes of Masters in Business, available on platforms like iTunes, Spotify, and YouTube. Additionally, Barry Ritholtz's new book, How Not to Invest, offers further insights into the intricate dynamics of investing.