Melissa Sexton, CFA is the head of Product and Investment Risk for Morgan Stanley MS -0.48% Wealth Management. Prior to this, she spent nearly a decade serving as Chief Risk Officer at two different hedge funds in New York. Most of Melissa’s 25 years of experience has been in a variety of risk management roles, though she has also traded derivatives and worked in operations, and has continuously worked on projects which integrate risk management with information technology. Ms. Sexton is a member of PRMIA New York’s steering committee, received a BA in Mathematics and Economics from Boston University, and was awarded her CFA charter in 2001.

Christopher Skroupa: You started your career in risk management in the 1990s, a decade notable for rapid changes in information technology combined with extraordinary growth and development of financial products. How have these changes affected the risk management function over your career?

Melissa Sexton: The changes have been significant and continue to be. When I started in the field, the most sophisticated financial instrument was an exchange-traded option – a standardized product with fully transparent pricing and contract terms. Software for standardized products can be commoditized and developed fairly quickly, but products with multiple triggers and non-standard underlyings meant that technology and risk models needed to be flexible and much more complex. And risk managers needed to be knowledgeable not only about valuation models and the nuances of different financial markets, but needed to have more of an enterprise view of risk. The risk function in the early nineties was largely focused on managing market and credit risks, but the massive growth of over-the-counter (OTC) derivatives, also known as off-exchange trading, led to increased counterparty, operational and liquidity risks. It also led to a need for enhanced Know your Customer (KYC) controls, which support a business in verifying the identity of its clients, to manage reputational risk.

Skroupa: Can you compare and contrast your previous role of chief risk officer at a hedge fund with your current role managing investment and product risk at a large, complex organization like Morgan Stanley Wealth Management?

Sexton: In many ways, the roles are quite similar because most risk management positions require a blend of quantitative and financial expertise, technology and communication skills. It will always be essential that risk managers are able to influence behavior. But the biggest difference I experienced while working at hedge funds was the emphasis on stress testing and liquidity risk management – both fund liquidity and asset liquidity. This is because of the higher leverage employed in most hedge fund strategies and the prevalent use during the financial crisis of gate provisions, which limited the amounts clients could withdraw from funds. I worked closely with clients during this hectic period which gave me insights into their unique needs and circumstances.

At Morgan Stanley Wealth Management (MSWM), we are also focused on individual client needs and circumstances, but the size and scale of this business differs materially. With more than 16,000 financial advisors and approximately $2 trillion in client assets, we need to focus on clients and their accounts, but also financial advisors, financial markets and the multitude of investment products and solutions we offer.