You Don't Want To Be a Stockbroker

Most of you know that I was a stockbroker for several years in the early 1990's, and at the time it was a great gig: we made a ton of money and were basically the only game in town. Fast forward 20 years and none of that is the case anymore. My boy Josh Brown (@ReformedBroker) spits the hot fire of truth about the business in the following interview. For those of you considering retail brokerage vs. advisory or asset management, pay close attention. There's a world of difference between a suitability requirement and a fiduciary responsibility:

 

seems like this is a dead field anyways, at least for retail. i was interning at ML when they were moving to an online system in the mid-90s. to think they used to charge $110 a trade for their white shoe clients at their high water mark. and the broker i worked for didn't strike me as too much of an intellectual heavyweight, just the daughter of a very wealthy and connected person.

 

$110 per trade? That was an absolute minimum in the '90's at places like Merrill, but it is nowhere near the high watermark and even then the average commission then was multiples of that. You realize there used to be a standard commission rate mandated by the NYSE for all brokers, right? I believe that ended in the '70's which opened the door to discount brokers like Schwab.

Don't forget the practice where brokers used to take inside spread (not shown to client) and the adage among many was 'if you don't get a quarter, don't take the order.'. In other words, the market maker would have a 3/4 point bid-ask spread on a $14 stock and would pass 1/4 to the broker. Obviously, these were only on shit stocks with a limited number of market makers. Decimalization and sites like Yahoo! Finance were the beginning of the end of those practices.

The retail broker is going the way of the dodo, it's hard for me to believe there are any left at this point.

 
SirTradesaLot:
$110 per trade? That was an absolute minimum in the '90's at places like Merrill, but it is nowhere near the high watermark and even then the average commission then was multiples of that. You realize there used to be a standard commission rate mandated by the NYSE for all brokers, right? I believe that ended in the '70's which opened the door to discount brokers like Schwab.

Don't forget the practice where brokers used to take inside spread (not shown to client) and the adage among many was 'if you don't get a quarter, don't take the order.'. In other words, the market maker would have a 3/4 point bid-ask spread on a $14 stock and would pass 1/4 to the broker. Obviously, these were only on shit stocks with a limited number of market makers. Decimalization and sites like Yahoo! Finance were the beginning of the end of those practices.

The retail broker is going the way of the dodo, it's hard for me to believe there are any left at this point.

you're right, we charged certain clients well north of $200/trade before the online deep discounters were moving in, and we're just talking your average upper middle class shlubs, not the real HNW accounts.

i got many a papercut copying and mailng off equity "research" reports, morningstar outlines, etc. to think that all my labors were in vain.

 

I have a guy who oversees my IRA, but I have a discretionary account that I trade through a retail brokerage. I grew up being taught that it's always better to have someone who specializes in wealth management to watch your money, but I'm not sure if I believe that anymore. SirTradesaLot & Eddy, I'm sure you guys have 401ks, but I'm curious as to how you handle your discretionary investments.

 
Best Response
BTbanker:
I have a guy who oversees my IRA, but I have a discretionary account that I trade through a retail brokerage. I grew up being taught that it's always better to have someone who specializes in wealth management to watch your money, but I'm not sure if I believe that anymore. SirTradesaLot & Eddy, I'm sure you guys have 401ks, but I'm curious as to how you handle your discretionary investments.
I think the point of the attached clip is that there is a difference between a stock broker (Series 7) and a registered investment adviser (series 66). The broker charges commissions and the adviser charges fees tied to assets or some other type of fee that does not get them paid more if the client trades more. The tricky area are the guys at Merrill, Morgan Stanley, etc. who are both and could broker thing for you or be an adviser. No client knows the difference and it is something that will be changed in the coming years, but it may take a long time because these big wirehouses have a powerful lobby.

By the way, guys who work in Asset Management or hedge funds are registered investment advisers (series 66) so they are bound to the fiduciary standard. Someone who sells a hedge fund (but doesn't work at the fund company), would be a broker (Series 7).

Personally, I have most of my money in my firm. Before, I used to have everything at Fidelity. I don't need someone watching my money...that's what I do for a living.

When it comes to things like estate planning and the like, it doesn't matter much if you use an adviser or a broker, because you are going to need a T&E lawyer to draft everything anyway. The big high end firms like JP Morgan, Credit Suisse, Goldman, Deutsche, Morgan Stanley, etc. will have in house T&E lawyers who can review/preview T&E documentation, but they don't draft it for you. Those are 'value added' services used to justify their higher fee rates.

It's important to remember that a broker's primary job is to generate commissions, not generate good performance.

 

One of technological development's biggest social impact is eliminating middle men. Don't be a middle man. No one likes a middle man- all they are is people between you and your objective who want a cut.

Bene qui latuit, bene vixit- Ovid
 

What a joke - this man is a disgrace!

Pissing in the soup that has fed him. He couldn't made it in 2008, might have got canned, or was on his way out, so went into... advisory? You share your client's risk? What type of horse shi.t. Your client loses $1mln on your investment/advice, you are not going to give him part of your salary for this...

"Rip the bandage" - yeah right... No one got paid that year, it was a smart move to get out at that time. He did not lose anything doing this. He is just like some of those writers you find post crisis who got out; spitting on their past job and co-workers, feeding their books full of sh.t for sensationalism and the liberal press.

If we are talking about the retail brokerage business - yea this is done, no need for them anymore. Brokers in banks - who is going to place a new issue, who will go into the market and work $10mln of stocks for you and take that risk. Who will be there to assure the secondary market post issue. Who will be giving you access to markets that are still far accessible. Who will provide you research if you are not paying them for it???

From a couple of the responses in this post some people are confusing what this brilliant man was doing with a broker picking up retail order. He mentioned he would talk to analyst pushing stocks - this guy was working in a bank pushing stocks to asset managers - so he was in the latter IPO placing group etc...

Oh and lastly... There are very few good asset managers out there, most of them follow the crowd "oh we can hold money in cash" - in the dot-com all those idiots were chasing whatever stocks so they would not lag their peers, during the subprime they were loading up on MBS and other toxic sh.t. I can GUARANTEE you they are not sharing any of the losses with their clients, and might not have gotten a massive bonus, but it's OK they are still getting management fees etc..!

Fiduciary - suitability my ass. I agree that equity brokers are disappearing slowly, but we will still need them, just not in such high numbers anymore. But muppets like him will slowly disappear as well in the near future, inflows in ETFs are taking away from his industry. Instead of beating on brokers after having made his money in the industry, he should worry like the rest of us about his industry. We are all in this sh.t together!

 
Disjoint:
I can GUARANTEE you they are not sharing any of the losses with their clients, and might not have gotten a massive bonus, but it's OK they are still getting management fees etc..!

Not supporting this guy and I agree with most of your post... but the idea of being an "advisor" vs. a "broker" is that his business model is most likely 75-100% fee based, so pushing stocks or working on commission doesn't really come into play for him anymore.

Example... if the book he manages is worth $100MM and he provides poor advice on investments, asset allocation, etc then his book value can drop to $80MM. Because his compensation is a fee based model and he collects 1%/yr then his compensation would go from $1mil to $800K because he offered poor advice... thus "sharing in his clients' loses"

 
Disjoint:
What a joke - this man is a disgrace!

Pissing in the soup that has fed him. He couldn't made it in 2008, might have got canned, or was on his way out, so went into... advisory? You share your client's risk? What type of horse shi.t. Your client loses $1mln on your investment/advice, you are not going to give him part of your salary for this...

"Rip the bandage" - yeah right... No one got paid that year, it was a smart move to get out at that time. He did not lose anything doing this. He is just like some of those writers you find post crisis who got out; spitting on their past job and co-workers, feeding their books full of sh.t for sensationalism and the liberal press.

If we are talking about the retail brokerage business - yea this is done, no need for them anymore. Brokers in banks - who is going to place a new issue, who will go into the market and work $10mln of stocks for you and take that risk. Who will be there to assure the secondary market post issue. Who will be giving you access to markets that are still far accessible. Who will provide you research if you are not paying them for it???

From a couple of the responses in this post some people are confusing what this brilliant man was doing with a broker picking up retail order. He mentioned he would talk to analyst pushing stocks - this guy was working in a bank pushing stocks to asset managers - so he was in the latter IPO placing group etc...

Oh and lastly... There are very few good asset managers out there, most of them follow the crowd "oh we can hold money in cash" - in the dot-com all those idiots were chasing whatever stocks so they would not lag their peers, during the subprime they were loading up on MBS and other toxic sh.t. I can GUARANTEE you they are not sharing any of the losses with their clients, and might not have gotten a massive bonus, but it's OK they are still getting management fees etc..!

Fiduciary - suitability my ass. I agree that equity brokers are disappearing slowly, but we will still need them, just not in such high numbers anymore. But muppets like him will slowly disappear as well in the near future, inflows in ETFs are taking away from his industry. Instead of beating on brokers after having made his money in the industry, he should worry like the rest of us about his industry. We are all in this sh.t together!

Disjoint,

I don't think you should be hard on this guy. You are allowed to be critic of your job. Just because it paid your bills does not means you can't say something negative about your job. More so when that negative is true, like in this case. What he is saying is that his job was pushing stocks, even in times like 2008! I'm pretty sure you can see something wrong there.

Now, I don't know if he switched careers because he felt morally bad or not. He only knows that. Sure, he knew he would take a financial hit at the beginning. And he knew he could get back to where he was in a few years. Maybe he even foresaw the doom in his broker job and decided to get out when he could. But I can see that he feels better doing the job he does now than the one he did before. After all, you have to be a devil person to not feel bad when you sell something to someone just to make your commission, when you know that that person will end up losing money. Kudos for him for exposing the industry and for making the change.

 
beaker1:
what is typical fee for assets under management for an RIA? There is no benchmark bonus like for hedge funds correct?

Correct. Majority do not charge a performance component (2 and 20), only a flat fee based on assets under management. That fee depends on what service you are getting. If your money manager has sole discretion of your account then this fee may be higher, similar to a wrap fee versus a flat fee based setup where you are still calling in and placing trades on your account.

 
beaker1:
what is typical fee for assets under management for an RIA? There is no benchmark bonus like for hedge funds correct?
50-125 bps per year depending on asset size, plus the client pays the fees of the underlying funds or mgt fees would be fairly normal.
 

Aut non nulla vel quisquam suscipit. Voluptatem suscipit id error est eum culpa cumque. Non neque numquam deserunt iste labore. Quos vitae eum ipsa.

Career Advancement Opportunities

March 2024 Investment Banking

  • Jefferies & Company 02 99.4%
  • Goldman Sachs 19 98.8%
  • Harris Williams & Co. (++) 98.3%
  • Lazard Freres 02 97.7%
  • JPMorgan Chase 03 97.1%

Overall Employee Satisfaction

March 2024 Investment Banking

  • Harris Williams & Co. 18 99.4%
  • JPMorgan Chase 10 98.8%
  • Lazard Freres 05 98.3%
  • Morgan Stanley 07 97.7%
  • William Blair 03 97.1%

Professional Growth Opportunities

March 2024 Investment Banking

  • Lazard Freres 01 99.4%
  • Jefferies & Company 02 98.8%
  • Goldman Sachs 17 98.3%
  • Moelis & Company 07 97.7%
  • JPMorgan Chase 05 97.1%

Total Avg Compensation

March 2024 Investment Banking

  • Director/MD (5) $648
  • Vice President (19) $385
  • Associates (86) $261
  • 3rd+ Year Analyst (13) $181
  • Intern/Summer Associate (33) $170
  • 2nd Year Analyst (66) $168
  • 1st Year Analyst (202) $159
  • Intern/Summer Analyst (144) $101
notes
16 IB Interviews Notes

“... there’s no excuse to not take advantage of the resources out there available to you. Best value for your $ are the...”

Leaderboard

1
redever's picture
redever
99.2
2
BankonBanking's picture
BankonBanking
99.0
3
Betsy Massar's picture
Betsy Massar
99.0
4
Secyh62's picture
Secyh62
99.0
5
GameTheory's picture
GameTheory
98.9
6
dosk17's picture
dosk17
98.9
7
DrApeman's picture
DrApeman
98.9
8
CompBanker's picture
CompBanker
98.9
9
kanon's picture
kanon
98.9
10
numi's picture
numi
98.8
success
From 10 rejections to 1 dream investment banking internship

“... I believe it was the single biggest reason why I ended up with an offer...”