Breakaway brokers say they go independent to get away from Wall Streetís sales culture. But that raises more questions than answers. What is the culture? Why is the culture so pervasive? Why did the brokers have to leave to get away from it? What part of the culture did they take with them?
Wall Street executives believe investment products are sold and not bought. And it's true. Investors don't typically walk into brokerage offices and ask to buy particular investment products. Someone has to persuade them to buy the products, and this creates the need for sales skills.
The destructive impact of the Wall Street sales culture occurs when companies make the production of revenue more important than the achievement of investor goals. The unfortunate reality is that companies make more money when they do what is best for them versus their clients. Goldman Sachs (NYSE: GS), arguably Wall Streetís most prestigious firm, is a perfect illustration of a company that deliberately damaged investors to benefit itself.
Companies violate ethical boundaries when their need for revenue supersedes the needs of their clients. At its extreme, this sales culture becomes a manifestation of greed and corruption. No wonder Wall Street continues to vigorously fight a fiduciary standard for brokers. It would mean the end of the sales culture that companies depend on for the production of revenue and profits.
Wall Street companies have to generate a lot of revenue because they have a lot of mouths to feed. There are shareholders, boards of directors, executives, managers, advisors, and staff. Shareholders want to maximize profit to drive share prices. Executives want big bonuses. Managers and advisors want to maximize personal incomes. Companies must gain control of investor assets to meet these conflicting demands, and they must maximize revenues when they invest the assets.
This culture tests the personal ethics of financial advisors. Some advisors go along with it because they make a lot of money. Other advisors find the constant pressure offensive, demeaning, and counter-productive. These are the professionals who eventually leave. They know they cannot change the business practices of their companies. Thatís because the companies have become dependent on the sales culture. Their only recourse is to leave.
Two primary types of advisors leave Wall Street companies.
There are sales representatives who move their licenses to smaller firms to obtain higher payouts when they sell investment and insurance products. Support services are greatly reduced, but payouts can increase 60% to 80%, depending on the firm they select. Based on their motivation for making the change, these advisors take Wall Streetís me-first sales culture with them. However, in the future, it is advisor interests, not company interests, that come first.
Fee-oriented advisors leave Wall Street companies to start Registered Investment Advisory (RIA) firms or become Investment Advisory Representatives (IARs) for existing RIAs. They have to leave the more onerous aspects of Wall Streetís sales culture behind for two reasons. First, RIAs and IARs are financial fiduciaries who are required to put investor interests ahead of their own. Even more important, they have to help investors achieve financial goals. If they donít, they will be terminated, and there are no future revenues.
It stands to reason all financial advisors need sales skills that help them increase clients, assets, and revenues. No problem, as long as investor interests come first.
— Jack Waymire spent 28 years in the financial services industry, and for 21 of those years, he was the president of a registered investment advisory firm. He left the industry in 2004 for a career as an author and blogger. You can reach him at Jack@InvestorWatchdog.com.