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How to Ruin a Good Broker/Dealer

by Jonathan Henschen, CFS and featured in Investment Advisor
June, 2005:

In the spirit of Ben Stein’s How to Ruin Your Financial Life (Hay House, 2004), I penned a guide to assuring the premature demise of an otherwise successful broker/dealer. Tongue-in-cheek tips from the frustrated financial advisors we’ve consulted with in our recruiting activities.

• If you’re the president of a broker/dealer, establish the fact that you’re far too busy to spend time visiting with prospective advisors. If you must, visit with million-dollar producers only (just be sure to be pompous and listen primarily to yourself).
• Let your compliance folks run wild creating reams of paperwork to protect the firm. Clients feel more secure when handed stacks of disclosure forms to sign.
• Do all you can to protect the firm from your own advisors. When a rep receives a customer complaint, assume he’s guilty and give the producer 30 days to find a new firm. Standing behind advisors and seeing them through the complaint process is a waste of time. Besides, the compliance department has all those new forms to work on.
• Assume your reps will hear about compliance changes through the industry grapevine. This will save your compliance folks time and money in actually disseminating the information.
• Be aggressive about pushing proprietary products. After all, that’s where those double-digit returns come from! Advisors love the simplicity of selling just one product line.
• Substitute flashy technology for solid back-office service. Advisors would much rather work with computers than talk to real people. Back-office personnel are expensive; keep staffing to a minimum.
• Limit what you offer advisors as a way of lowering your risks. For instance, avoid reps who do substantial stock trading, REITs, limited partnerships, hedge funds, and futures. Sure, wealthy clients like those kinds of investments—but what do they know?
• Advisors love back-office consolidations. The magic formula is to move everyone around and bring in a lot of new people. When advisors don’t know anyone and the staff is largely clueless, reps’ questions take on a reassuring air of mystery.
• Adopt an overbearing top-down management style. Advisors realize upper management knows what’s best for clients, while advisor opinions run a distant second.
• Be creative in devising new profit centers. How about charging technology and administration fees? Or a compliance fee? Or keeping mutual fund trails and high admin fees in advisory accounts? Those are all good starts, but marking up E&O insurance is icing on the proverbial cake.
• Establish a business model that grows your firm so fast that your back office soon has a hard time servicing the advisors. To accentuate the ordeal, set up shop so far away from major labor pools that hiring staff is like finding Elvis.
• Design an elaborate phone messaging maze for reps to wade through. Make sure staffers understand that meetings and office routines take priority over returning advisor calls. Reps should feel honored to get a call back.

As Ben Stein concludes in a different context: If you’ve read this far, it’s just possible that you have some idea what you’re doing wrong. It just may be the case that you’ve noticed that you’re doing a lot of the aforementioned ruinous things that spell T-R-O-U-B-L-E.