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Retail Brokerage Manifesto

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I’ve been in the investment business for 10 years now wearing a variety of hats.  I’ve been a hedge fund analyst (small cap/tech/retail/food), ran business development for Seeking Alpha, and hold both a brokerage rep license (Series 7) and an investment advisory license (Series 65).

For the nuanced, a broker makes a living transacting stuff and an advisor is prohibited from doing this.  Even though the vast majority of my business is done as a fee on assets (not based on commissions), it’s sometimes strange wearing both hats.  I approach the business as an investment advisor would but typically manage accounts under my brokerage license — this allows me to develop unique portfolios for individual clients.  It’s inherently less scalable than an one-size-fits-all portfolio but it’s also good service and good business.

As I reflect on the past and plan for the future, I’d like to share the tenets of how I personally approach the business of investments.  It’s the creed I live by and it’s what helped me continue to grow.  Some of this is required by law, regulatory statute or is just plain my opinion.

Tradestreaming Broker’s Manifesto

  1. I don’t believe it’s inherently wrong being paid to manage client assets, even if I get paid a commission
  2. That’s because I always have the client’s best interest in mind
  3. Even if it conflicts with my own personal financial incentives
  4. Even if I *lose money* on the trade (independent reps have transaction costs on trades that they need to cover)
  5. I always told myself that in spite of the power a broker has over client decision making, I would never hard sell anything
  6. Always look for ways for clients to save money
  7. That may mean comparing Mutual Fund A vs. Mutual Fund B but it also means comparing Mutual Fund A vs. ETF A (one pays a trailer, the other is a transaction)
  8. Nobody says anyone needs to be in the market or needs to have a 60/40 portfolio
  9. The extension of this is that the best client performance sometimes comes from designing a portfolio from the ground-up, not top down and not by cramming a client into a pre-ordained portfolio or allocation
  10. I don’t believe in the Efficient Market Hypothesis (EMH) and do believe that clients can do better than the markets without having to assume more risk
  11. That said, while the potential to beat the market exists, it may be elusive and in specific cases, may not be worth trying
  12. Sometimes an honest broker makes his money by keeping clients out of trouble and that’s worth something, too, even if clients don’t necessarily recognize this
  13. There are a lot of brokers making their clients a lot of money and really doing good by them.  I want to be part of this group.
  14. Everyone in financial services has conflicts of interests and how you get paid is just one of them.  Regardless of licensing structure, good financial advice requires being honest and open with yourself and clients.
  15. Clients don’t begrudge their advisors making money and some feel good giving the business even if they could transact using an online broker
  16. But they won’t forgive if it’s done at their expense
  17. That said, very few clients could rightfully decipher if this was the case so the whole thing rests upon the broker/advisor being honest and open with him/herself.
  18. There aren’t many of us who behave as we do and that’s OK.

Do you have anything to add? Let me know in the comments.

photo courtesy of battlecreekCVB

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