“What do you mean you’re leaving?”
“I just … I don’t know. I can’t do this anymore. I can’t go into that place anymore.”
“Josh, this is scary. We have a house and Tara’s school. And Justin’s turning one this summer. What are you doing? What are we doing?”
“I know what I need to do. I’m leaving. I’ve spent 10 years doing this sh*t. I can’t do it anymore. I can’t even think about doing it anymore. It’s all bad.”
“I understand, but how are we going to live? Do you even have a plan?”
“I don’t have a plan yet, but I’m working on it. And I promise that everything’s going to be different from now on.”
“I swear to you. I know how to do this the right way. I know what I need to do, I’m telling you.”
“What about your business?”
“I have no business! Just people I sell things to. I can’t do it, it doesn’t work, it’s killing me. Making me sick.”
“But Josh, what about your clients?”
“They’re coming with me. I won’t leave them there.”
“You won’t leave them? What if they don’t come? Then what?”
“They’ll come. They have to come. I need them to come, and they’ll come with me.”
“I don’t know …”
“I’m sorry for everything.”
“Josh …”
“I’m sorry for everything. But everything’s going to be OK from now on. I promise things will get better. I’ll do whatever it takes. I just need you to believe in me. Please.”
“I’ve always believed in you. OK … get out of there and do it. Just do it.”
It’s December 2009. The world had ended nine months earlier, but then it hadn’t. People were picking up the pieces a few months later, but my god how close we had come. The S&P 500 hit 666 on the nose one Friday afternoon, and I posted a video of R.E.M. performing “It’s the End of the World as We Know It” on my blog. The most conservative accounts I was overseeing—bonds, gold, and blue chips—were down 30 percent. My aggressive accounts, forget about it.
People ask why the clients weren’t just put into cash, given how bad things were. Because I’m a f*cking stockbroker. What am I supposed to do? Put my clients in cash for two years and take my kids to a f*cking soup kitchen? Or should I be shorting the market with people’s rollover IRAs?
I told my father-in-law on the way home from the train station one day that if one more person yelled at me or criticized me in any way that I was going to get up from my desk and just quietly disappear. I’m sure he was thrilled to hear that. I might have been just talking, or I might have been serious; I’m not sure now.
And what I hated more than anything was watching the guys I worked with struggle. I was a co–branch manager during the worst market crash in 70 years. Hardly anyone who was alive had ever experienced anything like it, and here I was at 31 years old trying to help people through it. My bullsh*t brave-face routine and all those stupid, fake pep talks. There were days when I’d come home, but then I’d sit in my car in the driveway instead of actually coming home.
And it must have shown on my face; my friends who were pharmaceutical sales reps or lawyers or whatever didn’t want to be around me and couldn’t understand how those hyperbolic headlines in the newspaper were actually affecting me in real life. It also could be heard in my voice; you know you sound despondent when clients on the phone are telling you to keep your chin up.
The economy was falling apart, and so was the firm I worked for, and I still had to figure out how to smile around the babies each night and cobble together a paycheck each month.
And then a ray of light named Howard Lindzon burst through the clouds. Lindzon is the venture capitalist founder of StockTwits, the blog network I’m hosted on. “Joshie, we love the blog, and I want you to come out to this thing I do in San Diego called Lindzonpalooza. It’s a great group of people coming out this year. There are tech guys, Wall Street guys, you gotta come.”
In May 2010 I fly out to the Del Coronado Hotel, and I meet one of my idols in the business, Howard’s friend Barry Ritholtz. He tells me about how his firm is really ramping up its RIA business. I mention to him that I’m already shopping around at RIAs and looking to get out of the brokerage game once and for all. Barry had foreseen the housing crash and had very loudly predicted its effect on the global economy and stock market. Was it a lucky, one-off call that was made in passing? Well, he only wrote about 6,000 blog posts on the subject in the year leading up to it, so you tell me. Anyway, when I get back to New York City, there’s an e-mail from Barry, and within a week I am plotting my escape from hell.
The move wasn’t easy, as I’ve discussed earlier, but then I’d never expected that it would be. As a broker I’d seen hundreds of guys try to leave bad situations for either a check from another firm or a better work environment. They’ve almost always had a chunk ripped out of them on the way out. Firms don’t exactly allow you to take your clients and assets with you. Your clients are always called and told about what a loser you are. And it’s always the guy you sat next to and ate lunch with every day that makes those calls, the guy who’s been to your home and has met your family. Hideous, disgusting culture.
I got out easy. I wasn’t going to a rival brokerage firm, and I wasn’t recruiting any brokers to come with me, and so the firm gave me a pass. It wouldn’t have mattered; I was fighting for my life and for my family, and I would’ve destroyed anyone who tried to stand in my way.
But I don’t think much about those days anymore. It’s amazing how you can go through a multiyear ordeal and have its effects on you be washed away so quickly. I know it doesn’t work that way for veterans who’ve seen combat, but my situation was more akin to a stay in prison than a tour of duty on a battlefield. I still have the scars but no lasting emotional damage that I’m aware of.
I’d spent my entire adult life in the most brutal business you can do while wearing a white collar. I walked away without a single regulatory problem or customer complaint. I felt like an X-wing fighter pilot speeding away as the Death Star imploded in my rearview mirror.
In Somerset Maugham’s The Moon and Sixpence, we learn that before he was one of the greatest painters in art history, Eugène-Henri-Paul Gauguin was chained to a job he hated as a stockbroker on the Parisian exchange. One day in 1883 he came home and announced to his wife that he had resigned his position at the stock exchange and would pursue painting full time.
It only took two years for the Gauguin family to become both penniless and homeless.
Gauguin would ultimately find what he was looking for on the beaches of Tahiti, in exile from his family, surrounded by nude models and painted canvases. While my story runs partially parallel to his, Tahiti was never an option for me.
At this point I’ve shoveled so much dirt on Old Wall Street that you may be wondering what it is that I actually do. I’ll answer that by telling you that these days I do what I should do, not what I have to do. My official designation is investment advisor representative, and my firm is a RIA. And while I have the increased fiduciary responsibility that comes with being an advisor, I feel great about my work and my purpose each day. Not everything goes right; the markets are here to frustrate the maximum amount of people at all times, after all. But most things do go right, and when they don’t, they can be fixed. And I work with smart people who are more concerned with what’s right rather than “What can I sell?”
I don’t receive compensation from any products or syndicates. There are no selling concessions or commissions or transaction fees or ulterior motives or conflicts or special incentives. Only the clients pay me, and the only side of the table I sit on is theirs. And if I’m ever told that it cannot be this way, then I’ll quit. I’ll never work for anyone but my clients in this business again.
The story of my escape is being repeated all around us. As you read this, there are brokers from every corner of the nation who are having a eureka moment of their own and planning their escape out. The statistics are mind-boggling; it is nothing short of a revolution out there.
The research firm Discovery put out a report in February 2010 that out of over 8,000 wirehouse advisors who had left their jobs in the prior year, 28 percent opted to go independent and only 23 percent joined another wirehouse. While the 28 percent that left traditional firms entirely represents less than a third, consider that only 7 percent of jumping wirehouse advisors had gone the independent route the year before—and so we’re talking about a quadrupling over 12 months.
Fidelity Investments is one of the custody firms benefiting from the breakaway broker trend. In a June 2011 survey, Fidelity found that breakaways were “growing their advisory shops at breakneck speed.” It found that although breakaways had on average only been in business 11 years versus 14 years for traditional brokers, their assets under management were now higher—$243 million versus $231 million. It also found that breakaways were growing their practices at a significantly higher rate than brokerage firm advisors and were attracting twice as many new clients with portfolios of $5 million and higher.
Maryland-based Willis Consulting puts our ranks in the RIA channel at 110,000 and growing. This is versus the 38,000 that LPL Financial counted in 2005. It’s an avalanche. Not a day goes by when I don’t see an article in the trade magazines about another high-profile team going independent, despite the enticements dangled before the team by the mother ship.
In the aftermath of the credit crisis, the wirehouses moved aggressively to lock up top producers with record-breaking retention packages, some as high as 300 percent of a rep’s trailing 12-month production numbers. All of a sudden and for the first time in decades, the wealth management guys within these firms found themselves as the belles of the ball, now that banking and trading had almost ruined the franchise. Wall Street banks began to prize their consistent asset management divisions. James Gorman, the CEO of Morgan Stanley, mentioned his financial advisors as the firm’s bright spot during a CNBC interview from Davos, a forum that had previously been reserved for investment banker worship. In fact, Gorman doubled down on his advisor business with a purchase of a controlling stake in Smith Barney from the capsizing Citigroup.
But those incredibly generous retention packages and lockups are now coming up on expiration, and it remains to be seen how many of the brokers re-up. Of the brokers that don’t, some will simply move from one wirehouse to another for a bigger check. In the industry, we call this a “prisoner exchange.” No matter what, the smart money would bet that many of these brokers and advisor teams will be striking out on their own and saying no to the check in exchange for the same freedom that I have found. How many old-school Merrill guys really want to spend the rest of their careers selling Bank of America mortgages and insurance products?
Technology has played a huge role in the mass exodus from brokerage firms to independent advisory practices. You no longer need to be aligned with a major firm to have access to the most cutting-edge tools and practice management capabilities. In fact, many independent advisors are at a technological advantage to their brokerage firm counterparts these days because of their willingness to try new approaches.
Another driver of the trend is the horrendous abuse that the large firms have put their own reputations through. It used to be that the mere mention of one of these firms was enough for a potential client to write a check. This is no longer the case. Merrill Lynch lost $40 billion or so of its own money in 2008, and it wants to manage yours? An old Jewish proverb asks, “Would you bring your shoes to the village cobbler if his children were roaming about the streets barefoot?” Wachovia (now Wells Fargo) was no better, nor was Smith Barney or Morgan Stanley or Citigroup or Bank of America. Bear and Lehman just outright disappeared, although Lehman’s asset management subsidiary, Neuberger Berman, actually escaped intact. And as for the reputation of Goldman Sachs Asset Management, let’s just say it’s not a good look to have your parent company scolded in the Senate for screwing over half the clients in favor of the other half.
These fading giants can spend as much money as they like on image and branding; people don’t care anymore, and no one is fooled. A recent survey ranked the large banks in lower esteem than tobacco companies and airlines among ordinary Americans.
Being an independent carries its own set of risks and challenges. Real estate costs money, as does software and health care and marketing and licensing and registration and support staff and compliance and research. But at a certain threshold of assets under management, these items are well worth paying for when an advisor reaches the point where he or she has had enough of the brokerage game.
I reached this point the hard way and much later in my career than I should have. But the important thing is that I reached it and came through to the other side. I can look at myself in the mirror again and smile when I come home to my family, even after the roughest days at the office.
I have broken away, and I’ve left all the baggage behind. And as promised, everything’s going to be OK from now on.