Shocker! Wirehouses Don't Like Their News Coverage!

I read this article via The Big Picture  yesterday.  It struck close to the bone regarding many of the people who pass for financial consultants at most of the major brokerage firms.  I'll repeat something I've said many times in the past.  I worked for three brokerage firms before starting Lumen Capital Management, LLC.  At the end of each year I had a review with my boss.  Those reviews always looked back on what I'd done and how I was going to increase my production in the year ahead.  {Production is the securities industry term for commissions and fees earned from your client base.}  I never had a review where any boss asked me whether my clients made any money in the past 12 months or how their accounts had performed in bad markets!   {Excerpt with my highlights!}

 

Clearing the air about wirehouse news coverage

By Evan Cooper April 7, 2010 

In response to a request for an interview, InvestmentNews reporters received an e-mail the other day from a public relations person at a wirehouse. The firm’s spokesman wrote that he would “need to be convinced” why it would be in the firm’s best interest to make a senior executive available to InvestmentNews.  According to the spokesman, InvestmentNews has been “consistently hostile to the so-called wirehouses, highlighting every possible negative without much balance.”

{The author} would like to address that point of view in a few ways.

First of all, I don’t believe our news coverage of wirehouses has been hostile or negative. We report about developments affecting all financial advisers, including those at the wirehouses, and that means coverage will include news about fines, censures, scams and other things that everyone wants to know about.  Apparently, everyone enjoys reading this coverage, especially when it’s about someone else.

We also report plenty of neutral and positive things about wirehouses, such as when one hires a big team or when a wirehouse broker is selected as a Community Leadership Award winner, for instance.  Unfortunately, most corporations are very thin-skinned. To them, any news coverage beyond a Fortune cover story canonizing a CEO is negative......If everybody thinks we’re picking on them, it probably means we’re serving the people we’re supposed to be serving: our readers....The choice, however, is theirs to make.

Finally, in a stab at full disclosure, let me offer my own two cents about the wirehouse world.

In general, I believe many wirehouse brokers do a great job for their clients. My chief negatives, however, are two: the quality of service providers at the wirehouses is very uneven and clients often don’t know whether they’re getting impartial advice or sales talk.

About uneven quality: Wirehouses spend a fortune promoting their brands and implying that the Morgan or Merrill experience is of high quality, regardless who delivers it. But in real life, Mr. or Mrs. Investor can wind up dealing with a rookie, a vet, a planner or a product expert. There is no uniformity. Unlike a Ritz Carlton, where the service is stellar from Palm Beach to Palm Springs, the brands Merrill, Morgan, Wachovia and UBS can’t deliver consistency of service. And because those firms are so huge, the quality issue is hard to manage.

As far as impartial advice or sales talk is concerned, consistency is spotty there too. Only when wirehouses adopt a fiduciary standard will I believe that they truly are placing their clients’ interests first. Not that registered investment advisers are perfect — or that fiduciaries can’t be crooks — but the adoption of a business model that puts the client first would be a giant step forward. ....

Link to the original Investment News story: Clearing the Air About Wirehouse Coverage.

*Long ETFs that may have positions of certain investment banks or financial firms in client accounts.