What FAs Should Tell Angry Facebook Clients

The Facebook offering, as everyone in the world knows, including the checkout gal at my local Duane Reade, is a nightmare. It a nightmare for Facebook, a truly bruising headache for Morgan Stanley, who led the syndicate, and, natch, a giant body blow to retail investors who were super amped that they would get a chance to play with the big boys in the most-awaited IPO in the century. But it is particularly a nightmare for Morgan Stanley Smith Barney FAs. What FAs should tell angry clients? “Remember Google’s ‘lousy’ Dutch Auction in 2004?”

MSSB, you’ll recall from our Features Editor Kristen French’s report last week, that MSSB proudly offered Facebook shares to all retail clients. Here is what she wrote on 17 May:

“A couple of days ago, Morgan Stanley Smith Barney told its financial advisors that all clients who had expressed an interest in Facebook IPO shares should get some, within reason, according to financial advisors at the firm. It also set a maximum on the number of shares any single investor could receive at 500, though this went out the window Thursday afternoon, with some advisors getting allocations of 2,000 or more shares for certain clients. The minimum is one share.

“The firm, which is the lead underwriter on the deal, made the fix to comply with wishes expressed by Facebook CEO Mark Zuckerberg that his company’s stock get into as many hands as possible, said the advisors. Facebook’s offering is expected to price today and begin trading on Friday.

“Morgan Stanley declined to comment.

“Morgan Stanley clients had been clamoring for shares ever since the IPO was announced, but it was, until now, unclear who would be eligible to get them. Financial advisors said the new policy meant revising their allocation plans, going back and checking emails and documents about which clients had expressed an interest, and then notifying those clients that they are now eligible to receive shares.

“So what happened was, everybody had to get on the phone and tell clients, ‘There is a change of plan. We may be able to get you stock in the deal, and it would be worth filing paperwork to get it.’ We had to be careful not to tell anyone new about it though,” said one financial advisor. “I had maybe 20 or 25 people we had put in for originally, but now that number has grown to about 60. I looked back at all the emails and calls of people who had said they wanted in.”

Now, it’s not just Nasdaq, which screwed up trading, and the investment bankers who allowed Facebook to increased the amount of shared offered at the last minute by a greedy 25%. We hear that MSSB brokers are getting hammered by angry clients who feel that once again they got beat by the smart money.

One consultant I spoke to says he is getting panicked calls for guidance on what to tell angry clients. The first rule: Remind them that one trade does not a relationship make. Two: You have to stress that three days of trading may not indicate the true value of a company, that investors must stick to their game plans, and that over the long haul Facebook, with its 900 million or so users, may actually have been worth the investment. Also, FAs should remind clients that you have added value before Facebook and will continue to add value after Facebook.

In my opinion, the Facebook offering was literally treated like a Super Bowl, with coverage on CNBC a fawning, hyped-up embarrassment that merely stoked the animal spirits.

Again, I have no idea what Facebook is worth, but remember Google’s Dutch Auction? It was a flat IPO. Where are Google shares now? In the stratosphere.

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