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On Betrayal, Broker Performance and Guilt



Great news flash on your March cover story, “Betrayed?” — the story about the two Salomon Smith Barney brokers who are suing Smith Barney's star telecom analyst Jack Grubman. I have been following this case with great interest.

I don't understand why Smith Barney's brokers simply didn't use cashless collars (sometimes called zero cost collars), which allows clients to monetize their stock options without having to go long or borrow money to buy the shares. Cashless collars have the ability to protect company stock at almost no cost. I am amazed that more brokers, financial planners and registered reps do not use them.

The fact that Smith Barney offered no defense and had settled a few of the cases against it leaves the door wide open to many other similar cases.

I believe the race to the courthouse has already begun. The loss to American workers holding company stock is in the hundreds of billions. Many of these losses could have been avoided or mitigated through risk management techniques such as cashless collars. Brokers had better acquaint themselves with the strategy, as I believe hundreds if not several thousand brokers all across America are now at risk from similar client suits.
Donald Moine, Ph.D.
President, Association for Human Achievement
Palos Verdes, Calif.

The True Measure of Broker Performance

I just received the February 2002 issue of Registered Rep. and am finding it to be quite interesting and useful. I have been reading Registered Rep. for the last 15 years, and it has always been at the top of my list. But (you knew that had to be coming), the article entitled “Measuring Broker Performance” is troubling.

Throughout the article, the author, André Cappon, refers to brokers as a “sales force” and “salespeople.” In addition, broker performance is measured only in terms of gross production. I believe that's the wrong way to think about our business. Never have I seen any measure of broker performance where the client's success is used to gauge broker success. It has never mattered whether the clients have achieved their goals, so long as the broker has met minimum production requirements. And as long as we are “salespeople” and a “sales force” it never will matter, because our focus will remain on selling things as opposed to doing what is right for our clients.

This article never mentions the client. The firms tend to mention the client only when it comes to discussing liability. Brokers joke about and brag about selling big-ticket items to unsuspecting clients, and as long as nobody complains, the branch managers go right along with it. Reps, branch offices and ultimately the firm are graded solely on how much income is generated, not on providing solutions for the client.

This joke I heard from a former branch manager neatly sums up our industry's problem: “I made money. The firm made money. Two out of three's not bad.” It was because of that attitude that I left that office and opened my own independent firm. We, as members of this business, must change our sell, sell, sell perception; only then will we break the view that we are in an adversarial relationship with clients. And measuring broker performance by gross alone will continue to be the wrong measure of a broker's worth.
Matthew N. Potter, CFP
Raymond James
Cheyenne, Wyo

Fair? Not!

Bill Singer's article (“Charged, Therefore Guilty,” February 2002) was very interesting. I ran into this myself on a complaint that dropped off my record after two years. Fortunately, the client went to mediation, got nothing and never went to arbitration. So, the complaint just dropped off. But I learned during that process, that it is extremely easy to get an item on your U-4 but almost impossible to get items expunged. Apparently, the plaintiff's bar likes it that way. I guess they figure the more complaints on the record, the better chance they have of winning cases. The word “fair” is not in their vocabulary.
Thomas W. Hagedorn
Vice President, Investments, A.G. Edwards & Sons Inc.
Cincinnati, Ohio

What's On Your Mind?

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