Who really benefits from your financial advisor’s advice? It isn’t always you. That’s a shocking fact I learned from working at Merrill Lynch a decade before Suze Orman did.
Suze Orman’s Merrill Lynch office
A long, long, long time ago I worked at the same place where Suze Orman got her start. That was at the downtown Oakland office of Merrill Lynch.
Unlike Suze who decided to go for an interview for a permanent job as a broker at Merrill Lynch after her investment advisor lost all her money in the market, I was simply broke.
I’d arrived in Berkeley, California with a masters degree in economics from the University of Wisconsin-Madison. I couldn’t even find work as a waitress in an impossible job market in the San Francisco Bay Area. So I signed on with Kelly Girls, a temp agency.
Kelly Girls sent me down to Merrill Lynch to work for a week. I’ll bet I was as excited as Suze was on her first day. In a previous assignment for them, I’d passed daily by a stock exchange in San Francisco. It had a wedge-shaped moving marquee with letters and dollar figures flowing across it in bright lights. This time I was so excited I even arrived early on my first day.
As I stood staring at the solid-looking door, I thought, “wow, this is where the money gets made.” I was sure the scene inside would be traders in shirt-sleeves waving buy and sell orders in a roar of voices. What would it be like to be on the inside? I took a deep breath, grasped the handle, pulled the stout door open, and walked in.
The place felt like a pharaoh’s tomb. There was a spacious, empty, dimly-lit lobby with plush carpet that muffled all sound of my footsteps. In fact, the place was so quiet you could hear a pen drop. But I didn’t hear a pen drop, nor a a voice or even a phone ringing.
So I began timidly poking my head in office doors. Suddenly a white-haired gentleman in a suit appeared from nowhere and asked dubiously how he could help me.
When I’d explained the reason for my being there to his satisfaction, “Mr. White” took me to meet my new supervisor, “Harvey.” Harvey was a young man about my age, but he was much more professional looking than I. He had short blond hair, and like Mr. White, was dressed also in a suit and tie.
Harvey briefly told me what to do and dashed off. With a let-down feeling in the pit of my stomach, I used my great knowledge of economics to begin stuffing and putting stamps on envelopes. For three days nothing at all exciting happened. On the third day, everything changed.
Harvey came stomping into the room. “What are you doing?” he demanded.
I cringed. “Uh,” Mr. White” told me to sort these brochures.”
“Yeah, right! CRAP of the MONTH! That’s the stuff he wants us to push on clients. It’s worthless JUNK they won’t make anything from. But we get paid COMMISSIONS.”
He spat this last word out like it was obscene. I froze in panic. Harvey was working himself up into a rage. Suddenly he turned from his pacing and asked fiercely, “Do you like pot?”
Stunned, I tried to think how I should answer that.
I decided to go with something I’d heard once – if you don’t know, just tell the truth: “well, uh, I guess it’s OK, but it makes me nauseated, so I don’t like being around it.”
Harvey replied, “Well, I LOVE it! I smoke it all the time. I’m a HIPPIE, you know.”
I must have looked skeptical.
Harvey reached up then and grabbed his blond hair. As I watched in shock, he yanked a wig off his head and long brown hair flowed out. “This is my real hair, but I can only wear it ON WEEKENDS. I have to wear THIS THING for WORK, work I have to do for that A..HOLE!” With that Harvey stormed out of his office.
We never spoke of anything personal again. I noticed with envy that Harvey was rarely ever in his office. On my last day of the job at Merrill Lynch I sat, as usual, alone and lonely in Harvey’s office, and filed client cards. It was mindless work that left me counting the minutes left to 5 o’clock. Suddenly I spotted a familiar name.
It belonged to my favorite economics professor back at UW-Madison. Surely it couldn’t be, I thought. Then I remembered a classmate telling me he’d married a wealthy heiress from California. As I looked at his account balance, my jaw dropped. His wife must be wealthy as the Queen of Sheba! I couldn’t believe it. I felt totally distressed: my favorite “economics guru” had just lost a bundle! He lost more than I could imagine making in a whole lifetime.
I left Merrill Lynch knowing I’d learned more from one week at that place than I ever learned in school. I learned truths that still stand me in good stead today. This is what I learned: Stockbrokers are not to be trusted, and economists know nothing about making money.
Stockbroker’s fiduciary duty to clients
What Harvey was upset about was his boss’ orders to ignore loyalty to the client in favor of making profits for the firm and himself. It’s still perfectly legal for financial advisors to do this.
The legal term for putting client’s needs above all others is “fiduciary duty. The “rub” is in how you define the word, “client.”
Only registered investment advisors must show a fiduciary duty to their clients, who are investors.
Other stockbrokers owe their “fiduciary duty” only to their brokers and dealers, i.e, the “clients” who create the financial products these brokers sell to investors. These stockbrokers only have to give “suitable advice” to their customers. Their advice to customers can be “suitable,” even if its not the best advice they have to offer.
To check out whether your financial advisor or brokerage firm is registered and has a good reputation, you can use this website by the SEC (Securities and Exchange Commission).
Large brokerage firms, like Merrill Lynch or Charles Schwab, and investment banks often employ both registered investment advisors who have a duty to investors, and stockbrokers whose duty is to the firm’s financial clients whose products they sell.
Before you buy, be sure to ask your financial advisor if they owe their fiduciary duty to you!
Copyright © 2010 Nancy K. Humphreys All rights reserved. You are free to use material from Brucenomics in whole or in part, as long as you include attribution to Nancy K. Humphreys followed by a live link to http://www.brucenomics.com.
Coming soon: brokers’ commissions and fees