"I'm not familiar with your work"

I met a partner from one of the largest and oldest brokerage firms in Manhattan this evening, I was introduced to him as “Josh the blogger.”  He looked to be mid- to late-50’s – white hair, monogrammed dress shirt etc.  Upon the introduction, he said “I’ve heard of The Reformed Broker, but I’m not familiar with your work…”

I smiled and made small talk, because I’m not a complete and total psychopath.  But it occurred to me upon walking away that he should be familiar with “my work.”

Because “my work” is a nuclear warhead pointed at his fucking face.

For those of you new to the site, allow me to explain what I do here, or what I hope to do here, with every sunrise.  I spent ten years as a tool of the brokerage industry selling either terrible products or a false expertise in investing that I was coached to pretend I actually possessed.  “Sell the sizzle, not the steak,” we were taught.  “Be right or be wrong – but have a strong opinion or they’ll buy stocks from someone else!” we were warned.

And then one day, after months of self-loathing agony, I decided that I couldn’t take it anymore.  I was raised in a nice home with morals and values and the things I was being paid to do became more and more revolting with every passing day.  When my kid’s teacher asked if I’d like to come explain my job as a stockbroker to the class, I couldn’t even come up with an excuse for not wanting to do it.  And I realized that life was too short to work in a career I wasn’t proud of no matter how much I was making.  I also realized that I was headed down the wrong road and that the way forward would only get darker.  And then I thought about my responsibility to the public to share the things I had seen and learned so as to make amends for my part in it all.

And The Reformed Broker was born.

But as far as I might think I’ve come since then, my mission is ongoing, my quarry remains at large.  I’ll give you an example from today.  Now that all of the private REITs that brokers have sold their clients are either gong public (in the best case) or blowing up (in the more common case), the brokerage sales forces of America have shifted gears.  They are now peddling something infinitely worse – a creature from the Island of Doctor Moreau known as a Private Business Development Corporation (or BDC).

Wealth Management reporter Diana Britton has the story (in which I’m widely quoted – emphasis mine):

In the wake of the implosion of many non-traded REITs, non-traded business development companies (BDCs) have emerged as a relatively new structure that is getting a lot of attention. But with high up-front fees, limited liquidity and sometimes a reliance on leverage to goose returns, buyer beware.

In my opinion, brokers should not be selling private anything—private placement, private REIT, private business development corporation—because it limits the flexibility, it limits liquidity, it limits transparency, and it almost always means higher fees internal,” said Joshua Brown, vice president of Investments at Fusion Analytics Investment Partners. “The only reason [non-traded BDCs] get sold is because it’s product and it’s sexy and it’s a way for a broker to get a higher fee for the same dollars that they would put into a public version.”

According to Tony Chereso, president and CEO of FactRight, the front-end loads on BDCs are fairly similar to non-traded REITs, which are high – typically around 11.5 to 12 percent.

That’s not a typo, brokers are being paid 12% to put your money into these private vehicles that are opaque, illiquid and frankly, unnecessary.  12% commissions.   This filthy corner of the private market has already raised $655 million in the first quarter of 2012, up from $233 million raised in the first quarter 2011.  In other words, it’s a blood orgy of yield-chasing, fee-charging lunacy, where the more you pay the broker, the less you know about the product you own.

And I gotta tell you, when I see this stuff continue to be sold by brokers to the public, it makes me want to go even further than I’ve already gone with my blog and the book.  It makes me want to use the power of my prose and the pulpit that is this blog to eradicate these motherfuckers once and for all.

Now you might be asking yourself, “who the hell does this guy think he is?” or “what makes him the moral authority of what should and shouldn’t be sold to clients?”  My response is very simple.  I’ve already come clean about everything I’ve done in this business and I’ve paid the price.  I’ve been on the edge of financial and personal ruin because of my decision to walk away.  I’ve made more enemies in the Financial District than you could count.  I’ve paid my dues, homeboy.  I’ve made every mistake in the book and I’ve very publicly admitted to all of them.

So if you’re in the industry, selling scumbag products to clients with 12% commissions built in, allow me to introduce you to “my work.”  This is what I do.  It’s what I’ve been doing since November 2008 and what I will never stop doing until I can sleep again.


BDCs: Good for the Broker, Bad for the Client (Wealth Management)

Read Also:

Add Private REITs to the Bonfire (TRB)

 The Essence of Retail Brokerage (TRB)

Business Model Darwinism (WSJ)












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  1. Wall Street National | Why the stock market is unsafe for the average investor - Wall Street National commented on May 21

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