This week the big news in the brokerage industry was that, finally, the end of cold calling financial advisors is officially here…
I don’t really understand the thing with the binoculars, but whatever.
I wrote a whole book about my experiences as a cold-calling stockbroker, including all of the scripts we were taught to use and all the methods employed to get people on the telephone excited about our stock ideas. It sounds so stupid now but in the 1980’s and 1990’s this was basically how the business worked. Some of the most successful financial advisors in America today initially launched their careers with a telephone and a stack of cold prospects to reach out to. Brokers built their clientele by smiling and dialing until they didn’t have to anymore – once they got big enough, referrals would come in and the firm they worked for would put cold callers underneath them to do the ongoing prospecting work. Potential clients were receptive to calls because they needed a broker to learn about what was happening in the stock market and to actually place trades. This was all before the internet and online brokerage sites.
Brokers could distinguish themselves by having interesting ideas, access to IPOs and other banking products and a winning personality. But you also had to have nearly unlimited chutzpah and absolutely no fear of rejection. You had to be clever. In his first book, Jim Cramer talks about being airdropped into random towns in Upstate New York and using microfiche in the local library to determine who the richest people were from newspaper articles. That’s what Goldman Sachs was teaching their young recruits in the early 80’s. There are stories of brokers gaining access to office buildings in Manhattan for a single client meeting, and then parlaying that into knocking on hundreds of office doors on dozens of floors to get even more meetings once you got inside. Edward Jones raised hundreds of billions of dollars by training its salesforce of brokers to knock on the doors of people’s homes. This is even more unimaginable than dialing people’s phone numbers in 2021 but there are still people out there doing it.
So the way I was trained – telephone “connecting” before cold-calling. I wasn’t licensed when I got my first summer job at a brokerage house. It was the now-infamous Duke & Company on Third Avenue and I was 19. I was in between freshman and sophomore years at school and didn’t have a job or an internship lined up. My dad’s like “I play golf with this guy, his son is a stockbroker. Makes a ton of money. Get a train pass and I’ll get you an interview for a summer job.” The interview was hilarious. They were like “Write your name” and within 5 minutes of chit chat I had the job.
What was the job? Technically, without a license you couldn’t really be talking to investors but you could be a telephone connector for a licensed registered rep, so that’s how I spent those six weeks. “Hi, this is Josh Brown from Duke & Company in New York, I trust you’re familiar with the firm?” They always said yes, too embarrassed to admit they hadn’t heard of us or weren’t sure. It sounded like a big time Wall Street firm – Shearson, Lehman, Merrill, Morgan Stanley, Smith Barney, Duke & Co, Goldman, Salomon Brothers, Donaldson, Lufkin & Jenrette, Credit Suisse, AG Edwards, Prudential, Dean Witter, Paine Webber – you see how when I throw in Duke amidst all those other names how it kind of sounds like it fits? That was the game.
Anyway, the prospect would say “Yes” and that was the most important thing. Getting a yes within the first three seconds of the call was what they referred to as “setting a positive tone.” And then we were only supposed to ask questions that would elicit a yes from there on out. “I’m contacting you today on behalf of my senior broker, Jeffrey Sherwood. We’re bringing Calloway Golf and Snapple Ice Tea public within the next few weeks, may I please connect you with Jeff so that he can relay some of the important details?” Of course, the answer was almost always yes. We were calling people all over the country, from the heart of New York City, offering them a chance to invest in some of the hottest IPOs of the era. I would make 500 dials and connect 50 or so people with Jeff every day. Jeff would convert ten of those 50 into bona fide prospects by asking a set of questions about that investor’s current holdings, current brokerage relationships, amount invested in the markets and some of his favorite stocks (I say “his” because it was always a male prospect; the companies that sold leads to brokerage firms scrubbed out all the names of female executives or business owners because women are tougher to impulse-sell into risky investments. The brokers wouldn’t buy female leads or spend any time calling them. Dun & Bradstreet would sell these people’s names and numbers printed on index cards by the millions and I remember the names being exclusively male. If there were a woman’s name on the card, the card would be flipped over.)
Jeff would take these “qualified leads” and turn them in to our team’s senior broker, who just a year before had been working as the bouncer at a nightclub. Now he was pitching stocks by phone in a massive bullpen spanning the length and breadth of a full floor in a Manhattan skyscraper. There’s a guy shining his shoes beneath him while he talks and a tailor attempting to take his suit measurements while he walks. Zoom out and the “senior broker” is surrounded by hundreds of other aggressive young men, all dressed to the nines and all engaged in the same frenzied conversations on black phones. I remember their furious pacing during the heat of a potential sale, the spiraling phone cords crisscrossing the room, whipping around in syncopation with the wild gesticulations of the salesmen. Phones would slam down when rejection won the day, bells would ring when the broker placed a big block of stock or a new relationship was consummated with an opening purchase. Guys were getting their neckties cut with a giant pair of silver scissors upon making their first sale. Without knowing anything about stocks, investing, the stock market, the economy or really a single relevant thing at the time, I have to be honest, it was an intoxicating environment to be in. I remember saying to myself that someday I could totally do this for a living when I grew up. The market was raging, stocks were working, brokers were flying up and down the street in Porsche 911 Turbo’s, and nobody in the room seemed to think it could ever end.
A combination of regulatory crackdowns, new technology and access to information as well as an increasingly savvy investor class eventually put all these maniacs out of business. All the large Wall Street brokerage firms have merged with each other so that there are only five or six left. All the small firms went under for net cap violations, “failure to supervise” complaints or just the inevitable passage of time. Colleges weren’t sending their best and brightest to the brokerage business to learn how to cold call anymore. Access to the stock market became a commodity – open your laptop, open your phone, you’re in the game. Commission rates fell to zero. The brokers who were serious about their careers became investment advisors and moved from selling stocks to building portfolios and adopting financial planning into their practices. The brokers who were just there to sell and churn accounts were mostly blown out. They ended up selling mortgages during the housing bubble. These days they’re doing high-interest business loans to diner owners. It’s the same aggressive young men from Long Island, Staten Island, Brooklyn, Jersey, Rockland, Westchester, Queens. They’re still on the phones, but they’re not selling stocks anymore.
Anyway, that was all a long time ago. I haven’t made a cold call since 2007. As ridiculous as it seems now, it’s important to point out that, in its heyday, cold calling was pretty damn effective. Having had that experience actually worked out okay for me, although it took me a long time to come around to seeing the bright side of all that time spent at backward broker-dealers. I did learn a great deal about investor psychology, the creation of narratives that drive behavior and all sorts of other stuff that’s since come in handy. Here are a few things I learned from my cold calling days that are still useful to me now:
1. People love to talk about their winners – The key to unlocking any door with a perfect stranger is to ask them about their favorite stocks. They will talk forever about the stuff they were smart enough to buy, and reveal a lot about themselves in the process. This is what brings people out of their shell. It’s the ultimate conversation starter.
2. Everyone wants something they can’t have – Duke & Company’s allocation to IPOs like Calloway and Snapple and Boston Chicken and other hot deals during the summer of 1996 was probably tiny. But they were able to open thousands of new accounts over the telephone with perfect strangers simply by dangling the possibility in front of folks while taking down “indications of interest” – basically getting a prospect’s social security number and date of birth on an account form with the promise that this would put them higher up in the queue as shares became available. I always chuckle when I see Boomers mocking young people for how thirstily they’re behaving in their Robinhood and Coinbase accounts. I knew these 65 year olds when they were 40 and believe me they were every bit as thirsty then as their kids are now.
3. “Nobody buys the steak, they only buy the sizzle” – The fundamentals of a company were significantly less interesting to the prospects being pitched by phone. The thing that got them to say yes was the reason why the stock was about to make a move. The catalyst. This is why the waiters at Peter Luger parade the cast iron pan from the kitchen through the dining room, trailing that scent and steam with them for the other diners in the room to salivate over. The sizzle. “Don’t tell them why they should buy the stock, tell them why they should buy the stock now.”
4. Impulse buying – This was just one example of the type of investor behavior that I had learned was absolutely toxic. I had a front row seat for everything investors (and their brokers) shouldn’t do. Like use margin indiscriminately and at all times. Brokers loved margin because the client was doubling his risk, but the position size was doubled, which meant double the commission. Plus the commission on the sale eventually too, the sooner the better. Cold calling brokers had to cold call so much for the simple reason that the way they were handling accounts required them to replenish their client base almost every month.
5. Confidence – I have seen incredible feats of salesmanship accomplished by people who had almost no education, skill, ability, knowledge, experience or standing in the world, simply because they were able to project confidence over the telephone. Turning unfounded, unconditional confidence into success is truly the closest mankind will ever come to actual alchemy. Cold callers without confidence were quickly washed out of these training programs. But the guys with this sort of freakishly unwavering confidence had no ceiling. They would ask for the most outrageous trade order sizes from people they’d never spoken with before and, somehow, those people would say yes. On the spot. Truly amazing to witness.
6. How hard you have to sell something is directly proportional to how bad it is for the buyer – The most toxic products available to investors required the most lucrative commission rates paid out to the brokers. I’ve never forgotten the revelation that you could tell by the level of salesmanship how badly the clients were going to be blown up. It was always on a scale. Structured products, reverse convertibles, secondary offerings, leveraged closed-end funds, private REITs, Chinese SPACs and reverse mergers, micro-cap IPOs, private placements, bridge loans, PIPEs, unit investment trusts – the higher the commission, the worse the outcome. And in any situation where the client was “paying nothing” because the commission was built into the product’s offering price, oh my god. Those were the worst bludgeonings of all. There are products you sell face to face, looking into the person’s eye, like mutual funds and life insurance. And then there’s this garbage that was routinely sold by phone. You understand why, right?
7. Americans are very different from each other – One of the first things you learn (because they teach you) as a cold caller is not to waste time calling New Yorkers. Because everyone in New York has a relative or close friend who works in finance. And they think they know everything. And they have no patience will hang up immediately. The opposite is true about people from the Midwest and the South. They would almost never hang up the phone on someone while that person was talking. Too polite. So cold callers were trained to never stop talking. It wouldn’t have been peculiar at all during the aught’s decade to meet a stockbroker working in midtown Manhattan, living in Sheepshead Bay, Brooklyn, who was exclusively registered to do business in Arkansas, Mississippi and Utah. Super weird. There were whole firms filled up with guys like this. The Brooklyn and Long Island kids learned fast that the further away from a metropolitan area they were calling, the more receptive the person on the other end of the phone would be. You could set your watch by it. Nobody was cold calling Boston or NYC or Chicago. Everyone was cold calling suburban and rural Georgia, Wisconsin, West Virginia, Tennessee, Alabama, Oregon, etc. You didn’t call Florida because the Floridians had their own homegrown cold caller situation going on – lots of ex-New Yorkers opened up shop down there already.
I’ve since internalized a lot of the stuff I had learned about Wall Street’s conflicts and the human condition from my days as a cold caller. It’s still relevant, still vital to grasp if you’re trying to understand investors and what makes them tick. You were paid $250 a week to cold call for a broker back then, treated like cannon fodder and were hung up on and cursed out ten times for every decent exchange you had. I once worked for a guy who made me come in at 7pm and start calling business owners in Australia and New Zealand.
It was terrible, thankless, soul-crushing work. But every once in awhile, thinking about the old days will bring a smile to my face. It doesn’t happen often, and most of it I’d rather forget. But remembering how it felt to strike up a conversation with a total stranger over a shared enthusiasm for stocks, and how good you would feel when that stranger was impressed enough to want to hear from you again – these were the moments that gave you the encouragement you needed to keep going. It was a glimmer of hope for the hopeless, a light in the darkness. “Maybe there is some point to all these phone calls and pitches after all. If I can just make it through another day, another stack of D&B’s…”
BROWN! Stop daydreaming and get back on the phones!