Dave, The Institutional client is mostly research driven. They want to know what your analyst is saying about such and such, and if the analyst is wrong, you do no business. They also want gossip on the competition. The idea is no longer to make money, but to beat your peer group. Thus you get guys managing large cap growth funds bragging about losing less money than their peers over the past 5 years. Individuals just don't think that way. Negative returns are absolute and positive returns may or may not be relative to them. <G>
Individual clients rarely ask or care about our research. I think that makes them smarter than the pros. <G>
Most individuals have realistic expectations, but, since there is no legal liability, are much more likely to speculate with their money. Which scares the crap out of the big brokerage firms. I was constantly being told to call my clients and tell them to stop or slow their speculating. But the more speculative were doing much better than the asset allocators and much better than the pro money managers. I agree that if an account is speculative, they should sign all kinds of paperwork and, preferably, in blood. But, after that, it's their money, not the brokerage firm's.
The main thing that surprised me was that the job was impossible for me to do. I was thinking more along the line of me making most of the decisions for everyone, not calling 100s of people on the phone when I had a good idea (that usually wasn't good by the time I reached client #145 or, sometimes #4). But discretion was a dirty word. I had discretion on some commodity accounts, but they took that away, too. I was never able to get discretion on stocks and mutual funds and options.
Understandably, if you are asking the client to make the decision, they are going to want to hear the story. They should. But when I spend several minutes repeating it, somebody is missing a trade. Also, I still had to do all my administrative crap, take incoming calls, chum for new accounts, and goof off on SI. Admittedly, I didn't put my nose to the grindstone too hard, but it wouldn't have made much difference if I'd given up my Latte break and just kept calling. The job was too big.
The fees were low, and the broker's payout much lower. Somewhere in the neighborhood of 25-45% of the gross, which seems like a poor business model to me. My co. estimated that a broker did not become breakeven for the firm until he hit $240,000 in gross commission. So, they set payouts accordingly. But if you figure a book of accounts averages about .5% gross fees today, you need $48 million to breakeven. Shoot, I remember when a fund manager who ran a $48 million fund was a big shot. <G> Out of that net, you get to pay your assistant monthly and pay a Xmas bonus. And all trading errors come out of the broker's cut. I had some humdingers, too.
Some things I liked: 1. The asset fee accounts, where you do not get charged a commission on each trade. These are the greatest things since sliced bread, IMHO. 2. The no load access to load funds. 3. Generally, great executions by my traders in New York and Chicago. 4. Talking to my clients. I liked all of them, though I made fun of most of them behind their backs. But that says more about me than them. <G> |
