Skip to main content
Financial Planning

A Few Misconceptions about Full-Service Brokerage Firms #BrokerageFirms #Investing

By December 4, 2012October 4th, 2016No Comments

I cut my teeth at one of the largest national brokerage firms. What you have to understand is that no matter how good your broker is, in his company he is a salesman, not an Investment Adviser, or a Financial Planner, but a salesman. His card will say Financial Consultant or Financial Adviser, and if he has been around for a few years, he may be an Assistant Vice-President, a Vice-President, or something else along those lines, but he is still a salesman.

In order to become a Vice-President at my old firm, the criterion when I left was lifetime cumulative production credits (pc’s), which is industry jargon for commissions, and that’s all. My old firm has thousands of Vice-Presidents. It may be a nice way for the company to reward their better sales people, but I think it is misleading.

I don’t know how many people I have spoken to about their brokers who tell me, “Oh, but he’s the Vice-President over at such and such firm” as if he is the only one and therefore must be very talented to be the number two person at such a large company.

Now this confusion over titles may mean nothing and may just be a pet peeve of mine, but I think it shows where their priorities are. A broker isn’t recognized by his firm as being successful for having satisfied clients, or well-developed financial planning skills, or for giving savvy investment advice, or for advanced training or education, but rather for selling the most products for his firm. The idea that your brokerage house financial adviser is a source of objective, conflict-free advice is, unfortunately, false.

Another misconception is that because your brokerage house financial adviser is affiliated with such a big, successful company, he is qualified to provide investment advice and financial planning services. When those firms recruit their new brokers, which they are almost always doing, they are looking for people with sales skills, or natural marketing opportunities, not people with proven or even potential financial acumen.

When I started with my old firm, I was hoping that my educational and professional background would be enough to qualify to get into their training program. I figured if I could survive the hiring process, I could pick up the rest along the way, because I did have a fair amount of financial, tax and legal knowledge (B.S. and MBA degrees with concentrations in Finance and a law degree) for being inexperienced in that line of work.

I was shocked at how poorly qualified, in a financial sense, most of the recruits were. For the most part, they were smart, aggressive guys, but they were not overburdened by too much financial knowledge. Many of them had never had any financial or investment training or experience at all. They were told that they could rely on the company for that, and that their job was to line up appointments with high net worth individuals.

There was no particular skill set that was needed other than the ability to handle rejection and to keep on calling people. You would hear sales managers and trainers motivating the new guys by telling them to “live like few will, so you can live like few can.”

Going in to the firm, I had heard good things about its training program from others in the industry. I was expecting to learn quite a bit about financial planning and investments. I was told that I would undergo intensive training for four months before I would start to try to attract my own clients. (Well, actually the firm would insist that anyone I would solicit and develop as a client during my tenure there would be its clients.)

Unfortunately, though it was a big selling point, the training did not live up to the hype. Most of the training provided by the company was sales-related: all geared to generate activity or “contacts.”

The bottom line is that if you choose to go to a full-service brokerage firm for your financial planning and investment needs, you will most likely be dealing with a potentially-qualified salesman without much financial training or background.

Michael Garry Yardley Wealth Management

Author Michael Garry Yardley Wealth Management

Michael Garry is a CERTIFIED FINANCIAL PLANNER™ practitioner and a NAPFA-registered Financial Advisor. He is a member of the National Association of Personal Financial Advisors (NAPFA) and the Financial Planning Association (FPA).

More posts by Michael Garry Yardley Wealth Management