A recent financial news program highlighted a comedy competition held at Gotham Comedy Club in New York called "Funniest Person in Finance." One of the standout comedians was a financial advisor, Greg Cantone. When commenting about all the complaints there are about how people in finance make a lot of money, Cantone announced, "Well I've got news for you Gotham…we do!"
Cantone offers no apology for making a good living. He takes aim at other high-end professionals, everyone from nurses to NFL kickers, for example, "You never hear anyone complain about them making a lot of money, do you? The man kicks a leather meatloaf… with his foot… once a week! But if for some reason, I help a family plan their retirement, send their kids to college, and pay off their mortgage, I'm an a**hole!" (You can see his act on YouTube. Warning: this is an adults-only comedy act; don't let your children watch.)
In our daily recruiting conversations with advisors, life stories are rife with biases against our profession. For example, there's the minister who said he felt God's calling to become a broker, only to encounter considerable pushback from his missionary father-in law who felt he was entering a profession that was essentially the devil's playground.
Then there's the advisor who grew up in a multi-generational and devoutly Democrat family. Several relatives shunned him when they discovered that he had not only become (gasp!) a Republican, but also a stock broker, a profession they equated to being full of "greedy scumbags."
Let's Look at the Actual Numbers
Our profession certainly takes a hit when it comes to media attention. Negative stories on the Bernie Madoffs of the world get center stage and Hollywood projects us as a sinister industry through the lens of movies such as Wall Street and Boiler Room, while the extensive public good as a result of our services goes without mention. Nor does it help when regulators and securities attorneys perpetually hang out the dirty laundry and drill down deeper into every aspect of our business, an industry that is already the most regulated of any.
Back in 2005, I reviewed some statistics about compliance marks for our industry, so this October I attempted to get more recent data from FINRA. It took two phone calls to find the name of the contact that handles these statistics. When I called to request the data, this key person's secretary held her hand over the phone and had a conversation with someone else in her office. After a few minutes she asked me more about how I planned to use the statistics, then had another clandestine conversation. When she finally got back with me she said they don't keep such statistics and couldn't help me.
Fast forward one month when an article appeared in The Wall Street Journal on Nov. 21 entitled "FINRA is Cracking Down on 'High-Risk' Brokers." Pretty inflammatory stuff. Yet upon a full read, what the article's statistics and research actually revealed is that our industry, on a compliance basis, looks very good. Here's a look at the numbers:
- Of the 634,955 brokers licensed by FINRA, The Journal analyzed 558,245 brokers, or 88%.
- Of these 558,245 reps, 487,480 brokers had clean compliance records (87%).
- 67,650 reps had one to four disclosures, which is a bit over 11% of those analyzed.
- 2,695 brokers, or less than 1%, had 5 to 10 disclosures.
- 420 brokers, or less than half a percent, had 10 or more disclosures.
Despite the far-reaching headline, this article focused on the segment that FINRA perceives as "rogue brokers," those who have 10 or more marks. As an industry, I think we welcome the uncovering of the less than half a percent of reps that are hiding under the radar. However, the real story here is that 98 ½% of the industry's advisors are not problematic.
Interpreting the Marks
As part of our recruiting process, we look over rep compliance records on a daily basis. When I see reps in the group with one to four disclosures, it's important to look at what type of complaint those marks actually represent. It is very common to see customer complaints that are denied or essentially nonevents. Also common are company policy marks that were put on advisors' record when they left a firm. These company policy marks are often a punitive response to the rep's departure.
Customer complaints related to market loss have become a cancer in our industry. They are also a major profit center for securities attorneys who fish for clients who lost money in a down market and promise to get them retribution. Here's the point: when you have a rep with three to four marks on their compliance record, it's not unusual for one to two of these marks to be irrelevant.
