THE BROKERAGE BIZ, RED IN TOOTH AND CLAW

After reading a recent wall street journal front-page feature about dubious doings at Merrill Lynch & Co., I had to chuckle. The article — about the termination of a big broker and self-described “whistle-blower” at the Big Bull’s Cape Coral, Fla., branch — was presented as if some kind of scandal had been uncovered. To me, it was a routine execution, carried out by the firm with about the same gravity as a kid squishing ants with his thumb. Naturally, each side has its own story about what actually went down. Merrill says that the broker in question was caught “destroying company property” by opening a payroll envelope. The broker is crying foul, insisting that he was terminated because he objected to forceful sales of cash management accounts and financial plans being pushed by the firm. The broker also posits, with the Journal’s apparent support, that he was canned to pad the pockets of the supervisor and his cronies, who picked the flesh off his client book like vultures at a road-kill smorgasbord. Unfortunately, none of these fanciful tales gets to the likely truth of the matter. The broker in question was almost surely axed because he ignored one of the most fundamental precepts of working in the brokerage biz: Don’t try to take the bone away from the big dog in the corner office.

In other words, it seems this guy got fired because he was fed up with big-firm life, ready to hit the road with his client base in tow and stupid enough to reveal his intentions to the man working the guillotine.

I’m not unsympathetic to the fellow’s plight. I’ve seen some of my close associates crushed by the iron fist of the firm during my relatively short four-year career in brokerage. But this guy was no rube. He was managing $88 million at the time and generating $660,000 in gross commissions for the branch (a solid producer anywhere, and a Big Kahuna in many locales), so he’d been around the block enough to know the score.

Usually, this kind of production level serves as a Kevlar vest, m
aking you pretty much bulletproof and free to pursue your own agenda or even blatantly flout authority. Management was probably perfectly content to swallow his bitter complaints and stomach his critiques of their business practices as long as that revenue stream kept on rolling in.

the big mistake

From the details in the article, however, I have no doubt that this broker was getting weary of his current digs and was busily making plans to cut and run for happier hunting grounds. I’m sure he intended to execute a cunning and well-planned escape, bringing the bulk of his clients with him to his new firm. His big mistake, however, was telegraphing his departure by the fact that his wife (a former Merrill employee herself) began working at a shop nearby — sort of the brokerage house equivalent of trying to sneak out the back door while playing a tuba.

The short of it is that Merrill beat him to the punch and handed him his head on a plate for his efforts. The chief saw that the guy was going AWOL anyway, so he decided to launch a pre-emptive strike in an attempt to save as many clients as possible and keep those revenues in-house.

The actual reason he was fired is irrelevant. I’ve heard of everything happening at brokerage offices, from managers planting “forged” signatures to flagging “unapproved” client letters as excuses for termination. Getting caught opening someone else’s mail seems relatively legit.

So what of the contention that management set up the broker to steal his clients? They already had his clients. From the facts in the story, it seems the branch ended up losing at least a third of this fellow’s client assets.

The firm could (and should) have done things differently and saved the entire book. Unfortunately, cultivating a supportive work environment and remaining sensitive to the needs of individual contributors requires more management and leadership skills than the usual hack managing a field brokerage branch can muster on his or her best day. As a result, firing
one of your star producers before he can quit is generally viewed as a major coup de grace in the twisted logic of broker Darwinism.

The problem has its roots in a promotion system modeled after feudal clan society rather than modern business practices. Generally, managers get moved up from the brokerage ranks based on their skills in the hunt rather than their leadership ability — or even intelligence, for that matter. Usually, these are veteran sales warriors who are burned out on the business and need a “new challenge” (read: Take a load off and ride on the backs of the other brokers for a change).

you hunt, me gather

Most new managers find the transition to effective team management from self-aggrandizement beyond the scope of their primitive skill set. Instead of looking out for the welfare of the entire clan by cultivating harmonious growth, they revert to selfish, heavy-handed tactics to keep their hunters producing.

The goal remains, as it was in the bush, to pillage as much as possible from one’s providers in a selfish grab for riches. Any threat to that status quo is met with quick and severe justice. Complain all you want as long as your loyalty is intact and the money keeps flowing. Make a move to leave the family, however, and you’ll find yourself face down in the dirt faster than you can say “Mafia hit.”

These primitive practices may change some day, if brokerages finally decide to hire trained managers instead of using the posts as perks for their favorite salesmen. Until that happens, though, beware the savage code of conduct, know where you stand in the hierarchy at all times and have an escape route planned when the goons come knocking on your door.

And if you do decide to leave of your own accord, remember that the rules of war apply. Take no prisoners and expect no mercy.

Andrew Greta is a business student and onetime stockbroker who lives in West Lafayette, Ind. This article originally appeared in TheStreet.com, an online news service at http: www.thestreet
..com.