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December 9, 1998

Eyes on the Wise

A Life in the Day of a Stockbroker, Part 1
By V

My Background

Hello, I'm V. Fool Headquarters recently asked me to share my three-year experience as a stockbroker with a large, national firm. My background, to begin, includes a BS degree in Business, along with an MBA degree.

After my graduate degree in business, I set out to land a job as a stockbroker, having always been intrigued with investing. I love the subject of finance, was excited about becoming a professional investor, and was thrilled when I landed a job as a broker in a mid-sized city at one of the largest, national investment firms. I worked there for three years, prior to moving on to a local bank to start an investment subsidiary. I'll share a few of my findings after my three-year stay at The Firm.

To be honest, the job hunt for that brokering position was actually quite difficult, as it became increasingly clear to me that my educational background and training were far less important than the fact that I had no prior sales experience. One brokerage firm even suggested that I sell copiers for two years and then reapply. Eventually though, my persistence paid off, and I got a job with one of the majors.

My Training for The Job

The training began with a three-day crash course to prepare for the Series Seven Exam, which tests prospective brokers on the basics of investing (i.e., common, preferred and convertible stocks, bonds and options, along with the rules and regulations of the Securities & Exchange Commission).

I sat for the exam, with three-days worth of knowledge packed into my head. Two weeks later the results came: I had passed! The intensive three days of study had paid off, and I was now ready to share my newfound knowledge, helping others with their financial futures. I was a Stockbroker - Registered Representative - Financial Consultant (the title kept changing).

But wait, the training wasn't over yet.

Next up was the appropriately named (no joke) Gorilla Cold Calling Course, so named because, we were told by our manager, that even a gorilla could be successful if he just made enough telephone calls. Hmmm, I guess my college and graduate business degrees really were not important. The cold-calling course involved learning how to dial-up as many people in an allotted time frame as possible. It didn't matter whether you were selling stocks, bonds, timeshares, or aluminum siding. The key was to reach out and touch prospects.

My manager shared with me the rule of thumb on cold-calling: Out of 100 actual telephone conversations per day, 10% would listen to my pitch. Of these 10 gullible souls, 20%, or 2, should be a sell. That adds up to two new clients out of only a hundred calls! So I was told that I simply had to telephone 500 people per week; just 2,000 per month; only 24,000 per year and I'd be on my way to success as a broker.

Wait, my city's population is only 80,000. And half of them are children!

My Daily Routine at The Firm

Now it was time to put my comprehensive training to use and begin helping out those Americans less knowledgeable about their money. I started with the stockbroker's guide to success: The Yellow Pages.

My list of doctors, lawyers and any other prospective candidates was ready each morning for the office manager to inspect. I then spent most of the day smiling and dialing. And dialing. And dialing, and dialing. Now, most successful professionals get called by a lot of salespeople, and as you might guess, few are really receptive to the calls. The 2 out of 100 Rule is pretty accurate (Fool, I hope you're in the Group of 98).

But from the industry's side of the table, the prospecting for transaction profits was well worth it. (You just have to love the investment focus at these firms, don't you?) Each day at 3 p.m., the closing bell rang, at which point the manager cruised by to review the commissions generated that day. Sell, sell, sell (that is, whether you're buying or selling!).

In between all this mindless prospecting, there were other activities, such as the Morning Squawk Box Call, when upgrades and downgrades were announced from New York over a scratchy 4" speaker. These new recommendations generated buying and selling opportunities for the brokers. To win as a broker, you were there every morning for the Squawk Box Call. It meant commissions.

And each week, the firm held a company-wide technical analysis conference call with a chart guru at the home office, supplying important support and resistance levels for those interested in short-term trading and options. One of the more popular option strategies was The Cadillac Spread, which involved selling a call option on a stock, while simultaneously buying a put option. This generated two commissions and then two more when the positions were subsequently closed. The term Cadillac Spread was coined because it helped make the broker's car payment, by generating a total of four commissions on a single stock.

Pretty neat, that one.

Finally, each week a sales meeting was held to tout the current focus investment. There was one of these pretty much every two months, with concentrations on oil and gas, real estate, and new movie limited partnerships, as well as the announcement of new mutual funds with a twist, and variable life and annuities. Packaged investments were great vehicles for brokers, because they typically had high and somewhat obscure commissions built into them. And many of the limited partnerships were structured as tax shelters, making them easy to sell.

I recall one prominent CPA at the firm that almost always recommended against such investments, on the basis that the client immediately lost 15% - 20% on the fees and commissions. This CPA was labeled a troublemaker at the firm and any outside investor that asked to review an investment with him was written off as a lost sale.

Think about that one for a second, Fools.

Next: Eyes on Stockbrokers -- Part 2

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