I’ll never forget the day I got officially fed up with Wall Street. I was in my early 20’s and I had been working as a broker on a big team in what was basically a dream position at the time. I was handed a huge amount of assets, being trained at one of the best firms in the world and working with some of the best people I’ve ever known. What wasn’t to love? But something kept nagging at me. The business model just didn’t feel right. I don’t mean that it didn’t feel like an optimal business model. I mean it didn’t feel morally right. I didn’t feel like I was doing the right thing for my clients. Maybe I was being overly sensitive, but a constant thought kept coming over me: “this can all be done in a more client friendly manner.”
It was a little before 4PM at the end of the week and I had a good family friend who was a client of mine. He trusted me with millions of dollars. He’d do whatever I said. I knew a decent amount back then, but looking back I have to admit that I probably had no business managing millions of dollars for people.
Anyhow, we would get analyst reports every day about “actionable ideas” so we could drum up commissions and try to act on what our analysts reported. On this particular day I had a report on Merck and this family friend of mine just happened to own it. The stock had fallen 20-30% that morning on some report by the FDA or something (I really had no idea what the hell was going on with the company and frankly, it wasn’t my job to know – we took our cues from the firm’s research analysts) and we were unloading everything because that’s what our analysts recommended.
I remember it vividly because I had been engrossed in Warren Buffett’s annual letters at the time and I’d come to believe in the contrarian perspective. You were supposed to buy when others were fearful and sell when others were greedy or something like that. So I called up my family friend and we dumped his shares even though Warren Buffett was kicking the back of my chair the whole time. Selling was the exact opposite of what I thought I was smart, but the business model of the firm was designed to treat Merck as a “sell” and so sell we did.
When I hung up the phone I looked at the profit and loss report. Not for the client’s profit or loss, but for my commission. It said $2,000. I felt sick to my stomach. Literally. I went to the bathroom and I sat on the toilet with my head in my hands thinking about how I had charged this great man $2,000 when I knew I could do it for $9.99 at a low discount brokerage firm. I couldn’t handle it. And I quit the firm within 6 months.
The sad thing is, that’s been my story the whole way through this industry. The first job I ever had was selling Long Term Care Insurance right out of college. We were boxed in rooms like sardines, 50 guys deep just banging the phones and telling fart jokes for 18 hours a day. And every once in a while you’d leave the office to go sell someone some insurance that they may or may not need. I moved on to life insurance which felt marginally less dirty. And then stocks which felt a little less dirty. When I got sick of that I managed a small investment partnership for 5 years where I worked for a few rich guys who still made me feel dirty even though I generated some pretty lucky returns through a difficult environment (2006-2011). And then I started Orcam where I am finally feeling like I am doing something for my clients that makes a difference and isn’t a rip-off. It’s been a long strange trip….
The good news is, I feel like my story from a bad place to a better place is the general trend we’re seeing in financial services. I don’t know where exactly this industry is going. But I feel like its best days are ahead. The people in this industry aren’t bad people. I just think there’s been a client second culture that has persisted even as the business has become infinitely more client friendly. Sadly, there will always be bad segments of the business. There will always be bad firms. There will always be people who think that “greed is good” and all that bull shit. But I honestly believe it’s getting better. It’s never been less expensive, it’s never been more transparent and the vast amount of information has made it easier for investors to make smart decisions. And I think it’s only going to keep getting better. Unfortunately, there’s still a lot of work to be done before we’re at a spot where I can say that financial services contributes to the economy in a deeply positive way.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.