Who are you?
Baby Boomers will well remember the British rock band The Who and three of their hits, namely, I Can’ t Explain (1965), We Won’t Get Fooled Again (1971), and Who Are You (1978).
Over my five decades in the financial services industry, I has personally witnessed, but refused to
participate, in amoral and sometimes immoral business practices which I Can’t Explain. At least I
couldn’t at the time. But as I matured in the business, it all began to make sense. As in any profession,
there are bad apples. Many of these bad apples rise to the top, either as sales leaders or corporate
executives. Now we have the additional requirement of having to hold acceptable environmental, social, and governmental (ESG) views to be considered for corporate “advancement”.
You may have been the target of unscrupulous sales practices, corporate malfeasance, or self-serving
product recommendations where the primary financial problem being solved is the broker’s need to
earn a commission. Any benefit to the client is oftentimes secondary. Sometimes, it’s worse than that as
I will explain below. I will run through some “notes from the field” of actual experiences I have had so
We Won’t Get Fooled Again.
The first thing to think about when considering doing business with a broker is Who Are You? But how
are you supposed to know? Everybody says they are awesome and amazing. The answer is watch what
they do and look for contradictions in what they say.
Don’t do business with brokers who say things like “I am in the business of generating commissions” or
who brag about their salesmanship skills and say things like “I like to play, and I like to win, and I like to close sales” as I have often heard. You really don’t want a salesman who views your financial security as a game. In fact, you don’t want a salesman at all. You want an advisor who has plenty of prospects to talk to and isn’t particularly concerned if any specific one results in a sale or not. To a true advisor, it is all about the prospect flow. We used to say 10-3-1, meaning if an advisor calls on 10 prospects, gets 3 appointments, and makes one sale, he can do very, very well without having to stoop to, what should be, shameful sales tactics.
Don’t do business with brokers who pressure you with arbitrary deadlines. Examples of this tactic are as old as advertising with the general theme of act now or the value proposition will go away soon. Do not act on a recommendation except at a time of your choosing after understanding what is being proposed to your satisfaction.
Horror stories from the field.
In 1977 I was a rookie agent at a major life insurance company. The agency sales leader, Ken, had
inherited his father’s book of business. His father had had a sterling reputation and was the classic
beloved insurance man of the ’30s, ‘40s, and ‘50s.
Ken was a star. I met him in the elevator by chance as I was riding back up to the office with the
Manager. Ken had a green leisure suit on, an open collared polyester shirt, sporting pooka beads, and
was a smelly, sweaty mess. The Manager forced a large phony smile and said with reluctant enthusiasm,
“Hello Ken”. Whereupon Ken, being the leading producer in the office who no doubt kept the agency in
the black, replied with a resounding F* Y Pete! I was 24 and learning quickly.
What doe this have to do with who are you? Well, you see, Ken was having his clients sign multiple
policy loan forms just in case they ever needed to hit up their policy for some cash in the future. Riding
on his father’s reputation, they readily signed the forms. Ken then embezzled the money out of the
policies. He was found out after two years, arrested, convicted, and sent to prison. The Manager
escaped (I’m sure he knew this had been going on) legal proceedings but was promptly fired. That’s
when I accepted a position in the management development program at a competing company.
This is what goes on folks, and I’m sure much, much worse to this day. But this was my first encounter to a disturbing pattern of irregularities I’ve experienced ever since.
At my new company, there was an agent who was selling Whole Life policies like hotcakes. What skill!
Why can’t you bums do what Harvey is doing, said the Manager. Well, you see, Harvey was materially
misrepresenting the product. There was a technique called minimum deposit which was very popular in
the stagflation area of the ‘70s. One simply paid in the full premiums for 4 years, built the cash value up
to a head of steam so to speak, and then “borrowed” out of the policy the amount required to pay
future premiums, thus hollowing out the cash value and turning it into a term policy over time. So why
not just sell term in the first place? Gosh, could it be that the commission was 5 to 10 times higher?
Well, still it did make sense in specific situations provided the client understood what was happening.
But here is the magic folks! Harvey never disclosed what was happening. He told his prospects they
could have a cash rich Whole Life policy, pay for four years and be done! Voila! Vanishing premiums. He called it “Four Pay and Fly!”. Shortly after that time, I accepted a position as Regional Director for
another major life insurance company and a move from Detroit to what was then glorious San
Francisco!
In 1984 it was my job to recruit district agencies in the 13 western states to my company. There was a
minimum agency production requirement of $300,000 annual commission. That was in 1984 dollars and was, admittedly, low even then. So off I went pitching the value proposition. My associate and I brought over several district agencies and their managers wanting to run their own show. $300,000 was doable. But then on a bitterly cold inauguration day (Reagan’s second term of office) at the home office in New York, my boss Bob the national sales director, and his boss Dick the national sale VP had this exchange. Dick: “Guys, we’re going to double the minimum production requirement to maintain an agency contract for 1985. (We, of course, protested because that’s not what we promised the guys we brought over.) Doesn’t matter, said Dick as he puffed on his pipe. This is how we increase production.
I was appalled! Classic bait and switch. But then, after the bloom had come off the rose, the pedals fell
too when my boss said, “Yeah, we’re gonna squeeze their balls” as he grimaced and held his hand up is a squeezing motion. Welcome to the New York way of doing business, Greg.
I mention this story because it has a direct bearing on how financial products are sold. Put yourself in
the position of a new General Agent who has just moved 10-20 of his business colleagues to this
company who now all have a gun to their collective heads to double their production or have their
contract terminated. Now it is these folks who have a financial problem to solve and it sure isn’t yours.
The sales pressure is enormous, and you have a target on your back. Don’t do business with people who
are in this position.
This is running a bit long, but I have saved the best (or worst) for last. This is a scene right out of The Big short or The Wolf of Wall Street. In 1989 I was recruited away from the traditional life insurance world and into the wonderful world of Wall Street. I was to be the in-house insurance Guru at a well-known Wall Street brokerage firm that was always bullish on America. I was housed in the financial district of San Francisco in one of the premier office buildings on the West Coast. I covered three northern California offices and serviced over 200 brokers.
The Regional Manager was a hard scrabble tough guy, a diminutive Italian American raised in the Bronx during the depression. I make no disparaging remarks about Italians. I am the grandson of Greek
immigrants and have a generally high regard for Italian Americans. But not this one. He was particularly mean because he had just been demoted from his previous position of Regional Director. He was on the warpath. He ruled by fear, debasement, threats, and insisted on personal subservience. He was loathsome. He hated me and eventually fired me because I was not willing to bend the knee.
Every Monday morning the entire office attended his weekly harangue. The brokers were told what to
say, what to sell, and who to sell it to. And if you didn’t follow orders your office would be emptied right then and there, and you and your boxes would be out on a Market Street curb.
When you buy a stock, for example, oftentimes the firm has bought it before you want it. They have it in their inventory. The firm then allots a certain number of shares to each of the offices throughout the
country. Sometimes the firm buys a winner. Sometimes they buy a loser. Here’s what happens then.
Anthony, the Boss says, Guys! The firm has a large position in ABC stock, and it’s turned out to be a real dog. The firm is losing money. We have to offload this crap. However, the firm also has a position in XYZ stock, and this baby is hot! It’s going to the moon. This office was lucky enough to get a small allotment for you to offer to your A-Book (best) clients. Here’s the deal. For every 10 shares of ABC that you can sell, you will get 1 share of XYZ to sell. So, let’s hit the phones at 9AM and get rid of this stuff. Now what is an honest broker to do? Who are you? Who? Who? Who? Who? You are forced to hit your rolodex, pluck out your victims and help friends and family. I am proud to have been fired by this man.
