“Conflict of All Conflicts” by Josh Brown

February 28, 2012, 9:08 AM ET
Conflict of All Conflicts”
By Josh Brown
Ext: Glass office building in January of 2009

Cut to interior of regional branch office of a national brokerage firm, flatscreen TVs line the walls while cubicles are festooned with copies of Tony Robbins books and golf course calendars.

Branch Manager: “Hey Dan*, when you get a moment I just need to sit with you your team for our annual review”

Dan: “I got some time, let’s go through it now if you want…”

BM: “Okay great, so first of all, how did things go with your clients last year?  I know it was the worst year for the markets since the crash of ’29 so…”

Dan: “Actually, we did really well, in April right after Bear Stearns went down we got out of most of the individual common stocks, we did some covered calls to hedge the ones we couldn’t get out of outright.  Most of the money went into Treasurys, we did some gold as well.

BM: “Wow, nicely done!  I’m sure the clients were pleased they didn’t get killed like everyone else, right?”

Dan: “All in all, we actually raised assets on a net basis last year, believe it or not. Our clients were killed elsewhere so they transferred a bunch of accounts in for us to keep safe, we liquidated a ton of stuff for people over the summer, prior to Lehman’s you know what.”

BM: “Yeah, I meant to tell you, you guys were the only team in the office who grew assets in 2008, very impressive.  How did you see it coming?”

Dan: “Thanks, you know I really didn’t predict that everything would melt down but I was doing a lot of reading outside of our own research.  People talking about the potential losses and instability of the system on the blogs and stuff – it just really resonated with us compared to our analysts who seemed to be looking for reasons to stay invested…”

BM: “Ummm, okay but you’re not reading the blogs from your office computer right?  You know that’s not compliant or encouraged or whatever, right?”

Dan: “I mean, I’m just trying to stay informed and I really don’t see how – ”

BM: “Anyway, what I need to talk with you guys about is your payout for 2009.  As you know, the grid is based on assets under management and fees and commissions generated.  Obviously we can’t count all the assets you went to cash with, you understand.”

Dan: “Wait, I don’t understand…”

BM: “To figure out your payout for the next 12 month cycle, we can only take into account the AUM you’ve got put to work, which means your gross payout is going to have to come down a bit for ’09.”

Dan: “But, I protected my clients – I even raised new money last year and nobody got hurt too badly!”

BM: “I understand completely, but that’s just how it works.  It won’t be cut that badly, let me run the numbers coming from corporate and I’ll give you an exact.”

Dan: “I have a better idea: How about, you cut my payout by even one basis point and I call your boss and then his boss.  Then I call the New York Times.  Then I come to your house and burn it to the ground.  How does that sound?”

BM: “Dan, calm down, no need to get crazy, I’m just doing my job as your manager, this is what it is.”

Dan: “I dare you to cut my payout for protecting my clients, just try it and watch what happens.”

*Dan is not his real name, but this exchange took place on the eve of Dan’s final sayonara to a firm he’d given 15 years to.  True story.
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