Tips For Fitting In At Your Brokerage Firm

By Glenn Curtis AAA

If you're looking to become a stock broker, choosing the right firm will be an extremely important decision in your career. The firm you work for should not only fit your personality and work habits, but also your investment philosophy. To that end, below are several factors potential brokers or those with newly-minted Series 7 licenses should consider before building a book of business at any firm.

SEE: Banker Or Broker: Which Career Is Right For You?

Corporate Culture
When it comes to corporate culture, you should consider everything from the dress code at work to the frequency of mandatory meetings and in-house education, to the types of accounts you'll be allowed to open. At larger, big-name investment banks such as Goldman Sachs or Morgan Stanley, the dress code will be quite formal. These larger banks also tend to emphasize sales meetings and continuing education sessions over and above mandatory FINRA requirements. Many also have minimum sales targets that you'll have to meet if you want to stay in their broker trainee programs.

On the other hand, smaller, more regional firms are a little more flexible. To be sure, they also expect their sales staff to be very professional, but they aren't likely to be as strict as the bigger name banks in terms of broker appearance or sales meetings. In addition, they are more apt to allow mom-and-pop type accounts, whereas the bigger houses may ask you to target only high net worth customers with $1 million or more in investable assets.

Compensation and Prospecting Requirements
A broker has a much better chance at opening a new account at a larger firm due to name recognition. However, because of the overhead attached to this name recognition (including the maintenance of sales offices, marketing budgets and a research staff) the commission payouts are often lower than those of the smaller firms. On the flip side, smaller firms, like the ones found on most main streets in America, can often offer higher commission rates to their brokers.

As far as prospecting is concerned, at firms like Merrill Lynch and JP Morgan, you will probably have to "smile and dial." In other words, you'll be expected to hit the phones hard as you build your book. Smaller firms, on the other hand, focus more on networking, and holding investment seminars to obtain prospects. Building up a clientele is a must, so it's up to you to decide how you'd prefer to do it and which firms fit in with you sales style.

Investment Types and Options
Large investment firms like to see their brokers put a certain percentage of their books of business into different types of investments. So, in some cases, brokers may find themselves buying Treasury notes or corporate bonds for some of their clients, whether they like it or not. Sometimes, this happens because the investment firm is underwriting these deals. Smaller firms tend to be more flexible and usually allow for an asset allocation spread across different types of equities or other suitable investments. They also tend to be less focused on building out corporate or government bond positions merely to garner investment banking business. Another thing to consider is that larger firms are also notorious for pushing stocks their research staff recommends, while smaller firms sometimes allow their brokers to do their own research.

SEE: Research Report Red Flags

The ability to obtain initial public offerings (IPOs) should be another important factor in your decision. Small firms, who don't do any underwriting, usually don't have access to initial stock offerings. On the other hand, the big banks often get the first crack at offerings, and their brokers are often given an allotment to sell to their clients.

To be clear, IPOs aren't appropriate for all investors. In fact, many brokers build a huge book of business without ever having access to an initial offering. However, it can be helpful for brokers to have this tool under their belts. After all, the ability to obtain shares in an IPO is extremely attractive to clients, and will help registered reps garner new clients.

Are Your Clients Really Yours?
At most brokerage firms, the client accounts that you open belong to the firm. In other words, if you leave, or if you are fired, the company keeps those accounts. Furthermore, as part of your initial employment contract, you probably will have to sign a document that forbids you to contact any of those clients for a given period of time, even after you have separated from the firm. Some large firms also have a reputation for pushing out aging brokers and keeping their accounts. Although this may not be commonplace, it is something you should be aware of.

Smaller mom-and-pop firms may allow you to keep your clients if you leave and their employment contracts probably won't be as strict. This means that even if the mom-and-pop firms don't let you keep your clients upon separation, they may not forbid you from contacting them down the road. That's a biggie!

The Bottom Line
There are many factors to consider if you want to get into the stock brokering business. Before you accept a long-term position at a firm, be sure to do your homework. You'll be glad you did!

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