About ten years ago, Wall Street laid-off 100,000 highly compensated securities professionals; because, their jobs were being performed by computer-based algorithm-reading machines.  (An algorithm is just a complex set of mathematical rules and formulas.) Eventually, many local retail brokers might very well suffer the same fate, especially as brokers voluntarily send accounts to be similarly managed by computers.

When I retired as a financial advisor six years ago, there were three basic types of brokerage accounts.  The securities firms, however, were encouraging their brokers to use mostly one type, rather than the other two.

Our Regional Manager suggested that the brokers could work more efficiently—and earn greater commissions—by just packaging the paperwork, and shipping the accounts off to the home office.  The various investment portfolios would supposedly be managed by a team of analysts at that point.

Personally, I wonder if that “team” really meant the same type of algorithm-reading machines.  Perhaps, I could be wrong; however, why couldn’t a similar computer program be managing retail client portfolios, just as it has been managing institutional accounts on Wall Street?  With such accounts, the clients have no no one-to-one contact with any person who is involved with the management of their accounts.

Also, the securities brokers have no chance to add personal value to the situation, which is an important quality for individuals to establish in order for them to prevent the automation of their jobs.  The firms suggest that the brokers can generate greater commissions; because, they spend less time on each account, as they pass them up-the line. But, there is little chance to add anything to the relationships as the brokers act somewhat like a worker on an assembly line.

The old traditional commission-based accounts have long since fallen by the wayside as they are felt to offer few chances to generate commissions.  Additionally, once the accounts are initially invested, many lie unchanged for years to come–earning nothing for the brokers.

The third type of account is a fee-based one, like the first; however, with these, the broker manages the various portfolios in consultation with the clients.  Sure, they consumed more time, and reduce potential revenues; however, these accounts enabled brokers to work with their clients and their portfolios.  Additionally, why would a securities professional want to get involved in the securities markets if it were not to spend their time helping clients understand and invest in those very same markets?

In essence, brokers who just send the accounts to the “home office” become a paper-pushers, and they remove themselves from the real business at hand?  And at some point, the firms will begin to reduce commissions, and eliminate some brokers, since fewer can push more paper than before.

I’ll take dealing with clients and stocks, bonds and mutual funds, any old day.  Lastly, my value-added will protect me somewhat from such computer-generated automation!


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  1. #1 by Doug (FPS/ on November 27, 2017 - 4:06 AM

    I am curious… is/was not your motivation to deliver a measure of service in an environment rich with commissions determined mostly by the amount of the investment, perhaps the wealth of the investor (given your incentive was to grab for more of it), and the number of actual transactions as they determined the fees? Now you have online investing which now allows for the little guy to invest less up front, doesn’t have to beg for a broker’s attention because the broker is preferring nursing contacts with bigger money, and more competitive fee structure?

    Good to see a post from you.. been a while. 🙂

  2. #2 by cheekos on November 27, 2017 - 3:35 PM

    The average investor, as I had found, doesn’t understand what the S & P is, and they lack the confidence to manage their own accounts.

    Just consider the people who patronize pop-up tax preparation storefronts, even though their tax return would merely be a 1040 EZ, with one W-2, and their bank interest has less than $5.00, which is not reportable. Neither the preparation firm nor the preparer. needs to be licensed. But, a girl who does nails needs one.

    At least brokers need several licenses to do their job.

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