I realized that most of what I did was bad for customers, so I quit

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Many of those who work on Wall Street go through a process in which they gradually learn that what is perceived to be a “smart investment” is often incredibly stupid.

Specifically, they learn that many of the recommendations made by Wall Street – and the transactions that Wall Street is paid to facilitate – are not in the best interests of their clients.

And once they learn that, they have two options to choose from:

  1. Keep making the same bad recommendations and exchanges.

  2. Changing the way they do business, often in exchange for a lower initial salary.

One of those who changed is Josh Brown, a former stock broker who now writes a well-read financial blog called The Reformed Broker.

He worked for 10 years in the retail brokerage industry during booming and recessionary markets. When times are good and people are making money, the conflicts inherent in the business are “masked,” he says. But when the tide goes down, you find out who swims naked, says Brown, citing Warren Buffett.

“As a retail broker, your job is to buy things with your clients’ money. That’s it. When you don’t, they take the money out,” Brown told The Daily Ticker in the accompanying interview. When times were bad and stocks weren’t a good investment, he was forced to keep buying, choosing stocks that were the least of all evils.

After the 2008 stock market crash, he realized he was hurting his clients by selling them stocks he didn’t think he should buy. Brown stepped down from his role as a “broker” and became a financial advisor at Fusion Analytics. In this new job, Brown says, his interests and those of his clients are more closely aligned.

Most people don’t even recognize that there is a difference between a “stockbroker” and a “financial advisor”, but there is. And for customers, this is a critically important difference.

Investment dealers generally work for brokerage firms and do not recommend transactions that they believe are in the best interests of their clients. Rather, all they have to do is recommend titles that are “appropriate” (a much lower standard). Financial advisers, on the other hand, have a fiduciary duty to act in the best interests of their clients. Even though this standard is often violated (by financial advisers who do not understand the importance of low fees to investment returns, for example), it is a much higher standard. And, all other things being equal, no one looking for sound financial advice should ever work with a stock broker rather than a financial advisor.


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