A candid conversation with my former stockbroker


My ex- stockbroker and I have remained good friends even though I transferred all my accounts to a discount broker many years ago. I was introduced to Bob (not his real name) by my insurance agent back in 1988. Bob taught me a lot about the inner workings of the brokerage business.

Both Bob and I enjoy playing golf. Every year Bob invites me to play golf at his private golf club. We have one rule: Never talk about the financial markets on the golf course. However, we did have a very interesting conversion, over a few drinks, after our round of golf.

“So Bob, I noticed that you seem to be very happy and relaxed today; you didn’t even call the office.”

“Yes, I am a lot happier. Over the past few years, I have convinced my clients to move their money into Dimensional Funds. I only have five clients who insist on buying and selling stocks. It is less stressful than trying to find stocks that outperform the market.” 

“There are so many fund companies, why did you pick Dimensional Funds?”

“All their funds have very low management expense ratios. Their fees are even lower than a lot of ETFs. They are sold exclusively through financial advisors. Advisors have to attend a three day symposium in California to get approved to even sell their funds.”

“Are you still one of the top revenue producers at your firm?”

“No, I am making less money, I charge my clients 1% commission to manage their money.  But, the upside is less stress and more time to play golf.” (big smile!)

“You and I both know that the majority of fund managers don’t outperform the market over the long – term.”

“I agree. Did you know that Harvard University’s endowment fund fires their fund managers every five years? However, Dimensional managers don’t try to predict market trends or time the market.  They keep costs down by not trading and selecting anywhere from 300 to 500 different stocks in their portfolios. They focus more on diversification, small cap and value strategies to achieve more consistent returns.”

“Have you ever fired a client?”

“Yes, so far only two clients. I played hockey on the same team with one client that kept on asking about stocks while I was having a shower after the game. When I changed brokerage companies, I referred him to another broker. I also recently tried to convince a client not to sell all his Dimensional funds. He went to 100% cash and then had the nerve to blame me that I sold his funds that had increased in value.”

“Why did you change your brokerage company?”

“Too much pressure to sell their in house products. Plus I was obligated to sell bought deals in IPOs, secondary issues, bonds and debentures.”

“I do remember a big bond issue that you didn’t like and got rid of through my margin account. Come to think about it, I really helped you get rid of a lot of junk offerings over the years.”

“Yes you did, but you always made some money on the deal! “

“True, but you always made a lot more than me!” (both of us laughing) 

“You really believe in Dimensional Funds?”

“Absolutely, I show new clients my investment portfolio which contains nothing but Dimensional Funds. The only other investment that I own are shares in the bank that owns my brokerage firm. I keep that account private.”

Are you concern that in January 2017, your commission fees will show up on clients monthly statements?

“A good question, I have some very wealthy clients. Not sure how they will react paying me 1% on their investments over the course of the year.” 


What is a ‘Bought Deal?

A bought deal is a securities offering where an investment bank commits to buy the entire offering from the client company. A bought deal eliminates the financing risk for the company, which is able to ensure that it raises the intended amount of funds from the securities offering; however, the client firm will likely get a lower price by taking this approach.

A bought deal is more risky for the investment bank, because it must then try to sell the securities to other investors. The investment bank takes all of the risk that the securities may not be able to be sold, or more commonly, that they may lose value before they can be sold, resulting in a net loss.

Source: Investopedia

Disclaimer: This post is for educational purposes. I don’t own any Dimensional funds nor do I recommend buying them at this time. I do know that Bob only gets paid about 60% of the fees that he generates. The other 40% goes to the brokerage firm.










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