Confessions of a Reformed Stockbroker

Photograph by Stephanie Pfriender Stylander

Joshua Brown spent the first decade of his Wall Street career trolling for wealthy clients on the phone as a stockbroker. Then in 2008 the market melted down, along with the portfolios of many of his customers. It was a searing experience for him. Today, Brown blogs about Wall Street as The Reformed Broker and is a fee-based financial adviser at Fusion Analytics Investment Partners, a New York-based asset management firm. And he is still grappling with his past. In March, McGraw-Hill will publish Brown’s first book, Backstage Wall Street: An Insider’s Guide to Knowing Who to Trust, Who to Run From, and How to Maximize Your Investments. Brown interweaves the evolution of the brokerage business with his personal story of toiling at now vanished companies like Lew Lieberbaum & Co. He talked to me about the book and how he hopes it will change Wall Street culture.

How did you become a stockbroker?

The only thing I ever wanted to do was work on Wall Street. In the late ’90s, the thing to do was to become a broker. The dot-coms were flying. The guys were making their clients money, and they were making themselves money. People were starting up firms out of thin air. There were a bunch of people from my town, Merrick, N.Y., who were a few years older. I knew their families. They graduated from college, and within a year they were making $200,000 or $300,000. They were knuckleheads in high school, now they were driving Porsches. It was definitely seductive.

What do you think is wrong with the business?

The basic premise of a broker pitching a client is “I’m going to be able to consistently generate 20 percent returns a year or I’m going to consistently beat the market.” They have no way to show any track record. They are managing hundreds of different accounts, each one is different. So I think it starts with a lie.

What sort of excesses did you personally witness when you got into the business?

The boiler room era had ended by that time, but the sales tactics were the same. The concept was always, “Guys, we are not in the storage business. We are in the moving business. Keep the trades going and the money moving.” Those tactics are still in use to this day. There are guys in downtown Manhattan right now who are using those same sales tactics to sell private placement shares in Facebook. I did what no one’s ever done before in my book. I took decades of sales scripts that I collected over the years, wrote the definitive version, and I published the whole thing for the first time ever. If you’re a wealthy person and own a working phone line, you know exactly what I’m talking about, but you probably don’t realize how canonical the pitch is and how widely used it is around the country.

In the book, you talk about “advanced cold-calling skills” and the “straight-line pitch.” Could you explain these things?

The straight-line pitch is really about finding the most direct route from “Hi, this is Josh,” to “Great, sir. Welcome aboard. I’ll write up your order.” There are 10 or 12 different tangents that a client can go off on. This pitch enables a broker to keep them on the path to a closing.

Give us an example?

A client would get on the phone and you could pitch them Intel or Google, whatever the stock is. The client would say, “I totally agree with you, but let me talk to my wife, let me do my own homework, let me think about it.” The straight-line pitch gives the broker five snappy answers to each of those objections.

What’s the response to the guy who says, as I have, “I have to check with my wife”?

Here’s what you are taught to say: “You make millions of decisions every day when you are at work. You don’t consult your wife on those.” Typically, the client would say, “Right.” Then you would say, “Well, what we are talking about today is a $10,000 trade. I’m sure you have made six-figure decisions that have a much bigger impact.” You’d also have guys who would tell the client, “Look, what I’m offering you today is a relationship between you and I. If I do a good enough job for you over the next few months and you want to expand that relationship to include your wife, that would be great. But let’s focus on the relationship between you and I today with this initial trade.” There are a myriad of ways to address that objection. You use each one of them until you find the key that is going to unlock this particular guy’s door.

And it worked?

I think it used to work. If you look at how many of these firms are closing down, it probably works a lot less now. They are not getting shut down because of regulatory violations. They are shutting down because they are running out of money. The model of making 500 phone calls a day and getting 50 people to pick up the phone and getting five of them to be maybes and one to say yes is almost impossible in the age of cell phones and e-mail. People just don’t pick up the phone anymore.

When did you decide to become a reformed broker?

In 2008, everything really crystallized for me. The market was melting down. But at the retail brokerages, there were analysts still picking stocks. Nobody said, “Go to cash.” That’s when you realize: This has nothing to do with taking care of clients and everything to do with generating gross commissions. I put people into cash in some instances. I tried to put some people into gold and bonds. The problem is, as a retail broker, you don’t make commissions when you sit in cash. You put all your clients in cash, you are going to end up going to the soup kitchen. So, ultimately, I became a fee-based financial adviser, where there is no incentive other than to help your client hit their goals. It was a long time coming, but I finally found what I’m looking for. The book, to some extent, is a redemption story. I made every mistake you can make. I believed a lot of the lines I used.

Why write the book?

I’ve been carrying around this huge chip on my shoulder and a wealth of insider knowing about the brokerage business for way too long. It had to come out somewhere. It was pretty exciting to write it, and it’s still pretty exciting to think about what’s going to happen when this hits the street in a few weeks.

What do you think is going to be the most explosive part?

The cold-calling script. Every affluent person in the country has gotten that call. Some of them will be able to recite the lines word for word. The way it is used with such cruel efficiency is going to freak them out. I think a lot of brokers are going to have to change their ways.