Browse through the business section of any bookstore, and you will likely find a large selection of wealth management or investment books. This genre must be very lucrative for publishers. However, the landscape is also filled with authors who employ sensationalized language and play on our financial insecurities to promote their latest approach to getting rich. These titles often make me cringe.
I recently finished reading Joshua M. Brown’s Backstage Wall Street: An Insider’s Guide to knowing Who to Trust, Who to Run From, and How to Maximize Your Investments, a book which offers a behind-the-scenes and often humorous account of his decade of experience working as a broker in the investment management world. Although very successful in his career, over time, Brown became increasingly frustrated and disenchanted with a profession that he often saw prey on clients rather than helping to achieve financial success. So, he left the aggressive, high-commission world of the broker and “reformed” his career as a fee-only financial adviser. He also writes a popular financial blog called The Reformed Broker.
When I first developed the undergraduate wealth management course (6F:119) six years ago, I searched for a textbook that was easy to understand, written in plain language, and provided a down-to-earth investment approach. I wanted a book that my students would not only read, but also share with friends and family members. I settled on two different titles: Burton Malkiel’s Random Walk Guide to Investing and The Bogleheads’ Guide to Investing by Taylor Larimore, Mel Lindauer, and Michael LeBoeuf. These two volumes share a very similar philosophy, based on the notion that with proper education the average person can effectively establish a basic investment plan. Neither Malkiel nor the Bogleheads are very keen on brokers and financial advisers. In fact, the first chapter of Malkiel’s book is titled “Fire Your Financial Adviser!”
Backstage Wall Street essentially takes this idea a step further and explains in detail how brokers profit from their clients and why we should be cautious when choosing to work with an investment professional. This is not necessarily a book that tells how to invest your money, but rather how not to invest your money. Brown shares his experiences along three primary dimensions – The People, The Product, and The Pitch.
He begins the book with a look at the people who comprise the brokerage business, exploring how they are recruited, trained, and most importantly, compensated. Next, he discusses some of the investment products that were sold to clients and examines the commission structures for different investment vehicles. Finally, he explains the training, tricks, tactics, and thought process behind the sales pitch that he was taught to use as a broker. It was this third section that I found most fascinating. In a chapter titled, “The Straight Line,” Brown provides the actual transcript that he would use to convince clients to follow his advice and execute various trades, even when these transactions were of no benefit to the client. I was reminded of how we are not always the primary interest of our broker, but our money certainly is.
Brown does not suggest that all brokers, financial advisers, or investment professionals are dishonest or unscrupulous. Instead, the primary aim of Backstage Wall Street is to educate investors about the monetary incentives behind these professionals so that we can make more informed investment decisions.