I'm not proud of everything I learned to do in my retail brokerage days. I was almost too good at the job, which scared me and shook me to my core (which I like to think is a moral core). Because the job is based on salesmanship over stewardship, subterfuge over transparency.
I exorcised all of my demons in the forthcoming book Backstage Wall Street, but today I have a little bonus for you. There was an item in Registered Rep about how Morgan Stanley and Smith Barney advisors are fiending for their allocation of Facebook shares, the biggest piece of IPO product they've seen in like forever.
I have no idea how these brokers will parcel out the meager amount of shares they get, but if I were a broker, this is how I'd sell Facebook:
Step 1: I'd call all my best clients and tell them I have a limited amount of shares but my manager will only apportion Facebook IPO stock to the largest accounts. I would then forward them incoming transfer paperwork and tell them they needed to send in their other brokerage accounts to be above level X.
Step 2: I'd call all my midsized accounts and say the same thing. None of them would be getting any shares but I'd be able to raise a ton of assets with the longshot promise.
Step 3: I'd put my junior broker on the small accounts to do the same thing. Then I'd have him call all qualified prospective leads morning, noon, and night - the pitch would be something like this:
"Now obviously, when a hot deal like Facebook comes along, the lion's share goes to our biggest and best accounts. But we always keep a small amount aside for newer clients as a show of good faith that we intend to grow this relationship and look out for you when opportunities arise. If we can get you any of Facebook - and remember, we're not promising for sure that we can - how would you like your new account to be titled? Joint, individual or corporate?"
We'd open a slew of new accounts. The day of the deal, we'd say "The bad news is I couldn't get you any shares of Facebook, we had to take care of exisiting clients first. The good news is, my analysts just came out with a conviction buy rating on NVidia, ticker symbol NVDA. Pick up a thousand shares with me today and the next time a hot offering comes along, I promise I'll be able to take care of you." With that spiel, we'll convert probably 1 out of 5 of those new accounts to an actual trade, cowboy up!
Step 4: I'd go back to the all the other accounts the night before the deal and start breaking up what I was given by the selling group manager, even if it was only 5000 shares. Literally, everyone would get a hundred shares - that way I could keep everyone happy with the fact that I did my best and at least I came through with something.
Step 5: The day after the Facebook IPO went public, I'd call all the midsized accounts that didn't send in new assets to qualify, point to the Facebook share price and show them how much money everyone made. I'd ask for incoming transfers again.
The net result of this would be a few million bucks "new money" raised, the selling concession on the Facebook shares (figure 5% of however much I was given to book) and a slew of new clients opened based on the bait-and-switch pitch my junior broker closed them with.
Tada! And that's how it's done, folks.
And don't laugh...as we speak there are hundreds (thousands?) of guys doing exactly that right now. I'm glad to be "reformed."