Believe and Obey

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Wholesale Rip-off Part 6: The Mechanics of Moral Compromise

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Today continues a series to appear roughly once per month, on the main ways that the financial system rips off the average worker and investor.  This is based upon my nearly decade-long tenure in the financial services industry.

Little by Little

The mechanics of moral compromise operate a lot like the adage of “how do you boil a frog?”  The answer of course is by turning up the water a little bit at a time so that the frog does not notice until it is too late to escape, and they are cooked.  Working as a wholesaler in the financial services field is a lot like that.

Let’s define our terms here.  Wholesalers come in two varieties in this business: External and Internal.  External wholesalers live in the area in which they call and meet with advisors face to face.  They meet individually with advisors or in groups in a branch office.  They also make presentations at regional and national conferences and other such events.  These individuals maintain personal relationships with advisors and are the quarterback of the sales team.  This is where the serious money is in this field.

Internal wholesalers by contrast usually work at a call center in a centralized location.  They serve as the day-to-day contact between advisors and the company.  They provide technical information, run hypothetical illustrations, prospect for new advisors to work with as well as sending out company literature and sometimes making appointments between external wholesalers and advisors.  This role is not pure sales in that internal wholesalers are not fired for lack of production whereas external wholesalers are.

Every mutual fund company and insurance carrier operating in this industry has a similar model.  There may be variations such as the breadth of the product line represented, and the types of advisors seen but this outlines the dominate form this distribution model embodies.

Is This a Great Gig, Or What?

It is important to understand the background of the people in this field. Most wholesalers, both external and internal, come from the role of a financial advisor: a failed financial advisor.  It is axiomatic that if these people were successful as a field advisor working directly with clients they would have remained in that capacity.  My own experience was along this traditional path.  I was never comfortable working directly with consumers as my background was all business-to-business sales, so it was not a good fit.  Consequently, I was not making much money and the handwriting was on the wall.  This is how most enter the world of wholesaling.

The other main path into this work is as a registered sales assistant.  This is someone with a securities license who engages in a sales support role.  These jobs are typically not terribly remunerative, and you are at the mercy of how successful the advisor is.  You may have also entered the field via the sales desk of a discount brokerage in which case you were not making a lot of money and put up with a boiler room type atmosphere.

The first thing about entering this field is the discovery that there is such a thing as wholesaling at all.  When one thinks of wholesaling one thinks of auto parts and plumbing supplies.  It is hard to imagine a warehouse full of annuities and mutual funds.  I found out about this niche from the individual who recruited me into the business.  He knew I was struggling and suggested I go and apply at an insurance carrier that had their sales desk in my hometown.

I was only dimly aware of financial wholesaling even though I had sat in on presentations of an external wholesaler and partook in the obligatory free lunch so provided.  I do remember (after becoming a wholesaler) that one of the external wholesalers who called on our office was suggested by the office manager as a good financial advisor candidate.  When approached by a senior advisor in the office about such an opportunity the wholesaler informed her that he was making over 250K as a wholesaler and saw no reason to go back to the world of prospecting widows and retired clients.  Eye opening to say the least.

I, like most, who failed as a field advisor had studied hard to acquire my securities licenses and was not ready to leave the industry without at least trying in another capacity.  Besides I was needing an income and the first thing you learn about wholesaling is that they provide a base salary unlike being an advisor which is straight commission.

So, I investigated the opportunity and discovered that being an internal wholesaler, in addition to the base salary, meant not having to travel, not having to meet in person with clients and not really having to prospect for new clients as I would only be talking with advisors.  It was financial services but business to business.  This beat the hell out of what I was doing and already having my licenses meant that I was an attractive candidate.

So, I dutifully applied and went through an interview with HR and then was called in for an in-person interview with two managers of internal wholesaling.  I was given the typical interview questions and gave the typical bullshit answers to why I wanted the job.  It is a spin that anyone who has failed at one endeavor uses to explain away that failure is all too familiar with.  I was looking for “growth” and a “collegial environment” etc. etc.  Since the two managers had followed the same path I had, they understood that what I really needed was a paycheck!

I then was put through a mock phone call in which I would impersonate an internal wholesaler calling an advisor.  All in all, hokey but I sailed through that and was offered a position.  In the end, I imagine that I entered this field like most; with an attitude of gratitude for having a paycheck and utilizing the licenses I had worked hard to obtain and being able to hold myself out to the world as a financial sales professional.  The thing that my friends and family probably liked best was that in my capacity as an internal wholesaler I would not be calling on them!

It would not take long before I realized that this was a hell of a gig.  We were paid to talk all day on the phone pitching annuities and mutual funds.  We got paid a decent base salary with the opportunity to double that if sales were good.  We were not on the hook as salespeople if sales were weak so there was little stress and anyway it was 2007 and the market was roaring.  My teammates and I used to say that “we had done worse for less”.  That soon changed to “rarely had we done as little for as much.”

Clients Lose, We Still Win

Even as 2007 gave way to the market crash years of 2008-2009 the money kept rolling in.  Yes, there had been layoffs but most of us kept our jobs and even with clients losing billions in asset value we spun our operation to the fixed interest rate products that were in demand and made an absolute killing compared to the effort we expended.  By 2010 the average wholesaler on our team was pulling in six figures.  100K+ per year for dialing the phone in Omaha Nebraska.  Are you kidding me!  I finally understood why the wholesaler that our field office tried to recruit had scoffed at the notion of going back into personal production.  It also in retrospect becomes easy to understand why I looked the other way for as long as I did.  It becomes easy at that point to rationalize what you do as conviction always follows the money.  Our standard jaded “rationale” for what we did every day was “The best interest for the client is always for the advisor to get paid”.  What we got paid so well to sell will be the topic of next month’s installment.

Praise Be to God

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