Welcome to my blog all things financial services. Since this is my first blog post, let me introduce myself. My name is Jon Zetlmaier. I run my own RIA firm, Zetlmaier Wealth Management LLC and have been in varying roles of financial services since 1997. As I get this blog started, I thought the first few posts should be about my history and how my thought process came to be. No better place to start than the roaring 90s and the Dot Com Bubble.
I started as a stereotypical cold-calling stockbroker in 1997. I owned one suit, still had hair, and didn’t know what the hell I was doing. I grew up infatuated with the movies Wall Street and Trading Places. If only I had known…
My days were long and filled with mindless dialing through client sheets. I made next to nothing, less than minimum wage if I calculated hourly. But, I could see the light at the end of the tunnel. My boss was only about 5 years older than me and making great money. He referred to everyone else as peasants and regularly used derogatory words to refer to us. He was also the best boss I ever had. He ran the branch like a fraternity. Our days were filled with activities that aren’t allowed anymore. We were an HR nightmare back then. Nowadays this culture isn’t even around, at least in Seattle. While broke, it was fun.
The market at this time was really heating up. Microsoft was king along with anything that attached a .com to the end of its name. The valuations applied to companies were ridiculous. So much so that Alan Greenspan had recently coined the term “Irrational Exuberance.” My favorite story from that time is a client calling me to sell his Intel shares to buy K-Tel Records. K-Tel had just announced they would sell records online. They also changed their name to Ktel.com. This alone was enough to send the stock from $3 to $34 in a month. Six months later it was worth pennies per share. Sounds crazy, but what we saw then was a short squeeze just like we saw with AMC and Gamestop a couple years ago. History does repeat itself! Needless to say, my client rode that K Tel investment into the ground thinking it would eventually come back.
You could sell ice to an Eskimo as long as it was called ICE.com back then. The thing was, the industry was changing. Online brokerage was in its infancy. Stockbrokers no longer made much money on stock trades because commissions were compressing AND we didn’t get paid on the spread. Stocks might have a quote like XYZ Bid 10 Ask 10 ½, yes, back then everything was quoted in fractions rather than decimals like it is now. This meant you could buy XYZ stock for $10.50 and you could sell it for $10. That 50 cents was the spread and stockbrokers could make a killing on that. In this example the broker might charge a commission of $50 plus get 25 cents per share. So, if someone bought 1000 shares that was a quick $290 payday, $0.25*1000 plus $40. Spreads used to be even higher than that right before I started in the business. That changed though. Now there might be 1 or 2 cents difference.
The law of unintended consequences took hold. Brokers needed to get paid, and it wasn’t going to happen trading stocks. So, we started selling mutual funds with 5% fees upfront and underlying expenses between 0.5% to 2%. Once no load funds came into vogue a couple years later, advisors started selling variable annuities to generate higher commissions. I’ll talk more about annuities in future posts because there are pages I can write regarding my dislike of them.
Nevertheless, my cohorts who sold the most loaded mutual funds (we couldn’t sell annuities at the time otherwise we would have) made the most money. If a new one came out that promised to be more .com centric, guys would sell a holding where a high commission had been paid to buy that new fund, incurring a fresh new commission. This is and has always been called churning, but you could get away with it back then.
I didn’t like any of this. It didn’t reflect on how good of an adviser I was. It was easy to see a couple things. 1. Clients were getting screwed and 2. Guys who had rich relatives were the ones who could get over the initial requirements of bringing in money. This hasn’t changed. Anyone who has been in the industry for a while will tell you it is virtually impossible to make it unless you are connected. Firms rely on hiring someone at a low salary, give them unattainable goals and wait for them to fail. The firm then spreads assets to senior advisors…wash, rinse repeat. We had to bring in $300k in 6 months and $1 million in a year. I came from a working-class family. We didn’t have investments. I managed to do it by cold calling, but it was hard. I had sold my soul doing something I didn’t think was right. I worked so hard and so many hours to the point I was burned out, overweight and depressed. Tending bar offered just as much fun and way more money.
I think fondly of those days though. Maybe it was the intensity of the whole experience. Marine training is hard, but recruits come out of it with an allegiance to the Corps. Maybe this is similar? I learned a lot and still have friends from that job, all of whom are very successful. These early days planted a seed. Even back then I knew things could be different, better, and still have an opportunity to make great money in the investment industry. Fast forward to today and it’s the genesis of my thoughts of how to run Zetlmaier Wealth Management LLC: certainly no commissions, just an annual fee. I’ll go more into fee-based accounts in future posts. They don’t entirely solve the problem of the disconnect between advisor pay and value to the client, but they’re a start.