With all we read about wirehouse brokers moving to the more consumer-centric independent registered investment advisor (RIA) business model, it is rare that these brokers publically share their rationale for doing so. While they certainly must address the issue with clients, a strict code of silence generally protects the wirehouse from any bad press. That’s why a recent opinion article for The New York Times from Greg Smith explaining his resignation from Goldman Sachs was such major news.
Smith, who was head of Goldman’s United States equity derivatives business in Europe, the Middle East and Africa, wrote, “Today is my last day at Goldman Sachs. After almost 12 years at the firm–first as a summer intern while at Stanford, then in New York for 10 years, and now in London–I believe I have worked here long enough to understand the trajectory of its culture, its people and its identity. And I can honestly say that the environment now is as toxic and destructive as I have ever seen it. To put the problem in the simplest terms, the interests of the client continue to be sidelined in the way the firm operates and thinks about making money.”
Smith placed the blame for Goldman’s “toxic” environment on top management, including Goldman’s chief executive, Lloyd C. Blankfein, and its president, Gary D. Cohn. And that ignited an industry firestorm and public relations nightmare. In fact, Goldman’s stock dropped 3% in afternoon trading. Asked about Smith’s future on Wall Street, William Cohan, the author of Money and Power: How Goldman Sachs Came to Rule the World, responded, “He’s toast. He is in the witness protection program right now.”
So, if you tell the truth, you’ll never work on Wall Street. That observation certainly illustrates that Wall Street firms and brokers face conflicts of interest that independent registered investment advisory firms do not. In order to get justice for all consumers, our industry must adopt a universal fiduciary standard.
In thinking of how Smith might respond to the industry’s backlash, I’m reminded of Al Pacino’s memorable line when he played a lone honest lawyer in the 1979 film And Justice for All: “I’m out of order? You’re out of order! This whole court is out of order.”