An Insider’s View on Jobs in the Financial Industry (Part 2)

Today I will conclude discussion of a phone call I recently had with my brokerage rep about jobs in the financial industry.

If I insist on sticking with options, my rep said I would have trouble finding a place with large, established firms because most do not deal in options due to their risky perception among the general public (I disagree as discussed in this mini-series).

Logistics may be another issue with option trading. One transaction with stock, ETF, or fund proceeds can be easily distributed across multiple accounts. This would be more difficult with options. Since client suitability varies drastically, I probably would not have proportional positions across the different accounts. Such accounts would therefore require more individual attention: a slight tweak here or a larger hedge there to balance different accounts. In effect, I would have to go from one client account to another until I were through them all—and heaven help me when Mr. Market decides to make a sudden, large move against the overall position as I would hardly get the chance to adjust in a timely manner.

Whether starting with a more established firm or opening my own RIA, finding clients would be a challenge. Working for the brokerage, my rep gets leads every day from investors opening new accounts. Nobody is calling an Edward Jones or Raymond James wanting to open a new account, though; people calling firms like these are looking specifically for advisory services, which makes getting clients more difficult. This dovetails with a 2019 survey that reveals very few Americans actually have financial advisors.

He also mentioned that 95-97% of new RIAs fail in the first year or two. We didn’t discuss cost to start one, but the low probability of success provides plenty of reason to tread lightly (or not at all).

The rep talked a bit about his own background. He worked for a bank where he sold a $1M annuity in January of the early 2000s. This was about 5x more than the average monthly revenue for the entire investment advisory department. When the following January rolled around, his target was 10% more than what he took in the previous January: $1.1M. This was an outlandish expectation that put him under a great deal of pressure.

I certainly don’t want that.

Near the end of the call, I expressed my skepticism of algorithmic trading profits. I brought up “equity trading revenue” (with regard to Goldman Sachs) and he replied with “underwriting profits” and said this could be the result of positions held in a company for whom they are doing the underwriting. These are not profits generated from algorithmic trading at all, as people often surmise, and would support my thesis about how difficult it really is to develop algorithmic trading strategies that work.