Back in 1998, the author Michael Lewis, then a columnist for Bloomberg, wrote as follows:
“When historians of everyday life look back on 20th-century American capitalism they will be astonished by the role played by our stockbrokers. Certainly, it will be hard for them to explain to their readers the willingness of a prosperous American to hand his life savings over to a more or less perfect stranger in the mistaken belief that a) their interests are identical and b) the stranger has some special insight into the stock market. The reader will regard us with the same awe that we now regard those brave and seemingly mad souls who rode in wagon trains and fought Indians simply to get to California.”
When Michael Lewis wrote that piece I was working for Merrill Lynch (Private Banking) and my role was not altogether dissimilar to that of a stockbroker – I was being paid to advise private clients about the management of their portfolios. At around the same time, the market capitalisation of Merrill Lynch – the largest “full-service” stockbroker in the US – had just been overtaken by that of Charles Schwab, a discount stockbroker operating largely online. It was clear to me that the tectonic plates of the financial services world were starting to slide. Within a year or so, I had elected to move on, leaving large banking institutions behind me forever.
I have long been amazed at the resilience of stockbrokers. There was once a time – say, the late 1980s – when a private investor who wanted to buy stock was obligated to deal with a member of the Stock Exchange, and had to pay a pretty hefty price for the service. There was also once a time – say, the 1970s – when brokerage commissions were fixed and for stockbrokers, at least, the living was easy.
And then the markets changed. In the United States on 1st May 1975 – a date that would be called either May Day or Mayday depending on how badly you were affected – the era of fixed commissions for stock transactions ended….