When I grew up, small brokerage firms where as common as Starbucks franchises are today. What ever happened to E F Hutton, Paine Webber, Bache, AG Edwards, Shearson Hammel and  the hundred of other names that were well known to us? Registered Broker Dealers have gone from 10,000 to some 4606. Within this group are a very small group of small broker-dealers and regional firms. (  Small broker-dealer are considered ones that have less than 150 brokers. These small firms are quickly closing again this year because they are unable to cope with the massive regulations and keeping up with the expense of compliance. Being a compliance officer or supervisor at a small firm, is analogous to committing financial suicide.  The industry has been taken over by the banks and FINRA and SEC regulations have  encourage this.  A recent Barron’s Magazine released its list of 1200 state-by-state rankings of the top Investment Advisers show that of the 1200 investment advisers listed, most are serviced by large firms such as Merrill Lynch owned by J.P. Morgan, Morgan Stanley, Wells Fargo and UBS (all banks). Only 39 are local independent firms. In the past, small regional brokerage firms were helping small businesses that wanted to go public. This option is no longer available for small businesses and they no longer have access to the capital markets. Now, the only option for small businesses is to go to the banks for a loan, that are servicing mostly a large global conglomerates.  For individuals, rather than investing in a portfolio of stocks through your stock broker, investors use investment advisers, that  suggest that you diversify your money in a series of no load mutual funds, also owned by the banks. Without the old fashioned stockbrokers individual investors are either investing in no load mutual funds (84% of which under perform the market), through their investment advisers or trying to trade stocks on the internet, which I believe is like feeding anchovies to the sharks. Without stockbrokers I believe small businesses and investors are being undeserved.

In 1963, and 23 years old,I was following my dream and became a stockbroker with a local Chicago firm, called McCormick and Company. We made markets in local stocks that normally traded below three dollars a share, in what was called the pink sheets. These stocks are now banned from ‘solicited trading’ under the guise that the SEC and FINRA are protecting the public from ‘speculative securities’ rather than helping small local bushiness get access to the capital markets. McCormick and Co. also helped regional Midwest firms  go pubic. One of those firms was Kentucky Fried Chicken and my first IPO. Yes the Col. in 1963 was there, all dressed in white. There wasn’t a big demand for the stock, as people were unsure as to whether franchising would work.That was considered a  new concept then. My Dad bought 1000 shares and doubled his money. My Uncle bought 1000 shares and kept it until his death. It was his largest asset. Those times and stock brokers are gone and probably forever. I don’t believe the regulators FINRA and the SEC understand what the ruined. In my opinion, they certainly are not serving the best interests of the public. They knowingly or unknowing represent only the Big Bucks. ( It make good business sense as the banks can afford to pay the billions of dollars in fines the SEC and FINRA has leveled against them) Hot deals now go to the professionals and hedge funds. A local small business is pretty much cut off from bank loans, unless they don’t need the money.  Brokerage firms don’t help local firms go public anymore because the local firms are all gone and the current brokerage firms are now global and owned by the banks, as are the mutual funds. Also, most people don’t invest in stocks anymore through their stockbrokers, because their aren’t any stockbrokers around anymore. Most invest in no-load mutual funds controlled by the banks, through their domesticated well-trained investment planners.

Mutual funds don’t offer many alternatives to protecting  your portfolio in a Bear Market. Professional investors can easily go short or long with ease. For instance, while Goldman Sachs was selling worthless mortgage-backed securities to Iceland and Ireland, they were shorting the same securities in their own portfolios. It is human nature for most investors to be positive and patriotic and therefore to be bullish. We want the market to go up because it is in our general best interests that the economy prospers, so that our careers and our families can prosper. However, markets don’t always go up.

The financial industry approves of the Efficient Market Hypothesis Theory(EMHT), which proposes that it is impossible to beat the market by trading in it out and that investors should at all times be fully invested in the market in the aggregate, by owning an allocation of mutual funds, because in the long run the market will go up. The dangerous beauty of this theory is that accordingly, your goals will always be achieved sometime in the future. If you just ‘hang in there’ long enough you will make your money back. This gives investors a false theory of contentment. However, during a very long period between 1997 and 2012, the market was up 50% of the time and down 50% of the time. Also during that period there were two stock market collapses of 50%, one between 2000 and 2003 and the other between 2008 and 2009. The financial industry would have you believe that trying a methodology that uses’market timing’ is an ‘heretical tactic’. Lately, the EMHT methodology, has investors drinking euphorically from the common Kool-Aid trough and believing that the market will just continue to go up and that Bear Markets are a thing of the past.  Besides, for those who have a fiduciary responsibility, ‘market timing’, is frowned upon by regulators. For any small brokerage firms that doesn’t drink from the common Kool-Aid trough, the SEC and FINRA  encourages investor arbitration claims for ‘trading’.

In America, capitalism spiritual home, a survey conducted in 2013 found that just 54% had a positive view of the term. This seems to be the case because the benefits of capitalism have recently only gone to the top 1%. There seems to be a crisis in confidence as the Supreme Court has a ranking of only 30%, public schools 26%, the criminal justice system 23%, and Congress 7%. The recent election showed just how unsatisfied people are. They voted for change, but change is unlikely to come. Since Citizens United, that declared corporations are people (If they are people, they are sociopaths), most changes in government is dictated by donors and election contributions. A recent Princeton study has shown that public opinion has no effect on the outcome of an issue in Congress, whether there is 0% approval or 100% approval, the line of accomplishment is flat-lined. Donor power has taken over the rights of ‘we the people’. The current illusion that voters are being heard and are connected, will soon diminish in my opinion. The risk now is that since government agencies are not responding to the public “we the people”, they have pursued policies which I believe, are damaging the common good.

It was George Orwell book of  1984 fame who said: “anyone who challenges the prevailing authority, can find himself suddenly silenced”.  I believe political stagecraft, through skilled manipulation of facts, has given the public the perception and the illusion of power, rather than participation in real power. Public opinion has been manipulated and nullified.  We have only ourselves to blame. Like Pogo said “We have seen the enemy and it is us”. My fear is that this process has corporations and the top 1% dominating  the financial industry and has left small businesses and the investing public very vulnerable and the general public has become to weakened and powerless to stop it from progressing.

Carl M. Birkelbach 11/28/1