ON LEAVING GOLDMAN SACHS….

There’s a powerful piece in today’s NY Times in case you haven’t seen it yet.  This part hit me like a ton of bricks:

“What are three quick ways to become a leader? a) Execute on the firm’s “axes,” which is Goldman-speak for persuading your clients to invest in the stocks or other products that we are trying to get rid of because they are not seen as having a lot of potential profit. b) “Hunt Elephants.” In English: get your clients — some of whom are sophisticated, and some of whom aren’t — to trade whatever will bring the biggest profit to Goldman. Call me old-fashioned, but I don’t like selling my clients a product that is wrong for them. c) Find yourself sitting in a seat where your job is to trade any illiquid, opaque product with a three-letter acronym.”

The article really resonates with me because of my own personal experience on Wall Street and at big firms.  I remember hanging up the phone 10 years ago after a very large trade with a great friend/client of mine and immediately checking the P&L (profit and loss) to see my commission and then thinking to myself:

“He could have done that trade for $7 at ETrade….”

I was always battling with the need to generate revenue for the firm (and keep my job) while also trying to do what I thought was best for the client.  I had a conflict of interest in my mind at all times.  I kept wanting to reduce the fees for my clients through ETF’s or other products while also trying to create a more performance based business.  One in which the performance of my recommendations was actually in-line with what the client’s goals were.

So what did I do?  I left the firm, started a small private investment partnership, made a bunch of money for rich guys for 7 years and then realized during the financial crisis that what I was doing for society was not much better than what I was always doing….In a weird sort of way the website (being free and all) became my release.  A way for me to give back to the public without charging them an arm and a leg.

I’m a firm believer in the importance of Wall Street.  But I also worry about the negative effects of financialization and the vast impact this is having on society.  Unfortunately, the world is just starting to catch on to this effect and it’s way too late….

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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Comments

  1. Just recalled me why I use investment firms charging me a fix % on asset… So they are focused at growing the asset…

  2. Greg Smith was not an “Executive” at Goldman Sachs, high-level, low-level, or any level. Greg Smith was a minor-salesman and fifth-yr V.P. selling US product in Europe. And if you know investment banking in general, and Goldman Sachs in particular – and I certainly do – then you know the following:

    1. A fifth year V.P. is someone that has been passed over for Managing Director three times

    2. “V.P.” is a title w/ little meaning on Wall Street, other than “junior banker that survived their first four years (as an Associate) intact”

    3. “Three strikes and you’re out” applies, so Mr Smith would have been informed in January 2012 that he would not ever make Managing Director, and that therefore he should consider other career opportunities

    4. “Sales” is a low rung on the Equities/Securities totem pole

    5. Selling US product in Europe is the lowest rung on the “Sales” totem-pole

    6. Greg Smith did not “run” or “head” a business, other than his own activities covering European accounts on US derivatives. Nobody worked for Greg Smith.

    The real story of this non-story about a disgruntled junior banker angry about being passed over for promotion and his meager bonus is why the lazy and/or ignorant editors of the NYT editorial page would post such garbage. What’s next on the NYT editorial page, a rant from a fifth grader who’s angry about receiving homework assignemnts on weekends?

    There are 11,999 Vice Presidents that go to work at Goldman Sachs every day and into the night – including weekends – who serve their clients and do it well. Will the NYT be willing to post 11,999 editorials entitled “Why I am Staying at Goldman Sachs”? I think not, because it does not fit with the media’s (and politician’s) narrative about the causes of the housing bubble and collapse.

    As to the ignorant, populist narrative about “ripping off clients”, were that so, why is Goldman Sachs the perennial and perpetual number one in equity underwriting, M&A, structured products, equity trading flows,…? Is it because Institutional and Corporate clients are “dumb” or “muppets”?

    In financial crises the politicians always create a strawman to scapegoat so as to deflect attention from the real cause (the government and politicians and the people at large). In 1930s Europe they created a scapegoat. Enough said.

    • @Pod: Assuming your claims are accurate and taking them at face value, that’s an important perspective, thanks for sharing it.

      But these two claims are waaaay over the top:

      “In financial crises the politicians always create a strawman to scapegoat so as to deflect attention from the real cause (the government and politicians and the people at large). In 1930s Europe they created a scapegoat. Enough said.”

      Too much said, in other words. I realize there are some lunatics out there–we all bump into their web comments occasionally–who see the financial crisis as proof of their own ethnic hatred and paranoia. But the 2008 crisis absolutely did not come about as a result of govt’s, politicians’, and the public’s greed or stupidity, with investment banks and broker-dealers standing innocently in the corner. The latter had been wagging the formers, including both major parties, for two decades, as you must surely know. Enough said?