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….


Got a comment or question about this post? Feel free to use the Ask Cullen section, leave a comment in the forum or send me a message on Twitter.

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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  1. I like you more and more everyday, Cullen. One of these days I’m going to send you a personal email and see if you’d be kind enough to sit down to lunch or something. I’m a relatively young individual who’s been in the financial services racket for about 7 years now and am completely lost regarding my purpose/contribution to society. I’m also based in Southern California so I’m in your general neck of the woods.

    Keep up the great work.

  2. People need to stay true to themselves and do what they think is right. There is always a choice. I too often hear – but I have no choice. Yes you do – find another job. For professional people it is not that hard.
    These little compromises in the game to get to the top destroy many people and once they get to the top they forget why they were even trying to get there. They feel empty and disillusioned. It is interesting, given that they destroyed a few people on the way there, but they also destroyed themselves.

  3. That little voice is the moral conscience designed to keep folks on an ethical path.

    But, whenever ethics, morality and fairness are brought up, the blowback of pollyannaish-ism and rose colored glasses sentiment ensues.

    We are definitely in the middle of the good vs evil battlefield where crony-capitalism is fighting pure capitalism. It is apparent we need more soldiers on the ethical side … unfortunately many believe they are on the ethical side (does the phrase “doing gods work” come to mind, given the Greg Smith topic).

  4. Cullen, you have gone against the values encouraged by today’s society. Contrast Mitt Romney, a modern model of success. How many cars do you own or big houses? Do you drive around town to do shopping in a hot BMW? I can imagine how many hours you have spent on this very informative blog. It is not the way to riches. Thank you for your honest efforts.

  5. Well said Cullen

    Ill just add that I agree that Wall is important, its just gotten too big. Many important things should be smaller than they are. Pharmaceuticals are important but we certainly need ,in many cases (I know being in health care and seeing the medication lists of patients every day …… I had a guy with 40 medications once…. 40!!), to take a lot fewer. Taking the right meds is important, not taking a lot.

    I know you put a lot of free time into your blogs but your content and effort look like someone whos getting a six figure salary……….outstanding!

  6. Thanks Gerald. It’s been a funny venture here. I think I always knew that money wasn’t the way to real wealth. But that concept never quite came together until I started interacting with all the great people here….

  7. Greg, aren’t we mortal enemies after the MMR/MMT split? :-) Just kidding of course. Thanks. And thanks for all your great comments also.

  8. Academic economists. protected by tenure, should have been warning of the dangers of ‘financialization’ as it developed, instead of providing theoretical cover for it – although Stiglitz, Krugman, and a few others may be exceptions.

    Those of you who bring the credibility of both experience and putting your own professional/financial interests at risk, in the ‘real world’, have my admiration, gratitude, and respect.

  9. It’s always interesting to see that these people grow their conscience after they grew their personal wealth. People act in their own self-interest, it just shows that if your interests and those of your clients or employees aren’t aligned you can expect to get screwed by either the first time they get a chance.

  10. “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 get your point but that particular example is an over-simplification unless the trade was 100% unsolicited and the client’s idea. That’s almost like saying, “Why should I pay $100/hour for a dealership mechanic to diagnose my car when all they did was stick their head under the hood? I can do that for free.”

  11. Not really. You just don’t hear about those who remain average Joes because they dont’ want to play the game. In our society money is the measure of everything. People without money are not intresting.

  12. Very true. I try to keep this balanced because the reason Wall St is as large as it is is because the demand is huge. No one is twisting your arm to work with these firms. But it was always funny to me how people would accumulate this great wealth, but they didn’t want any responsibility over it. They turn their back on their money rather than taking the time to understand what it is, why it matters, and how it can be protected. I was a punching bag for a lot of my clients who just didn’t want the responsibility of managing their own money. Which is part of the deal. But no one’s twisting anyone’s arm to do business with these big firms….

  13. It is the nature of those making their intentions, decisions and actions on a higher moral(not religous morality)/ethical plane to view with HOPE for those whose intentions, decisions and actions are executed on a lower moral/ethical plane hoping they will have remorse or they will eventually reflect with humiliation or grief of their past actions. Perhaps this HOPE is based on the belief that all men and women are inherently good. I believe this is a mistaken premise leading to fractures in our society which threaten a humane and ethical social order.

    I do in fact believe that men and women are inherently good but I also believe that there are a minority of men and women who are apethetic to all others, whose ego’s consume them within a pathological trap. For them it is not a win/win tradeoff but a I must win under any circumstance. These people do not respond to laws built on ‘deterence’. The only emotions they MAY show is when they are punished and these emotions do not originate from remorse but from their ego being threatened.

    Whether it is a pimp on the street dealing drugs and beating his hookers or if it is a corporate executive threatening to fire employee’s for failing to sacrifice their intentions/decisions/actions or the individual making decisions under the believe that to create value for himself is worth removing the value from others…these individuals operate on a value plane lower than what is healthy for society.

    Until our society deals aggressively and harshly with individuals whose intentions, decisions and actions operate beneath that which society requires to maintain a healthy regeneration, society will slowly die.


    ‘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….’

  15. Great post! What do u think about Dimon’s maneuver yesterday afternoon? The share buyback and announcement may have been the right thing to do in terms of maximizing shareholder value but, IMHO, gets an F from a PR point of view. He not only liaked the Fed’s stress test result, he also gave the American taxpayer a slap in the face. After biling them out for their reckless leveraged practices, he makes a move towards increased leverage barely three years later!

  16. to many this would sound very socialist……..making a profit is the only thing that matters in America today….the only thing that matters…..kill baby kill…

  17. I am a firm believer in the hangman’s noose for Wall Street. Once that got accomplished, Wall Street might conceivably play a modest role in a decent society. First it has to be thoroughly de-criminalized and purged of the sewer rats that inhabit it.

  18. It’s all about understanding what drives profits though. People demand goods and services because they enhance their lives. The businesses that last in this world are the ones that provide a service that is worth what it costs. I think what the world is beginning to realize is that many of these big financial firms are just ripping people off. The customer thinks they’re providing some superior service when they’re not really. Not that Goldman doesn’t provide great services because they do, but I am generalizing to some degree….

  19. I remember having taken on a few friends as clients because they saw how much money I was making for myself and clients in the mid 2000s. I tried so hard to keep friends from being clients but I would get the “who else can I trust” argument. Then 2007 came along and I got scared, I mean effing scared and sold out my portfolio and my big clients. The ones that resisted were friends. I remember taking a friend to dinner with the goal of begging him to liquidate, even offering to pay the commission myself. He eventually agreed that although I seemed paranoid, he had no way to determine whether I was wrong or right. That night I decided i was quitting as a broker. I formulated a plan….find a new advisor for my clients but I had to stay on into the decline so the new advisor couldn’t reinvest the cash. I sat there in that desk for almost a year doing nothing, except building up a short position in my account…I’m Canadian so shorting RIM was the gold mine in my view. I loaded up on $100 puts on RIM. I think I might have owned the whole option chain at that price. Feb 2009 rolls around. My clients are in cash, the carnage looks to be capitulation….one day, RIM now at $65 and the $0.15 puts I bought are worth $35…I stood up and quit. Walked out! The transition worked well. The new advisor reinvested my clients and friends money in April 2009. I went back to university and this summer will graduate with a degree ing geophysics and one in geology. I have a job with an exploration company based out of my hometown….Go Canucks!

    Im 32. Thinking back I wonder how I pulled thi off.

  20. Use your ability to think to make people money, thereby enriching their lives in ways no other profession can, not even medicine.

    This is why you are in finance.

    Money merely represents your capacity to think. And yes, the more you make of it in this field, the greater your contribution to society…

  21. Perhaps interesting but proof again that the russian has little understanding of what drives man…the ronald reagan approach to free markets has failed. The demise of glass steagall is but one example for the need for regulation. Honestly youhave to have memory reachingbaca nanosecond not to understand that regulation is a necessary good.

  22. Yeah I know tons of Average Joes who turned down job offers at GS. In their desperation GS then turned to the Ivy League graduates of questionable morals. I also know tons of people who refused to take steroids and are thus not playing in pro sports, and lots of fat, bald forklift drivers who turned down the loose women Tiger Woods (allegedly) slept with.

  23. I think what really lowers quality is concentration. When a company has a large enough market share they tend to expand their profit margins through other means, which usually means offering a lower quality product at the same or higher price. Remember how good SBUX coffee was when there were still other coffee joints you could go to? It is of course cyclical because as quality falls competition returns. But somewhere along the line you are deprived of a lot of choices, which of course has a lot to do with the consumer not caring and not discriminating as well. We get the products we deserve and we get the politicians we deserve, it’s our fault for not demanding more/better.

    Same goes for a lot of finance stuff. Assuming I want to punish the big banks for their behavior I don’t really have a choice to go to some local bank with my brokerage business because they’ll just end up using the big banks anyways. Most brokers I have used in the past and use now do business with JPM in one capacity and another for example. My only real choices are to do business with them (well through an intermediary I’m a small fish for them) or not at all. Being a person of questionable morals, I of course choose the former.

    This is a kind of interesting rant by Louis C.K. about a similar topic (warning: explicit language):

  24. I agree that the US economy has been over-financialized. A better balance needs to be struck between the financial industry and productive industry. Maybe the movement from industrial dominance to financial dominance and back again is one of those long term cycles that just needs time to play out. But bailouts that preserve financial players instead of just letting them go BK just drag things out for many more years.

  25. Are there any firms out there offering true money/wealth/capital management? Meaning they only receive a cut or percent of actual growth or wealth generated (2% on gains, or a tiered compensation model)? Lose money on the client’s portfolio and you make nothing. Seems this is the only real and meaningful way to invest using a financial services firm.

    Everyone needs skin in the game. Just like the banks being able to off load mortgage backed securities to the secondary market resulted in “liar loans” (lies by the banks as to the credit worthiness of the borrower), the current investment compensation model does not correctly align the clients goals with the firms goals.

    I guess this is why online trading took off so big. If no one is doing it, there is a very big market that is certainly ripe for the picking for any firm that is good at what they do.

  26. I agree with you that Wall Street is important. In fact it is a very effective tool to spread democracy, but that is another discussion for another day. I suspect this is the whole reason why the gov’t will not let them fail.

  27. I can’t speak for others ,but to me life seems to come about in stages. The younger go get them years where energy and desireto achieve overpowers most other sensibilities. If successful in ‘achieving’ followed by uncomfortable thoughts that there must be something else years.Culminating as one get’s older by the times when you know what the something else is which basically is the people that you have in your life which is the real wealth.

  28. Take some advice,consider it to have been luck,even if it wasn’t.When I make aloss it’s my fault. When I make money I got lucky.Simple formula,but it’s kept me ‘normal’ instead of becoming an insufferable prick.

  29. Greg Smith is spot on with his criticism, Carl Levin knows it, Blankfein knows it, their clients know it… but his very public rebuke does come off as a DYKWIA moment. Nobody in finance will hire him now. What he did was not the equivalent of whistle blowing where he’s uncovered fraud on the balance sheet.

  30. The advisor/client business has been broken for a long time. Cullen, you could re-invent the business model. One that clearly eliminates the conflict of interest issues and makes the relationship a shared risk/reward partnership. All I see today is, win/win – lose/lose a little. Maybe it’s out there, and I’m missing something, but if it is, it’s not easy to find. I certainly would never rely on a single individual. It would have to be a team. Fund investing gets at the issue in a small way. There’s a great opportunity out there for someone!

  31. i worked 10Y at a IB in europe.
    -Aim: make money
    – Term: short

    …now a dead client is not a client you’ll get fee from in the future, that’s as far as we were concerned (and ALL the guys from IB i knew were like that)

    …but this myth that GS was about client first is, as for ALL banks, a scam. That it was the case 20 years ago…is also a SCAM (maybe except for a few huge key client).

    IB is selling people dream, and the less people understand product, the more they are dreamers…

    would every single people in planet earth be a qualified as bankers in therm of understaiding financial product…that banks would not sell anything

  32. “Until our society deals aggressively and harshly with individuals whose intentions, decisions and actions operate beneath that which society requires to maintain a healthy regeneration, society will slowly die.”

    I am afraid that these psychopaths have captured the establishment and they will treat harshly any people who try to change the establishment for the better. It is 1984 all over. The idealistic changers will be declared enemy of the people / state / civilization.

  33. About GS providing decent service: I have been a client of GS Asset Management, and only can say that it is a rip-off – a lot of hot air, while poor techniques / models / risk management.

  34. For me an average Ivy League graduate is an Average Joe. I work with many of them. There are thousands graduating each year, only a few become really wealthy. The rest nobody ever hears about.

  35. Ditto what Jay said… (only I’m on the east coast).

    Just got reamed the other day for putting client money in ETFs instead of other products who’s wholesalers provide marketing support to the firm… this is what keeps me up at night…

  36. Cullen,

    Thank you for your post and all you do here for the great benefit of this online community. It’s a wonderful story to see how you’ve taken a negative and turned it into a positive in your life.

    I’ve done a very similar thing in the management/IT consulting field by starting my own small firm after realizing that the large consultancies only care about padding the partner’s wallets. It’s the best move I’ve made business-wise — happy clients which makes me very happy. The money part just takes care of itself when clients are getting excellent value.

    Keep up the great work!

  37. The root problem goes well beyond Wall Street: executives focused only on the short-term bottom line; careerism in the Academe; politicians who will say whatever it takes to get elected, and do whatever it takes to stay in power.

    Most people will choose to be ethical if that is an option, but the extent to which they will sacrifice their and their families’ interests has its limits.

    Ideally ethical behavior is recognized and rewarded – with respect as much as financially. Any society that consistently punishes it and rewards the opposite is on an unsustainable path.

  38. Re: “I suspect this is the whole reason why the gov’t will not let them fail.”

    You’re kidding, right?

  39. Now a G – what’s your take on Canadian real estate? Just curious what a local, eyes wide open, Canuck thinks? Obviously there are many diff markets, but on my last visit I was reading about Toronto RE and back and forth arguments about whether or not there was a bubble.

  40. Many years ago, as a first year guy at one of the major accounting firms, I found myself at a client’s business having lunch with the partner on the job.

    It was a pleasant conversation, and I always remembered a comment the man made, a comment relevant to Cullen’s opening post here … “If a person is, in fact, excellent at what he does, he will never lack for income. We don’t go out and actively hawk our services, but we sure do try to be the best and demonstrate it each day to our clients.”

    In other words, the firm’s income(quite szable) resulted from quality client-oriented services, not trying to get the most bucks out of a client.

    Lots of things have changed since then, but the principle is fundamental, and right.

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

  42. “The grave danger is that, if Italy stops paying its debts, creditor banks could be made insolvent. Goldman Sachs, which has written over $2trn of insurance, including an undisclosed amount on eurozone countries’ debt, would not escape unharmed, especially if some of the $2trn of insurance it has purchased on that insurance turns out to be with a bank that has gone under. No bank can easily untangle its tentacles from the tentacles of its peers. This is the rationale for the bailouts and the austerity, the reason we are getting more Goldman, not less. The alternative is a second financial crisis, a second economic collapse.” http://www.independent.co.uk/news/business/analysis-and-features/what-price-the-new-democracy-goldman-sachs-conquers-europe-6264091.html

  43. 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.

  44. @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?