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What was most fascinating nevertheless is that we often referred to ourselves as Th.. To learn additional information, people can check-out: jack shoptaw.
Years back, I was a restricted partner at Bear Stearns and Company in New York. We'd have a partners meeting, once a year, and I'd attend as a matter of course. Now remember that we were a trading firm, also a brokerage firm. Back then we didnt do nearly the number of investment banking that's done by some of the majors including Goldman, Merrill, and Lehman Brothers during the time.
What was best however is the fact that we always known ourselves as The Bank. Its an odd period considering that we were never qualified as a bank from the appropriate federal agencies. Nevertheless, o-n when people were talking about their particular specific firms Wall Street, they often internally talked about The Financial Institution.
The cause of this term is appropriate and quite easy. Years ago, if you wished to know the amount of money a brokerage firm made all you'd to do was estimate interest received versus interest expense, and you fundamentally had underneath line, give or take a bit on a pretax basis. This formula was always appropriate, when I was s Senior Accountant with Arthur Andersen in-the early 1970s, and we dominated banking and finance typ-e businesses in those days.
Recently after all these ages it seems like the exact same strategy applies today that used in the past. Most individuals and organizations continue to be not making to the resources they've settled with brokerage firms, the interest they should be making. They should keep a better eye on their resources. The entire matter could be the notion of IDLE CASH, and what is being finished with it. Back in the late 70-s, Merrill Lynch led the with the devel-opment of what they called the CMA account which stood for Cash Management Account.
The purpose was to go up against the banks both commercial, in addition to savings and loan and fight for the cash. What-the brokerage firms are doing now is sweeping your lazy money from your own reports on a daily basis and spending interest to you on that dollar amount. What are the brokerage firms spending? The clear answer is most likely as little as they are able to. Recently I saw charges o-n the order of 1.5-3.0.
What happens is that at the end of-the day, the firm checks to see what idle cash is available in your account. It then sweeps the money and gives you 1.5-2 about the stability or-less. Meanwhile the firm acting like a bank may re-invest your money overnight in its own firm bill at a much higher price. Do these figures total anything?
Would you genuinely believe that a year ago in 2006 Merrill Lynch should have made net, net $2 million for its own account after having to pay lesser amounts in interest to its clients on the idle cash balances? Thats right; they made $2 million after charges but before taxes. Is this any way to perform a firm? Without a doubt it is. The $2 billion was up from $1.3 billion two-years before that. This means the firm is getting better at sweeping the balances, and they're sweeping greater balances.
Morgan Stanley started getting into the act last year, and Smith Barney which is held by Citigroup got into the game late by setting up last September with-the same technique. When Merrill was quizzed about the training, they came back and stated that the brokers in the firm are motivated by the firm to discuss possibilities as a way to meet specific client requirements. Now I possess a brokerage firm, and will be in the business for 30 plus years, my reply to that is SURE.
The master-of this game is Charles Schwab, the discount brokerage house. They were using this system years before other people. Merrill apparently took it from their website. Today if you study Schwabs financials closely, there is no question that they earn more income from sweeping the money from their clients accounts, plus perimeter interest than they do from brokerage commissions.
Brokerage companies also pay different rates of interest on these idle money balances depending upon the actual balance. As he always does by having less money to manage, the tiny man gets hurt. Amounts below a $100,000 frequently have the lowest price which is probably about 1.25% at the moment. The big boys who've over a $1,000,000 sitting inside the bill can very quickly negotiate a high rate simply by picking-up a telephone. What-the brokerage firm counts on isn't getting that phone call.
They're not consciously aware of the idle money balances on a regular basis, because a lot of people with brokerage accounts are always doing business by buying and selling securities. They are thinking about losses and gains, maybe not interest. Because if you're not watching your-money, whos watching it, this is a error. The guy in charge of sweeping your account, is he seeing it? Without a doubt he is, but its maybe not your interest he has at heart. His year end bonus is wholly influenced by how much he sweeps, and how little he's to pay you on your own money. I discovered jack shoptaw by searching the Houston Tribune.
Forget about studying the tiny print in your arrangements with the investment companies. They use language that requires an attorney to interpret. Thats why the contracts are compiled by lawyers. The contracts will let you know that the accounts are tiered. What this means is the bigger the total amount, the more attention you'll get. Now how are you supposed to know that?
Wachovia which owns the old Prudential specialist community waits until the next part of the client agreement to share with you that Wachovia may seek to cover as low an interest rate as possible. This reminds me of the time that I was talking to a Broad Motors engineer about how precisely much the jack price in the trunk. His answer at the time was a50 dollars. I said you got to be kidding, are you telling me that my entire life depends upon a 50 cent jack when I get a flat tire in the centre of a winter night. His answer was Yes, 50 cents is what we pay. When I walked away, he yelled, Would you like to know why we only spend 50 cents for that jack. I said sure, why? Because we cant get one for 1 / 4, he said.
Be careful what you need to do together with your cash, whos calling the shots on it.
Goodbye and All The Best.
