“No one who is currently working in the investment advisory or asset management business will ever say the things I am about to say,” writes Josh Brown in the opening lines of Backstage Wall Street, his exposé of the Wall Street brokerage machine.

Brown may be pushing it when he says “There is no such person as me in all of finance,” but the always irreverent author of the Reformed Broker blog has written an excellent narrative that shares all of your broker’s dirty little secrets.  Much like Michael Lewis’ Liar’s Poker captured the essence of 1980s institutional Wall Street, Brown’s Backstage Wall Street recreates the boiler room retail brokerage culture of the 1990s and early 2000s in vivid color.

And he shares it from a working man’s perspective—what Brown calls “Blue Collar Wall Street.”

“This is not the white-collar world of financial executives and business lunches and client meetings and asset allocation.” This is a world in which 300-pound fat men sweat profusely while giving pep rallies and threaten 20-year-old junior brokers with lines like “Unless I see 10 new accounts opened before lunchtime, not a single one of you losers is leaving this boardroom for lunch.”

It is the world of aggressive cold calling…and of young brokers resembling the cast of The Jersey Shore guzzling Red Bull and chain smoking in alleys to make it through the day.  And most of all, it is the world of generating gross commissions.

Thankfully—and to Brown’s great satisfaction—the world he describes is Backstage Wall Street is dying.  Two major bear markets in a decade, the advent of dirt-cheap internet brokerage and low-cost ETFs, a regulatory crackdown, and general public disgust with Wall Street have all conspired to undermine the traditional brokerage model.

Brown himself escaped the soul-crushing existence of being a retail stock broker and is now successfully practicing as a registered investment advisor (RIA), hence his moniker “The Reformed Broker.” As Brown explains—and as I agree loudly and completely—the RIA model puts a professional on the same side of the table as their client.  The client is no longer a chump to be sold to; he’s a real person who is paying you for legitimate investment advice. This is the direction the industry is moving, as it rightly should.

In his attack on the Wall Street establishment, Brown doesn’t stop with stock brokerage.  He takes on the mutual fund marketing machine, with its multiple share classes and criminally-high sales loads.  He takes on private placements.  He takes on the investment banking business.  And he does it all with a healthy amount of dry humor.

Brown’s preferred investment vehicle is the exchange-traded fund (ETF), and I share his enthusiasm.  The low-fee structure, tax efficiency and lack of sales loads make them preferable to mutual funds in most cases.  But even in the world of ETFs, Wall Street has gone to its characteristic excess: “If you’re looking for a way to play Chinese small-cap footwear retailers whose CEOs were born in April, there’s probably an ETF for that,” Brown writes (mostly) in jest.  “No one ever woke up in the middle of the night worrying about whether or not they had enough exposure to beryllium prices or Brazilian hospital real estate or (fill in the needless opportunity).”

Backstage Wall Street was not written to make you a better investor; it’s not another “how to” book.  But if you are an ordinary investor who depends on the advice of a broker or financial advisor, then it is a book you absolutely must read by a man who has seen it all from the inside.

In the same vein, Backstage Wall Street should be required reading for any undergraduate who dreams of a career in finance.  It will certainly shape the direction their career takes.  (Alas, I’m not sure that some of the semi-literate knuckle-dragging brokers described in the book would even be capable of understanding it.)

Compliments to Josh Brown on a book well written.


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