Finding My Real Partner: A Banking System Becoming Irrelevant
Finding My Real Partner: A Banking System Becoming Irrelevant
I've never had much luck with banks.
In 1994 I went to work for a "white shoe" investment firm. One of the rules of joining the firm which I learned at my orientation was that I had to turn over all of my savings so that my employer could manage my assets. (This was designed out of transparency, they said, to prevent insider trading. . . perplexing since I worked in the creative services department.) Anyway, I had saved steadily since the age of 18 and was able to accumulate enough to meet the firm's standards for a managed account ($250,000), which meant certain attention to my investments, certain privileges.
I left that firm to begin my own company in 1995, but I kept my savings there and over the next few years, I watched as the account was managed with a somewhat laissez faire approach. I witnessed other high roller-clients wined and dined, called up at opportune times to be let in on special IPO's that the brokers considered valuable and worthy of the more prestigious accounts. In the meantime, I received nothing unique or special. In fact, no one ever called me.
About 7-8 years later, I'd seen enough. My broker had never reached out to check in on the account and it was performing poorly, so I transferred it all to a new firm and investment manager. (This particular adviser is one that I still use, who to this day has been a true partner and consummate professional.)
What was the result? Between 1995-1997, I had invested $250,000. Five years later when I moved my account from Bank "X" in 2003, I took the balance: Only about $180,000.
People lose value in their investments all the time. What was the problem with this picture? I had become friendly with my broker during those early years. When I met him, he was living in a small one-bedroom rental on the upper east side of NYC. Seven years later, after my account had lost of its value, that same broker during the same period of time had moved to a large, new home in Spring Lake, NJ, started a family. He had also ascended in his career to receive enviable bonuses, nice vacations and benefits. He had become wealthy.
After that, I began to ask myself a question. What value is it that brokerage firms bring to their customers that can justify the robust bonuses and compensation levels that those executives earn? And that much stated, do we really need brokerage firms to manage our investments? Isn't there something terribly wrong with a system that creates astronomical value for the man managing my personal wealth, which subsequently leaves me much worse off?
* * *
A wise businessman I once knew used to say that banks like to loan you and umbrella and take it back when it rains.
It's that time of year when we renew our credit line. I was prepared for the reduction in credit being well aware of the credit crisis, the new regulations on banking, the inherent fear in business enterprises in general. Or at least, I knew of the investment apathy for businesses that are proven and traditional, the ones that are not sexy technology start-ups. Those companies are breaking new Guinness World records for multiples and valuations.
The meeting this year went so badly that I actually considered ending the relationship with my bank. We've had the relationship for 3 years so I will not share the name of the bank. Still, on principle alone I decided it is time to move on. The terms were one sided, the lack of faith in my traditional business model was insulting, the demonstration of greed and self-interest, blatant and offensive. I left the meeting feeling like I had pitched "them." But they are my existing bank, my "partner." Contrary to the current financial climate and empowerment of these organizations, I believe that we sometimes still are, after all, the client.
I can't help but think about all of those bonuses at Goldman Sachs as I watch Iridium's credit line sliced to pieces with new demands, promises, benefits to the bank and additional ways to guarantee the loan. My taxpayer dollars, and those of the hardworking professionals on our staff, subsidized and made possible the bailouts for the auto industry, for banking and brokerage houses. And yet, we're the ones here left holding the empty bag as the recovery gets traction in the investment community. Our government bailed out the banks on our dime; although they promised to loosen credit and create opportunities for average Americans after the bailout, what did they do? They tightened it even more.
So what's the solution? Well, I could not be more grateful for my relationships with our existing clients, so the answer starts there: With my level of commitment to them, my personal conviction to deliver exceptional service and general excellence in return to those who gave us hope, opportunity. There are at least 12-14 client relationships to which I am deeply indebted.
These are the client managers who believed in our firm and who were patient, even when they knew we we were struggling through a deep downturn. For those relationships and for that faith in Iridium, I can never forget their support. To these people, these friends and managers, I have a special responsibility. It is my personal commitment to acknowledge that continued support and reciprocate with the best possible work that we can muster now that we are rebuilding our team again. These clients are stars and they will always receive a preferred level of attention. As I think personally about these client managers, I'm inspired, I am moved. I am forever thankful.
During the 3 years of recession, I've reduced our payroll by about 28%; We are about to realize a reduction in the annual costs of rent by nearly 50%. We're presently taking some of the savings from this cost reduction and applying it to update our systems and technology. If I can hold the line on sales and I have every intention of doing so we'll pay off our current debt and continue to run a lean operation. I'll manage costs; I will ensure that we deliver the best service available to all existing clients and we'll continue to work to build new relationships.
I'll amass a separate fund that I can turn to for capital expenditures, growth, new hires and for risks yet unforeseen. And I'll become my own bank. The U.S government and private banking system may have all but forgotten small businesses working in B2B. So who needs them? It's down to me and my community, my staff and the people we serve. As long as I have my client/partners and as long as we believe in each other, the world is our oyster.
Or more to the point, as long as there are still a few decent people working with principles, anything is possible.
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