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Early in my career I had the pleasure of working for one of the discount
firms. Now I am a full-service broker, but compete at all levels of price and
service. That disclosed, let me offer a couple of insights.
1) Discount clerks work for the house, not the client. If there are errors or
problems, the clerks will try to get the client to eat any errors, or split
them, if the client can be led to believe they were partially at fault.
Sometimes clients are at fault and should eat those errors. But don't expect
the clerks to take your side with management, because they are not your
advocate.
2) Discount firms have high turnover levels. Young people who become discount
clerks don't do it for the money. They do it for the experience. They learn
by taking your orders and watching your trading. If they are ambitious, they
will not stay at the discount firm, but move on to better income producing
opportunities in the industry. When I was at the discount firm from 1985 to
1988, the firm probably completely turned over 3 times. The firm would hire
good people, but could not keep them for very long. Thus, largely discount
firms are staffed by rotating new hires and people who have realized their
potential and are happy there.
3) Error rates are higher at discount firms. There was an incentive fee paid
to clerks if they could keep the errors below a certain amount. I don't
remember us getting paid on that very often.
4) One of the great myths of this industry is that you need to go to a
discount firm to get a low commission rate. There are plenty of experienced,
knowledgeable full-service brokers, who offer low commission rates for clients
with discount service needs. The advantage is that the trader has a full-
service broker to call upon when they do have questions or problems. At a
discount firm, the clerks don't know as much and are encouraged to get the
client off the phone as fast a possible. Telephone costs are a big expense
and somewhat controllable.
This is a service and relationship business. There are plenty brokers, even
here on RT, who can provide you with the service of a discount firm, and more
if you need it, for similar prices. I find many people stick with their
brokers because of the relationship factor. Dealing with rotating clerks at
discount brokers does encourage the value of continuity and the synergy you
can create by developing a long-term relationship with a professional broker.
Regards,
John J. Lothian
Disclosure: Futures trading involves financial risk, lots of it!
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