Six months after Research celebrates its 30th anniversary this summer, I’ll be celebrating my 30th anniversary of working in the financial services industry. While many things have changed over three decades, many things of enduring importance and value have become even clearer with historical perspective. So as you read through this retrospective, I invite you to think back upon your own experiences and see if you agree with my ultimate conclusion: Despite all the changes, all the ups and all the downs, our industry will always survive because Americans will always need quality advice from talented and hard-working financial advisors.
It Was Thirty Years Ago…When I became a mutual funds wholesaler in Florida in 1979, the stock market hadn’t yet recovered from the terrible losses of 1973 and 1974. (On November 14, 1972, the Dow broke through 1,000 for the first time, but by December 6, 1974, it had fallen to 577.) Stocks were out of favor, “mutual fund” was a dirty word, the hot investment of the day was Petro-Lewis income funds, and gold was heading way up.
The industry was still redefining itself following the 1975 Mayday deregulation of securities commissions. Those commissions remained relatively high, with a maximum mutual fund load of 8.5 percent and an average mutual fund commission of 6 percent. The settlement period was “T plus 5″ (transaction plus five business days; today, it’s “T plus 1″), and “long term” meant three to five years (today, “long term” means lunchtime).
Working conditions were very different. We had 15-line phones with 15 buttons; when a call came in, you were paged and told which button to push. Sending a fax was complicated, typically took three people, and was reserved for the most urgent of matters. The blaring AM radios on half the desks in my office competed with the voices of brokers trying to move product over the phone. And, of course, most people smoked: picking up the phone to dial and lighting a cigarette was a single action. Navigating the cloud of smoke and the din of radio and human noise was somewhat daunting, but seemed perfectly normal back then.
The 1980s: A Tough Start and Rougher MiddleBy 1980 inflation had skyrocketed, reaching 13.5 percent annually. With inflation and interest rates reaching all-time highs, unit investment trusts were being offered at 16 percent interest and universal life insurance proposals were being run at 12 percent interest for 30 years. (Apparently, no one stopped to consider what would happen to the economy if interests rates actually stayed that high for 30 years.)
Unemployment peaked at 10.8 percent in 1982, and we experienced the crushing effects of a spiraling federal debt, which tripled between 1981 and 1988, along with record trade deficits. But soon enough Reaganomics took hold, and inflation was down to 3.2 percent by 1983. (Unemployment dropped to 5.3 percent by the end of 1989.)
The middle of the decade brought a triple whammy. Now on the broker-dealer side of things, I used to tell people that our business was built on a three-legged stool consisting of alternative investments (mainly limited partnerships at the time), bonds and stocks. Starting with the Tax Reform Act of 1986, within 18 months, all three legs were sawed off:o Tax reform gutted limited partnershipso The bond market crisis of the summer and fall of 1987 brought more fluctuation in a single week than most brokers and traders had previously seen in their entire careerso On October 19, 1987, Black Monday saw the Dow Jones average drop 508 points (22.6 percent)
Once again, after a rough beginning followed by some pretty good years, we were back to “What do we do now?”
The 1990s: A Great RideFrom the early 1990s until the tech bubble burst in March 2000, we had an amazing ride. There was unprecedented growth in the Nasdaq, corresponding gains in the Dow and the S&P 500, and the profusion of discount brokerage houses. Online trading was born with e*Trade’s founding in 1991 — remember the ads about the tow-truck driver who told a flabbergasted businessman that he worked for fun and owned his own tropical island?