OVERVIEW

The purpose of this Note To Brokers section is to initiate a dialog with institutional brokers, or retail brokers desirous of, transacting business with entities creating or intermediating commerce in the Global Economic Drivers.

First, I need to clarify that I am not a broker, an IB, a registered representative, an associated person, an FCM, or related in any way to any brokerage firm. I am simply a portfolio management and risk management consultant.

This section is organized with bookmarks and links to the following:

• Disintermediation of the investment banking and brokerage business.
• Ideal Broker Profile (to be added within the next few weeks).
• Brokers with whom I have worked.

DISINTERMEDIATION

I believe the investment banking and brokerage (both cash and derivatives) business is experiencing, and will continue to experience, at an accelerating rate, disintermediation of its core business, i.e., the intermediation of transactions for a fee. What do I mean by disintermediation? I'll explain by way of relating to what happened in the banking and thrift industry in the mid-to-late 1970s - As interest rate levels, all along the yield curve, rose above the passbook savings and time certificate of deposit rates offered by the bank and thrift intermediaries, depositors began to systematically withdraw their funds and started buying T-Bills and other money market instruments directly from the issuers. This depositor action effectively disintermediated, or reduced, the traditional savings and deposit intermediaries, i.e., banks and thrifts role in managing the depositors' money. This banking and thrift disintermediation was brought on by systemic forces beyond the control of any given bank or thrift institution or manager. Therefore, to survive and prosper, individual bank and thrift institutions and managers had to adapt how they related to their clients to accommodate the interest rate environment and depositor preferences, as opposed to either ignoring or fighting the underlying disintermediation. Likewise, the disintermediation of the investment banking and brokerage industry today is a world wide phenomenon beyond the control of any given person or entity. Additionally, it is influencing how commerce is created and intermediated for all the Global Economic Drivers, and, at its core, is driven by the rapidly changing information processing and communications technologies that are be made available to virtually everyone. Furthermore, to survive and prosper, individual brokers are going to have to adapt to the environmental and client preference changes, rather than ignore or fight, because the change is inevitable and the brokerage and investment banking firms are adapting whether the individual broker is or not. Some of the more obvious conditions accompanying this round of disintermediation include:

• Lowering of commission rates you are able to charge clients, and lowering of related production credit payouts to you by the firm.
• Cost cutting measures by the firm to reduce support for research and business development efforts.
• Enactment of policies effectively restricting brokers' ability to utilize Internet and World Wide Web technology to develop and maintain client relationships.
• Placement of ever increasing emphasis on brokers becoming "asset gatherers" for the firms' institutional managers. The net effect is the aggregation of similar types of transaction business that can be centrally processed with minimal, to no, involvement by the broker. Ergo, the apparent elimination of the need for the broker. I say "apparent" because it is just that. Regardless of technology, the investment banking and brokerage business has always been, currently is, and always will be a relationship business. The broker has been, and, I believe, will continue to be pivotal in establishing and maintaining client relationships. The key is for the broker to wake-up and to begin to proactively utilize the same technological advances driving the disintermediation and the firms' policy decisions to his own advantage, instead of being passively steamrolled by those same elements.
• It is becoming increasingly difficult to charge clients for research and other services through bundled transaction fees. Clients', through their decisions and actions (e.g., separating the sources from which they get their information from the facilities through which they execute their trades), are effectively unbundling research and other services from the transaction element, which historically been the mainstay of the broker's compensation stream. This unbundling is inevitable because it is being driven by the information processing and communications technological advances. To survive, the broker needs to strengthen his relationship with the client by facilitating this unbundling, not fighting it. The underlying premise is that the unbundling being effected by client decisions and actions does not obviate the clients' need for good information and related processing capabilities, and timely decision making and implementation; it simply creates another opportunity for the broker to develop an effective solution to the clients' perceived needs, and in so providing, further solidifying the client relationship.

The foregoing highlights two main challenges associated with attempting to develop and maintain institutional business in today's rapidly changing environment:

1. Ever present need to ethically resolve the conflict between doing what is in the best interest of client vs. doing what it takes to satisfy the production pressures applied by the firm.
2. Age-old time management challenge resulting from the day-to-day need to execute orders for existing clients vs. the long-term need to build better relationships with both existing and new clients.

I believe I can help resolve these conflicts in a manner that is mutually beneficial to you, your clients, and your firm. As a preliminary step in this process, I would appreciate you taking a few minutes to click on the Comments button and filling out the feedback form.

BROKERS WITH WHOM I HAVE WORKED

The following is a list of brokers (with brief description and email address) with whom I have worked and in whom I have developed confidence that they consistently put the client's interest ahead of their own. By conducting themselves in this manner, I believe they advance their own interests in a professional, consistent and progressive manner.

• Mike Urner (murner@lightspeed.net) - Mike is an investment executive with a major investment banking and brokerage firm. His experience includes working with corporate and retail clients from a wide range of economic sectors. These sectors include; energy, defense, aircraft, manufacturing and industrial, real estate and property management, environmental, foundation and scholarship funds. His work with these clients includes portfolio holdings in several financial markets. These markets include; equities, fixed income, money market, and commodities. Mike has a BSBA in Finance and a Minor in Economics from Xavier University, Cincinnati, Ohio. He invites you email him for further dialog regarding portfolio and risk management issues of concern to you.

INPUT REQUEST & FREE OFFER

As you will notice in reading my background material, I have spent some time as an institutional broker for two Wall Street firms. This Wall Street experience, in combination with my experience as a portfolio manager and risk management consultant, has enabled me to developed an appreciation for the challenges faced by brokers attempting to develop and maintain an institutional book of business in today's rapidly changing environment. It is within this context that I make the foregoing observations, request your comments, and make this Free Offer of portfolio and risk management consulting services that you might find useful in working with your institutional clients.

Email to: jhight@strategies-tactics.com