If you have access to any financial media, Josh Brown is hard to miss. Also known as “The Reformed Broker,” he has one of the biggest media presences in the financial services industry. Brown’s blog, “The Reformed Broker,” is a must-read for anyone following financial news. He has more than 121,000 followers on Twitter (@ReformedBroker), he appears regularly on CNBC-TV’s “Halftime Report,” and has published books including “Backstage Wall Street” and the “Clash Of Financial Pundits.” ETF.com caught up with him and discussed how social media can add value and differentiate an advisory firm. Brown will be speaking in January at ETF.com’s “Inside ETFs” conference on social media and the financial advisor.
ETF.com: You’re the CEO of Ritholtz Wealth Management. How did you get there?
Josh Brown: I was a retail stockbroker until 2010. I dropped my Series 7 and I went completely investment advisory. That's when I joined with Barry [Ritholtz]. We were advisors at another firm, and then we broke away and formed our own practice in September 2013.
ETF.com: What came first? The blog or Twitter?
Brown: The blog came about a year before Twitter. The only reason I went on Twitter was it looked like another place to share links to my blog. I felt like I’m putting a lot of effort into what I'm writing and I want people to read it. I don't know why, but it was just an instinctual thing that I was writing helpful, good stuff. So Twitter was just one other place to drop a link.
ETF.com: And before the blog, did you write a newsletter for clients or anything like that?
Brown: No, never. I started writing in 2008 when I was still a broker. I was saying things that no one else was willing to say. That resonated with the readers. They could tell I was authentic and was really speaking my mind. In hindsight, I was saying some pretty dangerous things about the industry.
If I had thought more about it, I wouldn't have done it. But I was really backed into a corner. It was 2008; the world was coming to an end. All my friends were getting laid off. My business was blown to pieces. And my firm was going out of business.
[The blog] was just kind of this primal-scream therapy for me. And for whatever reason, relatively quickly it built a following. So I felt obligated to keep going. I would write a post and I would get five emails that night. And I said, “People are reading this; I'd better keep going.” Then some serious people started to read it and take me seriously, like editors at the Wall Street Journal, producers at CNBC. The rest is history.
ETF.com: And so the blog led to CNBC?
Brown: The blog led to everything. If I didn't start the blog, I don't know what I would be doing. I would either still be a retail schmuck selling stock picks over the phone, or maybe I'd be working for the Long Island Railroad; I have no idea.
ETF.com: How do you keep sharp? Do you have somebody to get feedback from?
Brown: No. I read a lot. I think in order to be a good writer you have to be a good reader. And I tend to not read a lot of finance books. I read a few a year, but a lot of the books that I read are literature. That's a key differentiator between what I'm doing versus a lot of traders who also blog.
A lot of traders who blog are not really reading that much, and it comes through. They don't understand composition. They don't have great grammar or syntax. There's very little poetry about their prose.
For anyone trying to be a financial writer, one of the best tips I can give them would be to broaden the type of things that they actually read about, and to think a little bit outside of "I bought this stock, I sold this ETF."
ETF.com: Do prospective clients come to you through the blog and say, "I like who you are. You seem like a sharp guy. I'm interested in you managing my money."
Brown: Five years ago the question was, "Josh, how do you have so much time to blog?" Nobody asks that question anymore, because it's understood that the blog is the centerpiece of everything I do. It's where people looking for an advisor can get a sense of how I think about the markets and whether I would be a good fit for them.
So 99 percent of the other advisors have clients who regularly are inundated with financial news, some of it of a positive variety, most of it of a negative variety. On any given day, a multimillionaire wakes up, flips on his phone and sees the latest headlines are scary ones from China or Europe, or whatever the freak-out of the day is.
Now, that guy says to himself, "Gee, this seems troubling. I sure hope my advisor is paying attention to this." My clients don't have that problem. They go to my site, they go to Barry's site and it's not that we have all the answers, but at the very least the clients are aware that we are aware of what the latest issue of the day is.
Maybe we'll have a strong take on how it should be interpreted. Or maybe we'll just say, "Hey, here's something that's going on. Here's a place you should read about it." But at the very least, what we're able to do is communicate with clients in a way that other wealth managers simply can't. It's not realistic if you have 100 or 200 households that you'd be able to speak to every client every day.
And quite frankly, the clients don't want that much communication directly. They don't want a phone call from their broker every day.
Having this kind of always-on, 24/7 take on what's going on in the markets, or whatever, there are some clients who just like to have the ability to check in on what our thoughts are without having to be a full-blown meeting or phone call or email exchange. That's a really powerful part of our value-add.
ETF.com: How does the firm handle compliance with blogs, and tweets, etc.?
Brown: We pay a lot of money for an outside compliance firm. We spend a lot of money on the software that you need for archives—all the tweets, all the blog posts, all the LinkedIn updates. Those are the rules. And we abide by the rules. I'm glad that there's regulation, because in a world where anyone can say anything and not have to back it up, or have ulterior motives to hurt people, that hurts investor confidence in the industry.
I'm a big proponent of the regulations. It's much more interesting to have structures around what you can say. It leads to better writing and better blogging. If anyone were able to say anything, it would be the Wild West.
Professionals in our industry who are forced to abide the rules put out higher-quality material than people who are just pretenders, newsletter writers who aren't registered. I don't care what those people say because they aren’t held to any kind of standard at all.
The rules are actually pretty straightforward. To give a lot of credit to the regulators, they did the right thing with social media. They gave clear guidelines and they didn't stomp down on it immediately. They allowed it to develop. People who want to use social media to pump stocks or lie about their track records eventually get caught.
The right way to think about regulation is that anything that you couldn't do in a newsletter or in an email or in a public appearance, you also can't do on social media. It's not two sets of rules. If you're not allowed to print endorsements in a magazine, then you also can't do it on your blog; plain and simple.
The compliance rules are not hard to understand. They're an extension of the rules that we've all had prior to social media's advent.
ETF.com: Let’s talk about Liftoff, which is an add-on robo service you started about a year ago, as well as the opposite side of spectrum when it comes to institutional clients.
Brown: The way to think about us is that we're a traditional wealth management firm that got tired of having to send investors that don't qualify for our service out to the wolves. I wrote a book in 2012 called, “Backstage Wall Street,” which basically detailed the myriad ways that regular rank-and-file investors get screwed over.
So, when we would get an email from somebody saying, "I have $70,000 to invest. I read something you wrote. I really don't understand how to do this. I need help," my response was, "I'm sorry, we can't help you. Call Schwab, or call Fidelity."
But the reason that’s bad is that I know what's going to happen to that person. They're going to end up with a third-tier brokerage firm, someone who's going to sell them an insurance product or an A-share mutual fund, and they're going to get a raw deal.
So the idea of the robo was not, "Hey, we want to compete with Betterment." That's not the idea. We never wanted to have to turn someone away. This is a low-cost, low-maintenance way we could give people a great portfolio and a helpful service.
As those people grow up and accumulate more assets, and their situation gets more complicated, when they reach the point where they need true financial planning, we'll be there for them because they will have already worked with us. The next generation of investors doesn't have to get a raw deal.
ETF.com: What’s the minimum to start on Liftoff?
Brown: The ridiculously small minimum of $5,000.
ETF.com: With the recent hiring of Ben Carlson, you're clearly going after institutional clientele, is that fair?
Brown: We know complexity is the rule of the day in the institutional world. And the $5 million to $50 million institution—which is who we're talking to—typically gets the worst possible advice, because they're not being catered to by the best institutional investment managers, they're being catered to by the most desperate. And they're also being sold third-tier versions of an institutional product. They get the 10th-best hedge fund, for example.
We don't think they need any of that stuff. We think we can do a better job on their portfolio than they can do on their own, or than a brokerage firm can do, or an insurance company can do. We're going to have a lot to offer in that area. But it's just getting started.