Better Training for Brokers Urged

WASHINGTON —  In a world designed by Arthur Levitt Jr., chairman of the American Stock Exchange, stockbrokers would be trained at a national academy, taught to always put the customer’s interest ahead of the brokerage firm and would be paid not on commission but with a money-management fee.

The way brokers are recruited, trained and compensated “must be changed if brokers are to have the level of professionalism essential to restore confidence in the system,” Levitt told members of the National Press Club on Tuesday.

Even before the October market crash, Levitt said, brokers’ standards were rated far below clergymen, doctors, engineers, bankers and lawyers. In opinion surveys, brokers were “wedged in” between national and local politicians, he said.

Levitt urged the securities industry to create an “Institute for Investment,” an academy that would be “responsible for training and qualifying all brokers and investment advisers” and for teaching brokers that “this is a service industry.” Training is now left to individual firms.

Levitt was critical of the heavy emphasis on commissions, which he said raises customers’ fears “that their brokers are doing business when the best strategy might be to sit tight.” He urged the industry to move toward a system in which brokers are paid a percentage fee based on the amount of a customer’s assets being managed.

Industry officials were not enthusiastic about Levitt’s ideas.

Edward I. O’Brien, president of the Securities Industry Assn., said: “I tend to be somewhat neutral to negative.” O’Brien, once head of the retail division of Prudential-Bache Securities, said he did not believe that the commission system was necessarily detrimental to customers or that the training academy was needed.

Launny Steffens, president of Merrill Lynch Consumer Markets, said his firm believes that its training system is “significantly better” than those of other firms and that he would not like to see training forced into a national school. “They haven’t done it to the medical or legal profession,” he said.

As for compensation, Steffens said, half of Merrill Lynch’s 12,000 brokers now get about 3% to 4% of their pay from fees based on assets being managed by the firm. He called Levitt’s thoughts on pay “a step in the right direction.”

A veteran Washington broker, James C. Doyle of Advest, who heard Levitt speak, said the training academy was “an excellent idea.” He said “anything that can enhance training for brokers would be most beneficial.”

Levitt, discussing the market plunge, warned that “the conditions that created the atmosphere in which a market meltdown nearly occurred are still present--creating a kind of economic time bomb that threatens the system.”

He cited the federal budget deficit as one main cause of the crash and said the White House and Congress were equally at fault for failing to reduce it. “Unfortunately,” he said, “I don’t see any of the current presidential candidates really taking the bull by the horns on this issue.”