The Blog Of The Securities Industry Professional Association

A guy walks into a bar and….


The beginning of many great jokes always starts off with the proverbial “Guy walking into a bar and orders a drink.”  This month we thought we would analyze a scenario from three different perspectives and ask from three different perspectives why some are regulated and others fall through the cracks.


An 18 year old walks into a brokerage firm and asks a broker top open an account for him, preferably using margin.  He tells the broker he has no job, has about $2,500 in money from graduation gifts, and has no investment experience of any kind and wants to take a shot on some Silicon Valley app maker he heard about that is on the OTC Bulletin Boards.  The broker then politely tells him it would be unsuitable and I now have a fiduciary duty to decline your business or I could lose my license.


An 18 year old walks into a Bank and tells the banker he wants to borrow $100,000 to buy this cool condo that’s near his school.  He tells the banker he has no job, no credit rating yet and wants to do a 100% loan.  The banker then politely explains to him that you need to show current income as well as future income potential to borrow amounts of that nature; you will also need to have at least 20% equity and tax returns and w-2s for three years for us to approve.  Feeling rejected….


An 18 year old kid walks into a bar and orders a drink and the bartender says “get out, you are not old enough to drink and you’re too young to know how to drink responsibly”.   So our poor 18 year old decided to drive up to the University in his town.


An 18 year old walks into the admissions office at B.S  University and explains to the university that he has no job, no savings and has always liked English Poetry , so the staff at BSU quickly arrange for him to get student loans in excess of $150,000 to cover school, housing , books and computers on the spot.  Our 18 year old is delighted as he dreams of a career in English Poetry!


When you stop and analyze it, our use of credit on the young people of today has gotten out of control.  Today there is more student loan debt (almost twice as much) than there is consumer credit card debt.  That’s a shocking total when you consider that credit cards do help move the economy in a variety of ways.  It’s shocking what has happened to this largely uncontrolled industry.  Almost 1.3 trillion school debt is on the books and it’s expected to increase to double that amount in the next 10 years.  We find it amazing that an 18 year old kid isn’t being counseled by an independent adviser about what $150-$200,000 in debt means and that by the time you pay it off after interest, deferments and fees the total payments could be close to $500,000.   Perhaps it’s time to have an independent counselor speak with these kids in a similar way 65 year old men have to speak with an independent counselor prior to doing a reverse mortgage.  School loans cannot be forgiven by bankruptcy; they can seize your wages and take legal action.  Currently the Fed Reserve revealed almost 40% of school loans are not being paid or are in arrears. We believe if you are going to put fiduciary standards on brokers, why not put them on the banks and universities offering these loans?  There should be an understanding of what your payments will be, when your payments must start and how much the interest and deferments cost over the life of the loan.  There should also be a frank discussion about the career possibilities of their chosen degree and a 10 year study on the average income those degree fields earn.  Imagine the look on our 18 year olds face when he discovers the demand for English Poetry?   What do you think?  As always we value your feedback


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December 13th, 2016



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