sons possessing supervisory responsibility, with particular emphasis on employee-supervisors.175

Supervisors vary in the scope of their activities and in the titles under which they operate. Thus, persons with supervisory responsibility include managing partners and high-ranking officers, regional managers, district managers, sales managers, branch office managers, and assistant, associate, and comanagers, among others.

The single most significant item of information concerning supervisors which was developed through analysis of the STS questionnaires was the great extent to which supervisors engaged in selling to their own customers. Over 90 percent of all supervisors (including partners, directors, and officers with specific responsibility for overseeing the conduct of salesmen) were engaged in some selling activities. Of all firms, only 24 percent had any supervisors who were not engaged in servicing their own customers' accounts.

The position primarily associated with the function of supervision in the securities industry is that of the branch office manager, who has been characterized as the "first home base" for a firm's supervision and control. The importance of the branch manager results from the geographical separation of his office from the firm's management headquarters, so that he has authority and responsibility almost equivalent to that of a sole proprietor. In spite of the fact that many firms with branch offices have elaborate accounting and recordkeeping surveillance facilities to check branch activities, no substitute has been developed for the on-the-spot supervision and direction provided by the branch manager.

As the director of a semiautonomous securities selling unit, the branch manager has a wide variety of responsibilities and duties. The NYSE has described the role of the branch manager in this

manner:

The branch office manager undoubtedly holds one of the most important jobs in the securities business. His first task is to see that his branch's customers are receiving appropriate service and investment advice in keeping with their objectives while at the same time seeing that his firm and men are protected from unscrupulous customers. Upon a manager's shoulders falls not only the necessity of operating his branch at a profit, but also the responsibility for seeing that the regulations of the New York Stock Exchange and other exchanges, the NASD, the Federal Government, and the States in which he is doing business are complied with.176

At Merrill, Lynch, Pierce, Fenner & Smith, where "as a general policy, office managers are not permitted to service customers' accounts," it is the manager's particular administrative and supervisory duty and responsibility to do, among other things, these: (1) "To train and maintain a staff of capable employees," (2) "to coordinate and supervise the activities of *** personnel of the office," (3) "to develop those people with ability for promotion," (4) "to interpret, explain, to put into effect, to support and enforce the policy and procedures of the company ***" (5) "to approve the

175 Pt. B of this chapter discusses the qualifications of principals of broker-dealer firms, but concentrates on the qualities and background needed by persons who control the policies of a firm, as well as on the financial qualifications of the firm as a whole. The present part focuses on many of the same individuals as those treated in pt. B, but is limited to aspects of the qualifications problem which relate to the overseeing of sales and other activities. See also ch. III.B.6.a, in which the supervisory policies and procedures employed by securities firms are analyzed.

170 NYSE Department of Member Firms, "Supervision and Management of Registered Representatives and Customer Accounts," p. 4 (1962).

opening of each new account ***" (6) "to make careful periodic analysis of all open accounts ***" (7) "to make personal calls on customers ***" and (8) "to engage in public relations activities ***." In addition, the branch manager is supposed to engage generally in developing his office's business and reputation in the territory assigned him. Other firms with less elaborate operations impose fewer supervisory duties and responsibilities upon branch managers, and most of them expect managers to have their own customers.

The extent of the responsibilities borne by branch managers in addition to their selling activities can be seen in the numbers of salesmen they are called upon to supervise. Among the larger firms, where branch managers are concentrated, the average manager supervises 12 salesmen, but in some cases the ratio of salesmen to branch managers is somewhat higher. Sutro & Co., of San Francisco, for instance, employed 5 managers, who, along with 2 partners supervised 7 branch offices with 129 salesmen. Firms specializing in the sale of mutual funds had strikingly high salesmen-to-supervisor ratios. Triangle Investors Corp., of New York City, had a total of 3 officers, 1 manager, and 1 assistant manager to supervise the activities of 495 salesmen.

The average supervisor is better paid than the salesman whose activities he oversees, although some salesmen earn incomes from handling their customers' transactions which may exceed their supervisors' compensation. The average annual income of a large nonmutual-fund firm branch manager, as revealed by the STS survey, was over $28,000, as contrasted with an average of some $14,000 a year for salesmen of firms in this category. Managers of large fund firms examined in the STS survey averaged $10,500 a year, while supervisors in small fund firms earned only $8,100 a year. The average salesmen employed by mutual fund firms, a substantial majority of whom are part-time salesmen, earned about $2,600 a year.

2. THE SELECTION OF SUPERVISORS

In selecting sales supervisors, most firms turn first to their own salesmen. Firms lacking what they regard as adequate material to fill the role of supervisor obviously must recruit persons from other firms or occupations. The firms which find it necessary to advertise for branch managers and other supervisors are generally small securities firms doing a general business, larger general-business firms engaged in aggressive expansion programs and mutual fund sales organizations. Much recruiting is done through newspaper and magazine advertisements, which give some clue to the qualities the recruiters consider desirable.

Qualities emphasized by general securities firms in their recruiting ads are much the same: Experience as a salesman, a following of customers, ambition, an ability to lead, and occasionally a following of salesmen. Few if any ads acknowledge the importance of familiarity with other operational aspects of the business. An advertisement of one NYSE firm, as proposed to the NYSE for its approval, set out these prerequisites for employment as a branch manager:

New York and American Stock Exchange member firm needs an ambitious, experienced, successful producer to manage the Philadelphia office, possibly with a following of several high-grade registered representatives *

(The final clause was eliminated before the publication of the advertisement.) The inducements offered often include a chance to become a partner and the privilege of retaining one's present customer accounts. One advertisement, directed toward "former brokerage firm partners, retired representatives, or mature customers' men," offered as a special inducement the opportunity to manage "a small luxurious brokerage office *** [to] be located in the fashionable sixties in New York City."

Mutual fund salesmen have been especially sought after as managers, both to work for mutual fund organizations and to establish new mutual fund offices or departments for NYSE member firms. For mutual fund sales organizations, however, experience in selling often outweighs in importance experience in the securities business. King Merritt & Co., a large mutual fund retailer, approved for use by its hiring staff an advertisement directed to persons able to "hire, train, and administer a sales organization," which offered opportunities regardless of a lack of previous securities experience to become a "division manager" and to “*** build a steady, profitable, satisfying business in a prestige field." However, despite the absence of a formal requirement of securities experience for division managers, only 3 out of 169 King Merritt & Co. division managers, as of June 1962, had no experience in the securities business before becoming managers for the firm. Each of the three had previously been engaged in selling fire and casualty insurance.

The emphasis on a sales background for branch managers is also illustrated by the approach of Sutro Bros. & Co. to expansion of its branch offices. As one of the partners explained:

[W]e have never opened up branch offices and then waited for the men to come in. Usually an entrepreneur type of customers' man approaches us.

He says, "I think this is a good site over here; there is a spot available here; we think it would make a good branch office; I think certain men will come along with me

We negotiate with the guy and if we think he has a reasonably good record and there is nothing wrong with the fellow, and if we are in an expansive mood, *** we would open up an office and try to build it up.

According to responses to the STS questionnaires, most firms conducting an ordinary business in securities require a supervisor to have 3 or more years' sales experience in the securities business, although some require as little as 1 year and many have flexible requirements. Smaller firms not specializing in mutual fund sales have fewer occasions to hire supervisory personnel and are less likely to have established standards of experience. Of those firms which stated that they had educational requirements for supervisors, almost all indicated that they established no higher standards for supervisors than for ordinary salesmen.177

Firms which derive income primarily from the retail sale of mutual funds generally have lower standards of experience and education for supervisors than do other firms. Although some supervisors are hired from outside, most persons charged with supervising mutual fund salesmen start as salesmen themselves, and are promoted to supervisory positions on the basis of their relatively high sales pro

177 Firms' standards of experience and education as they relate to salesmen are discussed in pt. C.2.b (2), above.

duction. In these firms promotion to such positions is not conditioned on any particular experience, education, or training requirements; the primary criterion is the ability to sell.

Typical of the way in which mutual fund selling organizations select supervisors is the approach used by Renyx, Field & Co., Inc., which in 1962 supervised its salesmen through 27 offices. A Renyx, Field salesman reaches the ranks of supervisors by selling a specified amount of mutual funds. His share of the firm's sales charge, which was limited while he was a salesman to 40 or 45 percent on his own sales, becomes 55 percent and includes an extra commission on his supervisees' sales (an override) when he reaches "management level." As stated by William G. Damroth, the firm's president:

So a man is moved up who shows the initiative of being a manager and being full time, and staying with the firm, you know, et cetera. So a salesman evolves into a manager.

The first rung of the Renyx, field managerial ladder is the "district manager," for which position in most cases a salesman must have had at least 1 year's experience. After the new supervisor acquires more experience in recruiting and supervising, and if he has "done an adequate amount of business," he is "moved up to the next higher range," regional manager, with overrides on business produced by salesmen working for his district managers. The firm has no minimum educational requirements.

Another such firm, Investors Planning Corp., gives automatic promotion to persons who make mutual fund sales totaling $625,000 represented by at least 100 sales to the status of "career senior," at which point the salesman "begins to recruit other men and *** to guide the men whom he recruits in their selling practices and conduct." No tests or critaria other than that of sales are used to determine the persons who reach this supervisory level. In fact, the "investment solicitor agreement," which each IPC salesman signs, gives the right to be a career senior upon fulfillment of the above-mentioned requirements, regardless of the views of the employer as to the salesman's qualifications. The firm's next step on its supervisory ladder, with the title of "supervisor," is also automatically available to career seniors who sell or have persons operating under them sell, a specified amount of mutual funds and recruit 10 new salesmen for the firm, 6 of whom must sell enough to reach the "advanced" salesman's compensation

rate.

In contradistinction to the practices of these mutual fund firms is the NYSE's warning that "a manager or an assistant manager should never be selected for his sales talents alone. *** In fact, it is quite a misconception in many industries that because a salesman is a good producer he will be a good manager. *** [I]t takes an exceptional man both to produce and manage at the same time."

As has been indicated, a small minority of broker-dealer firms subscribe to the NYSE policy to the point of exclusion of producing supervisors. One such firm is Merrill Lynch, which does not generally allow its supervisors to sell to their own customers. Internal promotions provide the managers of its large branches from among the managers of its smaller offices, and the managers for its small offices from among the firm's salesmen, upon the recommendation of branch man

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agers and senior officers.178 Before assuming his duties at a branch office, a prospective branch manager is brought to New York for a preparatory period of about a year with the firm's sales liaison branch, a 10-man unit which sends persons out to the various branches "to see how other managers are doing and to report back *** what is going on in those offices." Most of these men are over 40 and have approximately 10 or more years' experience in securities.

Bache & Co. says it is switching from producing managers to supervising managers. It usually considers 5 to 10 years' experience sufficient, including a period spent as an assistant branch manager, and it promotes persons to the position of branch manager at the age of 28 to 35. Of 13 Bache & Co. branch managers whose personnel files were examined by the study, only 4 had had less than 5 years' experience, and the average was 9 years in the securities business, before assuming their duties as branch managers. The average educational level attained by the group, which included advanced degrees in law and economics, was slightly less than a full, 4-year college education.

Supervisors at the other end of the qualification spectrum also came to the attention of the study. One such was Morris Chaitowitz, the former proprietor of two retail shops-a general store and a "ladies' shop" and a part-time salesman of mutual funds, who was made the manager of a branch office of William, David & Motti almost immediately after he went to work for the firm. As he later explained:

* [W]hen I met them [the partners of William, David & Motti] they told me I could go right out and open up an office, which I did. I just rented an office immediately.

Another firm gave the title of "sales manager" to a 24-year-old whose experience had consisted of "4 or 5 months" as a salesman with another over-the-counter firm, during which time he had earned a total of $1,500 in commission. His education had been 3 years at New York City Food Trades High School, where he prepared to be a butcher, which was later his occupation for 3 years. When asked to explain how this background qualified him as a sales manager, he replied:

Well, I thought that I had a general knowledge of the market, trend of the market, and I just thought I was qualified. That is plain commonsense, the market. I thought I had the commonsense.

The firm's top salesman, when asked whether this young sales manager had sufficient background in the securities business for the position he held, replied that the young man "certainly knew a lot of people."

3. CONTROLS

While supervisors constitute a distinct and identifiable category of persons engaged in the securities business, the regulation of their qualifications is, by and large, carried out indirectly. Most rules of the various regulatory authorities do not refer to "supervisors" or "branch managers" as such, but focus their regulation of qualification standards on broker-dealers, salesmen, and investment advisers. Supervisors may fall within the definition of salesman contained in various statutes and rules, and be required to meet the minimum quali

178 For the last 10 years no manager has been hired from outside the firm.