Move Over Ashton Kutcher: ex-Goldman’s Greg Smith Now Most Popular

If you haven’t read, or at least heard about the brouhaha surrounding GoldmanSachs’ former head of equity derivatives Greg Smith and his farewell-to-the-firm soliloquy in today’s New York Times, you might be on an advance scouting mission to Mars on behalf of Newt Gingrich.

Aside from this story occupying Wall Street, and the hearts and minds of the talking heads at CNBC, as of this writing (1:40pm, EST), Google data indicates “Greg Smith/GoldmanSachs” has been mentioned more than 250,000 times across the “Net” , not including this phrase being one of the Top 5 Twitter tweet phrases across the globe.

Greg Smith, Former GoldmanSachs VP

Move over Ashton Kutcher; Greg Smith is now an uber super-star for bearing his soul in a dramatic ending of his career as the spawn of “The Squid.” And, let’s not forget to mention that while Smith’s letting the door hit himself on the way out might impact his severance, it has also made him a fav among ethical females.

My better half, struck by the ethos articulated by Smith’s op-ed, txt’d me to ask whether I knew if Greg Smith is single. She claims to have posited the question on behalf of our marrying-age daughter; but any idiot that knows us could easily detect the inherent conflict of interest; no doubt my wife can guess that Smith is too old for our daughter, but just right for her mom the cougar.

Smith’s soberly-stated reflections of his tenure, and in particular with respect to his claims of  conflict of interest becoming a cultural norm at Goldman is no surprise to critics of Wall Street, Socialistic Cynics will argue that conflict of interest is both an ingredient and a by-product of capitalism, and therefore breeds contempt.  But, as one actively-trading hedge fund manager/Goldman customer says (without being authorized by his firm to speak on the record), “..One needs to fully understand..the double-sided coin before cashing in the conflict of interest complaint.”

In this context, the HF trader is merely referring to his executing block trades with Goldman, knowing that Goldman is “taking the other side” and presumably, is profiting in some way by facilitating hedge fund’s order. The HF caveats with, “I get a lot more from them than just execution. Even If I’m not necessarily getting the best price from Goldman, as long as they fulfill my need for immediacy and liquidity, I’m happy.”

For those who think the above perspective is lop-sided, and in particular, those with fiduciary obligations (i.e. you’re a pension fund manager, a senior PM for a university endowment, an RIA, or a corporate treasurer), the high road path for order execution is simply “stepping out” to a well-situated, agency-only firm.

Unlike investment banks, prime brokers, custodians, or retail brokerages that offer a broad array of services with equally-broad fee and pricing menus–and an equally broad complex list of potential conflicts when considering the way these firms interact with other firms within the ecosystem, agency firms are those whose business models are [typically] very simple.

The agency role was perhaps best described by the President/COO of institutional, agency-only execution firm WallachBeth Capital, when speaking to an industry conference two months ago, “There should be nothing implicit when it comes to defining agency-only; in practice and application, you are de facto, ‘the fiduciary’s fiduciary.’

In plain-speak, agency-only execution firms have one function and one obligation; to discretely canvass hidden as well as displayed markets in order to secure the best available prices for the customer without overtly or unnecessarily impacting the prevailing market for that particular product. The [only[ consideration for this role is a pre-agreed upon commission paid by the customer for the execution. Real agency-only firms do not direct customer orders to “preferential” liquidity providers in exchange for any overt or hidden consideration, nor do real agency-only firms maintain any quid pro quo’s with counter-parties in the trading marketplace.

In earlier days, the credo on Wall Street was “your word is your bond.” Despite the firestorm created by Greg Smith’s op-ed, this blogger maintains the credo still exists at many financial service firms; one merely needs to ask the right questions of those that you are trusting.