Crista Huff

When I worked at Morgan Stanley (formerly Dean Witter Reynolds Inc.), I was one of the Financial Advisors who was blessed with a comparably large percentage of IPO (initial public offerings of stock) shares to give away to clients.

Here’s how it worked:

The company allocated IPO shares on a percentage basis to the branch offices based on the percentage of syndicate deals the offices participated in.

A syndicate deal is a secondary stock offering.  For example, if a company like Procter & Gamble needed money to fund a new plant in Brazil, they might raise the money by issuing more stock.  We would offer the stock to clients without commissions, and usually at a slightly lower price than the closing share price that day.  The companies involved were quite often utility companies.

The syndicate deals always took place after the close of the market.  The deals took place quickly, sometimes without warning.  There was no time to chat with the clients.  I called them and told them that I could give them shares in XYZ company without them paying a commission, and they had to decide at that moment.

It sounds aggressive and arm-twisting, but it really wasn’t.  As a Financial Advisor, I had maybe fifty clients I could call upon who might say “yes” to such an offer, who were familiar with the process, and who were grateful for the opportunity.  There was no glamour in it.  The clients were usually mature investors looking for dividend yield through utility stocks.

If my branch office did 1.43% of the company’s syndicate deals, then my branch office was allocated 1.43% of the company’s retail IPO offerings.  (By “retail”, I mean that a certain amount of the IPO offerings were, of course, allocated to institutional clients as well.)  If I personally did 28% of my branch office’s syndicate business, then I received 28% of my branch office’s IPO allocations.  The numbers were updated constantly.  We had about 50 Financial Advisors in my branch office, the vast majority of whom never participated in IPOs.

If you had a Financial Advisor who told you that they couldn’t get you shares of an IPO, and they gave you various excuses, the real answer was this: either they didn’t receive ANY shares from the Branch Manager because they didn’t generally participate in syndicate deals; or they received some shares of an IPO, but they gave those shares to other customers.  It would have been unusual for me to receive enough shares of a “hot” IPO to distribute to more than 3-5 clients, and I did a lot of syndicate business.

Crista Huff

Crista Huff is a retired stockbroker from a NYSE member investment firm. She writes about market-timing at Goodfellow LLC and is active politically.
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