In October 2003 the federal Do Not Call legislation went into effect. As a result, a registry containing 64 million telephone numbers, representing more than half the U.S. adult population, is today off limits to telemarketers. While the Do Not Call legislation has slowed the pace of cold calls made by the securities industry, it has not stopped this practice, once a mainstay of the retail brokerage industry and an important method for new account creation. Now that we have arrived at the first anniversary of this controversial law, we can examine the Do Not Call regulations and some of their ramifications for cold calling.

New account creation is an important task in most retail offices. The Do Not Call rules add an extra layer of liability to the process of new account creation if cold calling is used. Managers and principals understand that they must abide by rules. Ethics and regulations will always be the overriding priorities. Still, firms have to make a profit and that involves getting money into clients?accounts. Reps have to generate commissions and/or fees and bring in new business. The true challenge is to achieve these goals while providing good service to clients and potential clients and minimizing the chances of running afoul of the authorities.

There are several ways to bring in new accounts; calling leads is merely one option. As can be seen in our chart [see PDF version], networking tops the list of ways to acquire new accounts. Getting a referral from a happy customer is probably the best compliment a broker can receive, but a growing business can rarely rely on referrals alone. Direct mail can be very effective, and while there are many proven ways of generating hot leads using that medium, the cost can be prohibitive. The Internet may work for some, and be a total flop for others. Seminars are a popular method of account creation, but they require serious organization and time commitments, making them infeasible on a full-time basis. With all of these methods, you still have to make sure that the leads generated give you permission to follow up through telephone calls. Cold calling is relatively straightforward and the results can be immediate. It is also often an excellent way to measure and develop the abilities of new brokers.

Cold calls

The name itself is descriptive of the act. You call someone to whom you뭭e never spoken and try to convince him to entrust your firm with his money. Most stockbrokers cut their teeth on the phone. They learn the ropes while cold calling (perhaps for another broker) and they sink or swim by opening up accounts. If you are afraid of the phone you won뭪 make it. If you are afraid of rejection you won뭪 make it. Perhaps you have wealthy friends and family you can reach out to, but, for most brokers, once they run through their list of personal contacts, the only thing left to do is cold call. Using a phone book or calling through a wealthy neighborhood used to be a typical starting point for a rookie who couldn뭪 afford to buy leads.

Managers usually had someone in their office performing cold calls on a regular basis. Most new brokers made cold calls in order to build a book and gain brokerage experience, but most established brokers found cold calling inefficient. However, for some reps cold calling became a way of life ....

What happened when a rep got very good at cold calling? Gorilla marketers was the term used to describe cold-calling pros. Bill Good뭩 famous book Prospecting Your Way to Sales Success was the standard for cold callers. It details the technique and explains the science behind cold calling. Being able to make several hundred calls per day was possible, and there were rooms filled with brokers who could do just that. It really worked! Accounts were opened and money flowed.

Entire firms became devoted to cold calling. Often called boiler rooms, cold calling operations were sometimes associated with sub-basement warehouses crammed with sharks selling dreams with no substance. In truth, it was not quite that bad. In fact, cold calling was done by almost every retail brokerage firm, and it had little to do with the integrity of the broker or the firm. Although there were several infamous organizations that used cold calling to fill their coffers, the vast majority of cold-calling operations were firms selling plain old investment products with reasonable chances of good investment return.

It’s your nickel

The accelerating pace of cold calling through the 1980s and 1990s was spurred by improved technology. Telephone charges plummeted and many gadgets came into use to make telemarketing efforts more efficient. The advancements in the telecommunications industry over the last 20 years helped build cold-calling empires in virtually every industry that could effectively use telemarketing.

Long-distance phone companies, credit-card companies, and the brokerage business all harnessed the latest technologies while enjoying the ever-decreasing phone rates. For several years these organizations could not get enough new leads. They would go through phone leads at such a ravenous pace that most lead companies would quickly run out of inventory and call the same people repeatedly. This was the beginning of the end. It was no surprise that the population at large became increasingly annoyed by cold calls. Comedians started to regularly use cold call stories in their acts. The writing was on the wall, and the problem came to the attention of lawmakers. The legislation came swiftly and was barely slowed by court challenges. Several states made their own rules and then Congress approved the creation of a national Do Not Call registry and authorized the Federal Trade Commission to collect fees from prospective telemarketers. The fees and fines were expected to pay for the infrastructure necessary to support the Do Not Call provisions.

Even before the new Do Not Call legislation was enacted, many firms and offices were reducing their cold calling operations because it was simply becoming more difficult to open accounts in that manner. The Do Not Call legislation further dampened the activity. However, it is still a tool of the trade. Brokerage firms and their reps are permitted to use telephone solicitations, they just need to follow the new rules. Major points include:

Standard hours for cold calls (8am to 9pm; depends on the state).

Restrictions against calling people on the Do Not Call registry (unless they are account holders or have given you written permission to call).

Maintenance of a firm-wide Do Not Call list (if someone asks anyone at your firm to stop calling, then everyone at your firm must stop).

You are required to have procedures in place to ensure that any employees in a position to cold call understand and comply with the rules.

Exact text from the NASD can be found in our Compliance Department. Updates to the NASD rules can be found on their website, The NASD’s rules generally conform to the Federal Communications Commission’s rules which adhere to the FTC’s rules, but it is important to realize that a few states have slightly different restrictions which may also be pertinent to your methods.

Has the brokerage industry suffered from the Do Not Call legislation? There has been some harm, but at first glance, the negative effects have not been significant. Since cold calls helped open new accounts and spur the market, one might have expected that with less cold calling there would be fewer new accounts, and that the regulations would have had some noticeable, negative impact on market volume. However, volume on the NASDAQ and NYSE has not dramatically declined since the legislation took effect. Cold calls have not completely stopped, but they have certainly cooled off. While there aren’t any figures on the account creation rates and account sizes created by cold calls, new accounts tend to be smaller than older ones. Thus any real impact may not be noticeable for a few years as fewer new accounts grow to replace lost accounts.

One of the most obvious consequences of the Do Not Call legislation is that brokerage firms are changing their practices to adhere to the regulations. A growing array of service providers has adapted itself to the task of helping firms comply with the rules.

Options for avoiding fines from the federal Do Not Call legislation

Since the passing of the new legislation, many companies have begun offering services to help the industries that use or rely on cold calling as a means of capturing new clients. There are two main processes being employed: one is using scrubbed data, and the other is using real-time data.

Scrubbed Data

Numerous companies offer their services to “scrub” your data. This process requires some work on your part. You need to compile a list of names and numbers that you are currently using or planning to use, making sure the list is in an acceptable format, because different companies use and may require different formats. You then need to upload the correctly formatted list to a server specified by the company. The company takes your list and compares it to the National Do Not Call list, making note of the numbers that match. The company then sends the list back to you, and you will be able to make calls knowing you will not call people on the Do Not Call registry.

Real-Time Data

There are a few companies that offer “real-time” solutions for your data. This process is a little more expensive than the other option due to the hardware and software that is involved. However, this may be the better solution in the long run, depending upon how often you need to scrub your list. There is no need to compile a list, or be concerned about the format of your list. This option works through an interface, a computer running a software program, which checks all of your outgoing phone calls. The program will look at the number that is being dialed and compare it to the National Do Not Call list that is on the computer’s database to see if there is a match. If the number being dialed matches a number on the computer’s database, then the call is redirected to a recording explaining the match. If the number being dialed does not match any on the computer’s database, then the call is connected without interruption.

Both of these options will help you avoid the costly fines that are being levied for violating the National Do Not Call legislation. Your individual needs and budget will determine which option is best for you.

Our research team was unable to find any evidence that a brokerage firm has been the subject of a significant enforcement action due to violations of the Do Not Call regulations. The NASD was unable to provide any comments on the subject. The FTC and FCC stated that information regarding specific enforcement actions were not available to the public. Furthermore, the FTC made it clear that it is currently focusing its enforcement efforts on the 200 or so companies that have received in excess of one hundred complaints. There were more than 400,000 complaints registered as of October 2004. The chances are that many brokerage firms have at least one complaint against them, but probably none has reached the threshold for prosecution. However, the enforcement effort is likely to be expanded in the future. Congress has given the FTC the authority to effectively grow its operations, and the funding through fines and fees is likely to support future activities.

The Do Not Call regulations have changed the methods of many retail brokers. Brokerage firms which relied heavily on cold calling have had to make drastic changes to their operations. However, they have other avenues of account creation and there are services available through which retail cold calling has become a viable option again. The early result of the legislation has been continued cold calling activity by brokerage firms, but at much lower volumes. It is unclear what the long term effects will be down the line.