When clients feel complete confidence in their banking house as really an expert ad viser in financial matters, they will sometimes voluntarily give the salesman a complete list of their securities. In some cases the client has made his first and all subsequent com mitments with the banking house and the house has a record of all his holdings as a matter of course. Such information is valu able to the house. From the investor's stand point it is desirable that the house should have it. As a result of having this informa tion the banking house can often advise him of possible advantageous changes in invest ments. Though possession of this informa tion may offer a temptation to the banking house to suggest changes disadvantageous to the client, considering all his circumstances, for the sake of stimulating business, the house, looking forward to its best interests in the long run, will not suggest them. The better the client's financial affairs prosper un der the advice of the bankers, the closer the client's business attachment to the banker and the less chance some competitor has to win away his allegiance.
It is part of the duty of the office sales organization to keep the mailing list revised to include all live prospects and to exclude all dead ones. The house does not confine its mailing list to those whom it may count as its clients because it has actually done busi ness with them, but wants on the list the names of all people to whom it is worth while for that house to send its circulars describ ing the securities it has for sale.
In all these matters of selling, the banking house does not differ widely from any selling organization. One aspect of its selling, how ever, is especially important. Its supply of any one issue of securities is limited, and it must not sell any more of a particular issue than it can deliver. To avoid getting into an embarrassing situation the salesmen must make all sales subject to confirmation from the office and promptly notify the office by telephone or telegram of any sale. The same prompt notification must be given as be tween the main office and the various branch offices, so that each may know at all times the balance of any particular issue available for sale.
We shall have something to say at another place about the work of the banking houses in buying and will only mention it here. Some houses are large enough to have ex perts in their own employ for the investiga tion of properties the financing of which they are considering. The fact that a house has its own engineer and its own lawyer does not mean that it does not also employ out side experts, but only that the expert em ployees make the preliminary investigations and the house retains the independent pro fessional men for final reports only after its own men have made favorable preliminary reports. Undoubtedly the buying depends upon the selling. What will investors pur chase under existing conditions and what price will they pay? The answer to these questions supplies the guide to the buying. Those members of the banking organization in charge of the buying must keep in the closest possible touch with those in charge of the selling. Nevertheless, banking houses
can and do accomplish much in educating capitalists in investment. They constantly educate them in types of securities, and in kinds of enterprises. Though they follow, they to some extent shape, the demand for securities. This is to say that, to a consider able extent, they decide what enterprises can most advantageously use new capital. In this way they do largely direct the flow of capital into industry and exert a strong influ ence upon the economic life of the community.
The name alone of the "statistical depart ment" largely describes it. It serves both the buying and the selling sides of the bank ing organization with statistical information.
It prepares the circulars for use in the sell ing; and the preparation of a good circular, one that will not unduly emphasize either the good or the bad aspects of a security, one that will be honest yet a good selling cir cular, requires excellent judgment. A cau tious house will submit its circular to the attorneys who acted on the legal side of the issue to be sure that it does not contain any unintentional misrepresentation of the legal aspects of the security. The responsibility of a banking house for what' appears on its circulars goes far. In a rather well-known case the dealers in a security were held liable for a representation on a circular, made in good faith on the opinion of eminent coun sel, that the legal situation was as stated, when afterwards the courts held that the opinion of counsel was a mistaken one. Cli ents constantly make inquiries of banking houses about the market standing and in trinsic value of particular securities. The statistical department looks up all matters of this kind; and in general it is the duty of the department to supply all the people in the organization with information about se curities.
. To assist it in its duties the statistical de partment will have at hand up-to-date copies of the various financial manuals and of the Commercial and Financial Chronicle, all run ning back at least as far as to the time of the organization of the house. It is some what the insignia of honor to have the bound volumes of the Chronicle, as the standard weekly periodical of the business is known, running back to the first volume. The de partment will probably have also other finan cial periodicals. It will take an information service, by which up-to-date information of earnings and other facts will be supplied on printed cards, to file and serve as a supple ment to the information in the manuals and keep them up to the latest news. It may somewhat extensively clip and keep on file information coming out generally in the press. It will collect and file for reference the circulars through which other houses advertise their securities. It will gather copies of mortgages and trust deeds and other legal documents, which are the original "sources" of much of the information about securities. Since these documents are regu larly printed, it is not difficult to get them when they first come out, on application to the house bringing out the issue. Afterwards they are hard to get and quick access thereto is often wanted.