Training is Good, Right? Not at IronFX

I had a cup of coffee the other day with a gentleman I used to work with.  He was the Sales Manager of a company when I was brought in as COO of that company.  He is no longer the Sales Manager (I fired him), and I am no longer the COO.  But we have a mutually beneficial relationship so when I am in his part of the world, we meet up.

He is now in charge of a smaller sales team in a different industry, and I asked him if he is training his Sales Team.  He confirmed that he is, and we got into a background story that I had not known before I fired him a few years ago.  It was shocking.

He had been trained at IronFX.  IronFX was a rapidly-growing brokerage in the FX & CFD industry for a few years.  The company showed up out of nowhere and seemed to have an unlimited marketing budget.  Omnipresent online campaigns, platinum-level sponsorships of industry events, a sponsorship deal with FC Barcelona (!), and the ability to open regional offices all over the world.  It was hyper-growth.  Many veterans in the industry like myself wondered who the investors were behind this company; there was no way they were EBITDA positive with all this marketing spend.

My friend had gone through the Sales training and then the Sales Manager training from IronFX.  Good for IronFX that they had formal training programs.  Too many companies have zero training; they hire candidates and throw them into the battle to see who survives and who becomes cannon fodder. But IronFX had formal classroom instruction within their massive, start-up-feeling campus.  IronFX was hiring college graduates with language skills and was teaching the graduates how to be salespeople in the spot FX & CFD industry (what I call the Margin Trading Products or “MTP” industry).

Now back to my colleague that I had to let go a few years ago.  A big part of the issue was the fact that he had no idea how to incorporate a budget into his management.  When I would ask for a budget for his team, he had no idea what I was talking about.  I assumed his IronFX manager (Regional Sales Manager) must have run the budgeting.  But I gave him some background, gave him some questions to think about, and then asked him to propose a budget for his 6 person team.

He came back proposing his 7 person sales team (including himself) would raise on average 175,000 EURUSD in net client deposits per month, or 2,100,000 annually.  Very soft numbers, but I at least had a starting point to base my budget, and a starting point to use for improving the sales team performance.  With an expected net client deposit from his team of 2,100,000, I assumed the company could turn that into approx 700,000 of revenues.  (I know income of 33% of AUM is crazy for some to understand, but I will get to the economics of the Margin Trading Industry in another post).  Here is where his IronFX training and my understanding of the realities of the economics of running a MTP brokerage split.

His team had a salary cost of 180,000 EUR per annum.  His budget assumed each team member get a 100% bonus for hitting these targets (another 180,000 EUR of costs).  And the next two items blew me away.  His math showed each team member traveled business class around the globe to three or four events each year, and spent lavishly on clients and referrers while there.  That is 7 people travelling 4 times per year (28 travel persons), flying business class (assume 6,000 EUR per trip) and staying at nice hotels (assume 2,000 EUR per trip), then spending on clients and referrers (assume 3,000 EUR per trip).  That math comes to 280,000 EUR annually.  Between Salary, Bonus, and Travel his team’s costs were 668,000 EUR of the expected available 700,000 EUR in revenues generated!!  Huh??!!??  Did he really just submit that?

After my initial shock, I calmed down and asked him to walk me through the numbers.  There had to have been a mistake.  We went through his numbers and he stayed right where he started.  It was not until I said his proposed “budget” would eat up more than 90% of the revenues his team brought in that I realized the insanity of IronFX’s training program.  He looked at me like I was crazy.

“668,000 of 2,100,000 was not 90%.”, said he.

I said “668,000 of 700,000 is over 90%”.

“Where are you getting this 700,000 number from?”, he asked.

I explained my assumption of 33% of 2,100,000 in client deposits would give us 700,000 EUR in revenues from his team.

He said, “What the hell are you talking about.  I am telling you we will bring in 2,100,000 EUR in Revenues.”

He was not in denial, and he can do basic math. The problem was in his training from IronFX.  You see, IronFX instructs their Sales persons and Sales Manager that client deposits equal revenues.  Again (for those who are not thoroughly shocked)……a brokerage firm was instructing it’s Sales and Sales Managers that each dollar (or Euro, or Yen) deposited with the brokerage was not an asset that was owed back to the client, but rather was income the broker could expect to have available to run the brokerage!  It was an instant ponzi-scheme to those who would question it, but to those needing a job and impressed by the awesome surroundings of the IronFX campus and the hyper-growth of the company, it was what they needed to learn to be a part of the growing team at IronFX.  IronFX could not be wrong, could they?  They were a very visible business to the regulators on the FX-crazy island of Cyprus.  If IronFX said it was so, then they must be right!

(The travails of IronFX are well documented at Financefeeds.com an on other industry news sites  and there are currently two former IronFX China executives on trial.  But the company has not been shut down in it’s home country of Cyprus despite the well-known and agreed fact that the company is at least $170 million underwater.)

But back to the point of my post.  Training in a company is vitally important.  It hammers home company culture & expectations.  It lays out processes and knowledge bases.  It forces Managers to think through the daily processes within their departments and gets standardized information up to senior management.  Don’t slack on training for new employees or you are have an inefficient (at best!) workforce.  And training does not end after the initial introduction to the company and role.  Engaged employees are valuable.  So continue to offer them internal and external training that helps them in their career.  Seek out your best employees and have them build training workshops for those who come after them.  I give credit to to Chet Holmes’ “The Ultimate Sales Machine” for helping me understand the importance of proper training.

But the lesson for me in this interaction is that incorrect training is a ticking time-bomb.  Both for the company and the employees.  Whether purposeful (IronFX) or not, training had better happen and happen correctly.  Your employees with do what they are trained to do.  And your company is the aggregated output of what your employees do.

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