The Crimson Press Curriculum Center

First Page and the Assignment Questions:
It was three days to month-end. Philip Anderson, the Phoenix branch manager of Stuart & Co., the largest brokerage firm in town, was dreading the monthly teleconference meeting with his bosses in New York. Once again his team had failed to deliver on some of the specific product sales targets set for them in the company's sales budget. Specifically, the ratio of in-house to outside product sales of items such as mutual funds and insurance product offerings had not improved from the prior month; his team had not been successful in pushing equity issues syndicated or underwritten by the parent firm to the levels set by his boss a few months earlier; and his team had not increased the overall balance of margin accounts. On the positive side, the number of margin accounts had increased, new clients had been signed up, and overall branch revenues had increased. But Phil questioned how long he would be able to justify not meeting some of the specific targets the firm had given his branch.

Phil began his sales career right after college. His first job was with a cereal producer, as an inside salesman. He switched to the brokerage business after just two years, lured by the potential for higher income and the opportunity to have direct contact with retail clients. Phil was an outgoing individual who had a talent for financial matters, and he looked forward to a job that would allow him to interact with clients directly. Just five months ago, Phil had celebrated his thirtieth year in the brokerage industry and his twenty-first year with Stuart & Co. Although he truly enjoyed being a manager and working with his team, some of the other demands of the job were beginning to wear on him. Things had not turned out as he had expected. Phil thought of himself as a hardworking and loyal employee, a good manager, and an ethical businessman. The “compromises” that his career seemed to demand were beginning to trouble him. He did not consider himself a saint, and he knew that his job required balancing conflicting goals, but he wondered how far he could bend without breaking.

Phil started his brokerage career with one of the largest firms in the industry. He moved to Stuart & Co., then a boutique firm, in hopes of breaking free from the high-pressure sales-oriented attitude prevalent in the industry. He thought that the perception that the large firms tried to perpetuate-that their advisors are experts at providing unbiased financial advice-is for the most part wrong. Phil learned firsthand that brokers are paid, first and foremost, to sell products and services. Meeting the financial needs of their clients was not paramount.

Stuart & Co. seemed to be different. It was a firm that emphasized the development of long-term client relationships based upon rendering expert independent financial advice. Its investment advisors were to be trusted counselors to clients on all financial matters. But Phil was also lured by Stuart's compensation package, which included a relatively large fixed salary and a bonus based upon overall branch revenues, growth in the number of ties or relationships (financial, insurance, investment) developed with each customer, and the number of business referrals to other branches.

Assignment:

1.   Which investment alternative:
a.   Provides the highest returns to the client?
b.   Provides the highest profits to Stuart & Co.?

2.   If your answer to b. is not the same as your answer to a. and Philip recommends the highest profit choice, is he acting unethically? Why or why not?

3.   Which alternative should the top management of Stuart & Co. want Philip to recommend to his client? Is the company's control system designed to ensure that choice?