Essay on Commissions on Sales at Brock Mason Brokerage

1666 Words Feb 6th, 2011 7 Pages
James Tithe is manager of a large branch office of a major Midwestern brokerage firm, Brock
Mason Farre Titmouse. He now manages 40 brokers in his office. Mr. Tithe used to work for
E. F Hutton as a broker and assistant manager, but when that firm merged with Shearson-
Lehman/American Express, he disliked his new manager and left for Brock Mason. He knew the new firm to be aggressive and interested primarily in limited partnerships and fully margined common stock. He liked the new challenge. At Hutton his clients had been predominantly interested in unit investment trusts and municipal bonds, which he found boring and routine forms of investment. He also knew that commissions are higher on the array of products he was hired
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Commissions are thus an ever-present temptation in the way of presenting alternatives or making an entirely objective recommendation. Brock Mason does have a house mutual fund that is a less risky form of investment—the
Brock Mason Equity-Income Fund. But the return to brokers and to the firm is again substantial. The National Association of Securities Dealers (NASD) allows a firm to charge up to an 8.5 percent commission or load on a mutual fund, and Brock Mason charges the full
8.5 percent. As an extra incentive, an additional percentage of the commission on an initial investment is returned to a broker if he or she can convince the client to automatically reinvest the dividends rather than have them sent by mail. Brock Mason also offers a fully paid vacation in Hawaii for the five brokers who annually sell the largest number of shares.
The firm has devised the following piggyback strategy: Brokers, as we have seen, are trained to sell limited partnerships first and fully margined stock accounts second. In the latter accounts an investor is allowed to purchase stock valued at up to twice the amount of money actually deposited in the account. The "extra" money is a loan from the brokerage firm. Twice the normal stock entails twice the normal commission on the amount of money in the account. In addition, salespersons are given a small percentage of the interest earned on the loan made to the

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