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…show more content… In theory, the reason is that these investments are more difficult to sell to clients.
Real estate and oil and gas drilling partnerships, for example, typically return between 4 percent and 8 percent to sellers—although lately most have been arranged to return the full 8 percent. Some partnerships return more than 8 percent, because they rebate management fees to any securities firm that acts as a participant in the partnership. The second fact is that James trains brokers to make recommendations to clients based on the level of commission returned to the broker and the firm. He is therefore training his brokers to sell the riskier and more complicated forms of investment. Although Brock Mason, like all brokerage firms, advertises a full range of products and free financial planning by experts, all salespersons dislike financial planning per se because it takes a large amount of time and carries zero commission. James has long appreciated that there is an inherent conflict of interest in the brokerage world: The broker is presumed to have a fiduciary responsibility to make recommendations based on the financial best interest of the client; but the broker is also a salesperson who makes a living by selling securities and who is obligated to attempt to maximize profits