1. Investment Alternative with highest returns to the client: Alternative C, with 11.1%, the highest average annual total returns over last years.
Investment Alternative with highest profits to Stuart & Co.: Alternative B, with 6.2% profit consisting of 5% commission and 1.2% management fee.
2. Top management would want Philip to recommend Alternative B to his clients, since the investment alternative is most profitable.
The company’s control systems encourage branch manager to realize the choice. First, the company indicates the demand on branch managers to push specific products in its annual sales budgets, which is congruent with the organization’s objective and indicate clearly what the organization want. In addition, branch manager enjoy a good compensation package, which included a fixed salary and a bonus based on overall branch revenue, growth in the number of relationships developed with each customer, and the number of business referrals to other branches. The reward systems encourage manager to achieve the result since a bonus linkage with the sales situation.
Second, the company boss has a monthly teleconference meeting with branch managers. The periodical communication and monitor increase the probability of occurrence the desirable results by readjustment or completeness timely in case of undesirable behaviors.
3. Philip recommends the highest profit choice (for the company) is not necessarily unethical. For company, its final target is to make profit as much as possible. But for clients, they trust the company and want to get the profitable products. If I were in Philip’s shoes, I would tell my clients the real profitability, risk situation of each alternative and suggest them to choose both profitable and less-profitable products as a basket purchase, which not only can ensure return but also reduce risk. For company, it’s supposed to think and make decisions in the long run, not just for short-term profit. Only an honest, trustful company can exist, expand and make more money.