Background Summary
Phillip Anderson, as a branch manager of Stuart & Co., in Phoenix faced a conflict between fulfilling his company’s objectives and best serving his clients. Stuart & Co., is a company who provides financial services for business clients, such as consulting for mutual fund, retirement benefit, insurance. Phillip has been working for Stuart &Co, for more than 20 years and everything goes well before. However, as the company expended, the demands to push specific products to their clients has been included into branch managers’ performance evaluation. Broker company would assess their performance based on how well they had made on their specific products. In the view of Phillip, he though selling those specific products will compromise the objective of providing best investment options for clients.

Obviously, brokers were rewarded by exercising best benefit of company. However, it will not always benefit broker Company when their brokers provide investment which are more profitable for their clients. As a broker, they face a dilemma, if they want to keep a good relationship with their clients, they must be trustworthy and royalty, which in most situations would not be the best result for broker company. If they always suggest risky investment, broker company will make money, however, they would lost their trust and professional, in the long run.

Let’s say if Philip Anderson has a client, Mark, a married 36 year man with two children. He asks for help on how to allocate a great portion of his retirement benefit. Philip has three alternatives show on table A. the following discussion would focus on which one would be the best for client and for the broker company, Stuart & Co.

Table A

Alternative A
Alternative B
Alternative C
Investment
Growth fund from a large investment company
Growth fund from Stuart & Co.
Exchange-traded fund
Load or commission
None
5% front-end
3% to purchase; 3% to sell
Average annual total returns over last 5 years (including management fees)
10.73%
10.62%
11.01%
Risk
Moderate
Moderate
Moderate
Management fees
0.4%
1.2%
___

There are three alternatives for mark to choose from, which are growth fund from a large investment company, Growth fund from Stuart & Co., and Exchange trade fund. The first two alternatives are very similar to mutual fund. Money was managed by mutual fund manager, the investor received gains from the performance of their investment. Second alternative was managed by Stuart Co. The last alternative is an exchange -traded –fund (ETF).

In essence, ETFs bring important advantages in combining index diversification with the flexibility of trading shares. Performance and fees have been the rationale behind index investing for years. In accordance to many investigations only a few actively managed portfolios outperform the broad market over the long run. (Hehn,2005). Usually, the commission and management fee are associated with ETFs. It is of importance for taking into account the expertise of fund managers when investor chose this investment. The rewards of EFTs are highly related to the fund managers.

Alternatives analysis
In order to better understanding the dilemma of Philip Anderson, the following section would discuss those three alternatives from two perspectives, one is the best interest of broker company, the other one is the best interest of clients.
For the interest of clients, choice A is the best. No load or commission for the client which mean there is no out of pocket money. Even though the reward of 10.73% is lower than ETFs which pay 11.01% reward with 3% buy and sell commission.
For the interest of Sturat & Co., choice B is the most profitable. It is obvious that Stuart &Co. encourage broker manager to sell choice B to their client. Choice B is designed for the best interest of Broker company. Choice B requires a 5% commission fee from the begining to the end of client’s