6-38 (Client mix decision) Loren Lee, a financial
planner contacts and meets with local individuals to assist with
financial planning and investments in Loren’s employer's investment
service company. Loren receives no fee for financial planning advice,
but in addition to his salary, he receives commissions on client
investments in the investment services company. Commission rates vary
across different investment products. Loren's employer pays office and
phone costs and also reimburses Loren for business-related travel.
Satisfied clients have recommended Loren to their friends, and Loren now
finds himself with more clients than he can handle in the 40 hours per
week he would like to work. To analyze where to most profitably spend
his time, Loren has classified his current set of customers into the
three groups listed. The hours devoted per customer include direct
contact time, travel time, and research and follow-up time for the
clients. Loren will introduce clients he is unable to serve to one of
his colleagues. A B C Average invest in comp products per month $900
$600 $200 Hours devoted per customer per month 3 1.5 05 Average
commission percentage 6% 5% 4% Current number of customers 20 60 120
Clients in group A are generally interested in hearing about new
investment products that Loren's company is offering and will usually
invest sizable amounts in new products after meeting with Loren or
conversing with him on the phone. clients in group B will also invest
but generally in smaller amounts than clients in group A. Clients in
group C appreciate meeting with Loren because of the excellent advice he
provides in planning for retirement and other future expenses but have
little discretionary income to invest. Group C clients also generally
invest in products with a low commission rate for Loren. However, Loren
maintains contact with these clients because he anticipates they will
become more profitable as their careers develop. a. Based on the data
given, what client mix will maximize Loren's monthly commissions
assuming he works 160 hours per month. b. What other factors should
Loren consider as he makes his decisions about his client mix?
Click here for the solution: 6-38 (Client mix decision) Loren Lee, a financial planner contacts and meets with local individuals to assist with financial planning and investments in Loren’s employer's investment service company
