Towerton Financial Services13 Towerton Financial Services, a brokerage firm, started with a focus on stock trading and mutual funds. As the business grew, Towerton diversified into two new product lines, investment account management and financial planning. Although revenue has grown with the new product lines, Towerton’s management is disappointed with the firm’s profitability. (See Exhibit 5-13 for the most recent monthly income statement, which is typical for the company.)
Towerton’s three groups of professional staff deal directly with customers across the four product and service lines. Brokers execute stock trades and mutual fund transactions and provide advice and recommendations.
However, Towerton’s brokerage customers make their own buy and sell decisions. Towerton charges a flat fee per stock trade that depends on the total amount of assets a customer has on deposit with the company. Last month, these fees averaged $8.80 per transaction. For mutual fund transactions, Towerton charges 1.5% of the value of the mutual fund shares purchased. This fee averaged $41.45 per mutual fund transaction last month. There is no charge when customers later sell their shares.
Investment account managers actively manage customers’ investments by buying and selling stocks to meet customer objectives. These managers meet initially with customers to learn about their investment goals, interests, and risk tolerance. Thereafter, the parties meet quarterly to review account performance and investment strategy. Towerton charges each customer an annual asset management fee of 1.5% of the customer’s assets under management.
Financial planners prepare financial plans for customers. The planners help customers develop a budget and determine how much to save and how much insurance to purchase. Towerton charges $1,200 for the first financial plan and $125 per hour thereafter for