Agency Problem Project Essay

Submitted By Mlmurphy4G
Words: 1148
Pages: 5
Open Document
Agency Problem Project
Group G
Morgan Murphy, Grant Corcoran

1. Fee-based Advisory. Getting paid for portfolio management and financial planning work, and charging fees to your clients, puts you in a unique and uncomfortable position that most businesses don’t face. You have near-total access to your clients’ financial situation. You know how much they can afford to pay you, and then you can determine your fee accordingly.
No other business is structured quite this way. Most services that a company or person can offer have a set price per specific service or have cost adjustment techniques used to determine the price once the job has been appraised. For financial advisors, we can get in to a lot of trouble if our prices are not consistent.
The agency problem here is based on an ethical premise. We have the ability to basically determine what our clients are able to pay us based on their finances in which we manage. We know who can afford to pay us more, and who is financially stressed and reluctantly paying for our guidance.
Having this information, it becomes hard not to have the desire to upcharge a high net worth client that regularly causes you headaches and takes much more of your time than your lower tier clients. On the other hand, it wouldn’t be fair to discount fees for those clients who you know could really use it.
Obviously in this case the advisor would be the agent and the client would be the principal. The agent stands to make a lot more if they decide to charge clients that are well off more for their services. Although the agent may be more willing to work more diligently on that specific portfolio, the principal loses out on the returns due to the increase in fees on that money earned.

2. Inventory Quotas. In a retail environment most sales staff are given en employee discount so they will serve as additional marketing for the brand. Sales staff are also required to achieve a sales quota over a specified period of time. This may be a dollar amount or a certain number of inventory. When sales staff are given an inventory quota agency problems may arise due to the temptation of sales staff using their employee discount to persuade customers to purchase more of a product. This type of agency problem occurs between sales staff (agent) and company owners (principal).
For example, Sally (agent) is a sales representative for a protein shake company (principal). She is required to sell 10 packs of protein shakes a week to meet her quota. Sally is also encouraged by her company to use the shakes herself and is given a 20% discount every time she orders protein shakes. If Sally offers her customers the same 20% discount on protein shakes they will be more willing to buy them for her; all Sally has to do is purchase the shakes using her discount. Sally still meets her sales quota for the week; however, the protein shake company is losing 20% of their sales due to an agency problem.

3. Dollar Amount Quotas. As explained above, sales staff can be given multiple types of quotas to meet over a period of time. A dollar amount quota can cause a similar type of agency problem but this time it is between sales staff and customers. If sales staff are assigned a dollar amount quota they will be more likely to push products of customers that are not beneficial to them. This causes distrust between customers and a company’s sales team (agent) and ultimately causes customers to take their business elsewhere; losing money for the company owners (principal).
For example, Ben (agent) works for a tanning salon (principal) and has just been promoted to a sales representative. Ben is having trouble meeting his sales quota, which is $.50 per customer that he processes to tan a day. He really wants to keep his position so he starts selling products to customers that they don’t actually need. Even worse, Ben starts to sell some products to customers that diminish their experience at the tanning salon. These clients soon realize
Show More

Related Documents: Agency Problem Project Essay

Space Project

New York Times Article: Space Project NASA’s resilient rover named Opportunity is still on the moon after it landed a decade ago. It has gone through many brutal environments (ferocious dust storms) and technical issue such as hardware malfunction and computer glitches. Obama’s administration baseline budget proposal for fiscal 2015 has lowered the budget of Opportunity and Lunar Reconnaissance Orbiter to zero. During this spring, these old robot will undergo a review along with five others (Mars…

Words 3010 - Pages 13

Essay Real Estate and Systems Design

A. identifies and analyzes both the business and technical problem domains for specific problems, causes, and effects 4 B. identifies and analyses candidate technical solutions that might solve the problem and fulfill the business requirements. 1 C. establishes the project context, scope, budget, staffing, and schedule. 3 D. identifies and analyzes business requirements that should apply to any possible technical solution to the problems 8 E. puts the solution into daily production 6 F. specifies…

Words 1062 - Pages 5

Essay on Decision Making and Capital Structure

decisions that can help to analyze long-term investments or projects. It mainly considers the plans of capital expenditure and arranges the source of funds. Also, it is the important things that a company needs to have a consideration before making a decision. For example, when a company want to buy some new machines or set up new subsidiary, they need to do a capital budgeting analysis. “The process in which a business determines whether projects such as building a new plant or investing in a long-term…

Words 765 - Pages 4

Business Management Essays

Delta Sate MINI HYDRO Project Title: DEVELOPMENT OF PILOT MINI-HYDRO POWER SCHEMES IN Southern Nigeria Country: Nigeria Project Management Executing Agencies | | Ministry of Energy, Ministry of EnvironmentMinistry of Local Government | Implementing Agencies | | Energy Commission,Environmental Protection Agency | | | Local district assemblies | Project Locations Osun water Fall, Abuja water fall River water Falls on River state River, Abuja water fall Sokoto water fall on…

Words 1875 - Pages 8

capital structure Essay

Capital Structure BUS ADM 775 Back to the concept… The concept of a corporation Investors Corporation Projects A bit more realistic… Shareholders Corporation Creditors Capital structure How should firms decide whether to issue debt the amount of debt to issue? Does capital structure “matter”? for firm value? Through CFs? Through WACC? Projects The Balance Sheet Balance sheet Assets Liabilities Shareholders' equity Recall… Balance Sheet Identity Assets…

Words 1283 - Pages 6

Fundraising and Human Service Agency Essay

If the current ratio is less than 1.0, the human service agency may be facing liquidity problems. According to the financial statements of the XYZ Non-profit Corporation, for year 2003 and 2004 Current Ratio is below the average amount available liquidity. This means there is nothing for the organization to liquefy. In reference to Long-term solvency ratio, according to Martin 2001 if the long-term solvency ratio of a human service agency is significantly less than 1.0, the financial viability of…

Words 446 - Pages 2

Washington Health Care Essay

parts of the project, emails released by congressional investigators on Friday show. Contribute to Our Reporting The Times would like to hear from Americans who have begun to sign up for health care under the Affordable Care Act. Offer some of the first detailed evidence of which federal government officials had at least some knowledge that the start-up of the health care exchange might be troubled. Henry Chao, the deputy chief information officer at the agency overseeing the project, warned seven…

Words 704 - Pages 3

Family Services Case Study

Project One: Description The Department of Family Services works with families facing a variety of challenges. Most of these challenges stem from one of two things: an individual or family’s lack of resources, or addiction. Social workers in the department frequently comment on the recent rise of cases dealing with addiction, specifically opioids and alcohol. During a staff meeting, a case manager within Protection and Preservation Services mentioned that it was very difficult to find treatment…

Words 1370 - Pages 6

Coordination: Policy and Government Essay

has defined 'whole of government' in the Australian Public Service (APS) as: Whole of government denotes public service agencies working across portfolio boundaries to achieve a shared goal and an integrated government response to particular issues. Approaches can be formal and informal. They can focus on policy development, program management and service delivery. APS agencies should review their work in light of this definition to assess the potential impact of this report on their work. There…

Words 6262 - Pages 26

The Role of Project Finance in the Provision of Large Infrastructure Projects Essay

ROLE OF PROJECT FINANCE IN THE PROVISION OF LARGE INFRASTRUCTURE PROJECTS Project finance is the structured financing of a project through a special purpose vehicle created by sponsors for the sake of the project where loan reimbursement is totally dependent on the cash flow of the project itself with no credence attached to the sponsors themselves. Project finance is centered around the SPV “which acts as the nodal agency for bringing together…

Words 1521 - Pages 7