Do You Sincerely Want to Be Rich?: The Full Story of Bernard Cornfeld and I.O.S. (Library of Larceny) by Charles Raw & Bruce Page & Godfrey Hodgson

Author:Charles Raw & Bruce Page & Godfrey Hodgson
Language: eng
Format: mobi
Publisher: Crown/Archetype
Published: 2005-05-16T14:00:00+00:00

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It was in Germany that IOS first had to face a problem that was a direct result of the speed with which sales and the sales force had expanded. It was a problem that IOS eventually had to face in every successful market, because it was an intrinsic flaw in the arithmetic of the commission structure itself. The solution the company found contributed in the end to the fatal shrinking of its profits, and to the instability of the sales force.

Over the years, the 81⁄2-per-cent commission*5 which the clients paid had been split between IOS Ltd. and the sales force in the proportion of 2 per cent for the company, and 61⁄2 per cent for the whole of the sales force. Roughly half of that 61⁄2 per cent went to the man who had actually made the sale, and the other half was divided between the different managers.

For many years this was the scale. But a close reader of the 1969 IOS Ltd. prospectus would have noticed different figures: there the maximum commission payable by the client was still given as 81⁄2 per cent. But the maximum percentage that could go to the sales force has risen from 61⁄2 per cent to 7 per cent. Half a per cent, in other words, had been taken from the company’s share of commission income, and given to the sales force. Half a per cent does not sound like very much. But it is one-quarter of 2 per cent. IOS Ltd. therefore handed over up to one-quarter of its income from sales charges, the most fundamental source of its corporate revenue as a mutual-fund sales organization, to the salesmen.

This happened company-wide, as a matter of corporate policy. But the situation which brought it about first arose in Germany.

When, because of the volume of his group’s sales, a man rose to be a GM in a structure which already had a GM at the top of it, the existing GM was bumped up, and became a “Super-GM.” That, for example, is what happened in Germany when Ossie Nedoluha first reached GM status under Eli Wallitt in 1966.

But the German chain letter did not stop there. The amoeba continued to split. Werner Kunkler, in due course, became a GM under Nedoluha. Schneider became a GM under Kunkler. That made Kunkler, too, a Super-GM, and Wallitt became a Super-Super-GM.

And the process went further still. Schneider, too, acquired more than one GM under him, which made Schneider into a Super-GM, Nedoluha into a Super-Super-GM, and Wallitt into a four-times blessed Super Manager. At the apex, in 1970, as the whole organization took off into orbit, several structures existed where there were no less than four Super-GMs above a General Manager.

Long before that, as early as 1967, in fact, the financial incentive for the individual manager to go on building up the structure underneath him had begun to be eroded. A point had been reached—in Germany first, but soon in Canada, in Britain, and in other

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