WealthManagement.com: Compliance and technology are some of the biggest pain points for advisors and their businesses today. What is Edward Jones doing in these areas?
Jim Weddle: Well if you don’t have the compliance piece right, you’re done, that’s for sure. I think we’ve got a terrific, very talented compliance and supervision team. I don’t just say that from my perspective, certainly I’m biased, but I think the regulators would tell you the same. We really do work very hard to get it right.
WM: And on the technology front?
JW: We’ve been pushing really hard to provide better and more usable, value-added functionality on the broker desktop. We’re really focused on building a broad and deep relationship with our clientele. You can have a great big account, but if you’re only doing one thing with them, you’re probably not the primary relationship, somebody else is. But if you’re helping out a client with how they spend, how they save, how they invest, how they protect, how they borrow, they consider you to be their primary relationship. And that’s where we want to go. We have a "deeply served" measurement and we have a firm-wide objective for the number of deeply served households we’d like to have at year-end. We drive that information to the branch every single month so they can see the progress they’ve made. When the advisor pulls up the account record, it will display what we’re doing for that client—we’ve got the IRA, 529, investment account, banking services, but the client doesn’t have protection, and the system will flag that for conversation. They may have that somewhere else, but let’s make sure.
WM: Any new projects?
JW: We’ve been developing and now rolling out two technology-aided programs: asset and office-sharing programs. Today we can identify underserved clients, people our veteran advisors aren’t working with that carefully or frequently, people they’re not calling. Quite honestly, they may just have more clients than they can effectively serve. So we’re incenting our veteran advisors to share those account relationships with another advisor. Perhaps with an advisor that’s just starting out. We call that office sharing, although it’s not permanent. They’re going to do that for about six to twelve months and then move out to their own location.
The other piece of that is the retirement transition plan. We’ve very effectively addressed the next step for our veteran advisors and that is retirement. I want them all to work forever, I’m not encouraging anyone to retire, but when they choose, we now have a very thoughtful retirement transition plan. Oftentimes, somebody’s built a business over 20, 30 years and quite honestly it’s too big for anyone but them to get their arms around. So you can look at the accounts. If you have clients in Houston, that’s not convenient, let’s give it to an advisor in Houston. The newer advisors are generally positioned to where they are local and accessible to clients, so we can reestablish that local, convenient service that we started with. We’ve started about 130 transition plans. It’s a four-year program. The retiring FA works and is employed with us for two years and then a consultant for an additional two years. Their compensation is spread over four years, so it kind of phases them into retirement. And it has been really well received.
WM: It sounds like a lot of these projects rely on leveraging big data.
JW: They absolutely are. Another initiative in that area specifically is what we call iProspecting. We’ve downloaded all the census data, IRS tax data, everything that’s out there publically available, if you know where to look, and we are helping our newer financial advisors identify where they should focus their face-to-face prospecting efforts. It’s a work in progress—it just rolled out earlier this year. And it’s not to pre-judge, but it’s just to simply help folks to focus their energies. It seems to be working pretty well, but it’s not 100 percent perfected at this point.
WM: Edward Jones is traditionally considered a face-to-face firm, rather than a technology-centered company. Are you at all concerned about that perception among younger potential clients?
JW: Demographically, we’ve studied the Millennials extensively and they oftentimes will visit your website to see they should even consider you as a place they will do business. Well, we’re not an online provider. We’re not Charles Schwab or Fidelity. But if your website communicates a lack of sophistication, you’re out. You’ll never even have a chance to talk with them. So we’re not going to let that happen. Face-to-face, as defined by Millennials, is WebX, it’s Skype, it’s technology-enabled. Face-to-face can be on the phone or on the computer, it doesn’t have to be across the desk. What a tremendous opportunity. We see it as something we can really leverage.
WM: What about social media? What is Edward Jones allowing advisors to do in this space?
JW: The compliance challenge here is twofold. One, you have to monitor the content. Social media is considered advertising—you’re communicating content of some sort. Well advertising has to be approved before you run it, whether it’s in the newspaper or it’s a Facebook post. Not only does it need to be approved, it needs to be retained. We want to have a presence there, we want to enable that technology, but we’re not going to let a rollout get ahead of our ability to supervise properly. It’s not the way you’re going to drive the growth of your business, but I think it’s a major miss if you have clients who would like to use some of the other tools as well. We’re going to do what’s allowed, what we can properly supervise. We’ve got, I’m sure, thousands of our financial advisors on Facebook and LinkedIn, but we don’t allow them to tweet at this point.
WM: A very different environment than the RIA side of the business, which can allow for perhaps freer social media usage.
JW: They’re also not supervised as well, are they? I think it would be great if we had an audit by our regulators once a decade. The SEC does not have the budget, nor the personnel to do the work. And I wish they would get it. I think they should impose a user fee, just like FINRA. Just let the regulated pay for the regulation. It’s easy.
WM: When we talk about recruitment as an industry, we always talk about the lack of young advisors coming into the industry, the lack of women, the lack of diversity. And it hasn’t really changed.
JW: You know what’s driving the solution there though, and we will make progress, because there’s a compelling business case. A speaker I recently heard discussing diversity asked what will be different in ten, fifteen years from today? She said, ‘we will have a minority majority.’ It just captured my attention. In other words, the minority today will be the majority in the future. Wow, we’re not ready. We have 20 percent women and 7 percent diverse. But there’s no way we’re going to be able to serve communities that we don’t mirror. That doesn’t mean you need black advisors to serve black clients, I’m not that naïve. But you certainly wouldn’t build an all-black firm to serve a white community or visa versa. Let’s be diverse. Let’s hire the best people from all corners of the marketplace. Because we’re only as good as the best people we can bring to our organization.
I’m encouraging FINRA to consider allowing students to sit for the Series 7 before they graduate. Today, you have to be hired by a firm to sit. Give them a student license, a learner’s permit. It’s not official until you get hired by somebody, but you have a young person who’s demonstrated both an interest and they’ve already mastered the qualification exam. They come to us, we could spend more time training them on client care instead of how to pass the test. But I don’t know regulatory-wise, I don’t know that we’re as flexible as would be needed to put that in place.
WM: There’s a perception that Edward Jones, because of its Main Street advisor message and mass-affluent client base, is less sophisticated than other major Wall Street firms. How do you respond to this?
JW: You can’t lack sophistication today and be successful. Your knowledge has to be every bit as good as everyone else’s and your tools cannot be less complete than everyone else’s. The industry has moved to a team approach and I think that’s fine. Well we have a great team approach as well. We’ve got the FA and then we’ve got a team for more complicated situations, sophisticated if you want to call it, such as generational transfer. We’ve got a client consultation group that’s chock full of CPAs, CFAs, CFPs and attorneys—you’ve got to have attorneys. We have a couple thousand cases a year where financial advisor says ‘let’s go to St. Louis,’ or we’ll fly out to them. The clients usually come into the home office with their attorney and with their CPA and they meet with the client consultation group and the FA is right there. There isn’t anything we can’t provide through our service and solution offering through the trust company. We have an amazing capability there that most people don’t know about it. That’s OK. Our folks do and they’re applying it where it’s appropriate.
WM: Since Edward Jones does not do quarterly earnings calls, can you give any updates on the firm’s financial outlook?
JW: We’re a private firm, a partnership, very proudly so. In terms of our balance sheet and strength of our foundation, we’re debt-free. We had a bond issue that we issued in 2002. It was $300-$400 million, and that over the last few years, it was maturing. The last $50 million piece matured in June and we wrote a check and paid it off. We didn’t reissue bonds; we don’t need them. At the end of this year, including our limited partnership offering—which we’re currently completing—we’ll have $2.3 billion in equity capital. And no debt. It’s a good place to be.
WM: Where are advisor attrition numbers for the firm right now?
JW: The thing you have to think about it is even if you have remarkably low attrition, which we do right now—about eight and a half percent on an overall basis—we’ve got to recruit, train and prepare enough people to backfill 8.5 percent of 13,000. That’s a big number. We’ve got to backfill 1,300 to 1,400 positions just to stay even. And this year, we’re on track to grow a little over 800.