Feeling the heat from competitors, A.G. Edwards has unveiled a new fee-based pricing alternative for non-discretionary accounts.
At the same time, CEO Ben Edwards continues to speak out against fee-based business, calling it "industry, rather than customer-driven."
Similar to Merrill Lynch's Financial Advantage service introduced late last year, and Smith Barney's AssetOne, launched earlier this year, A.G. Edwards' new fee-based pricing option allows clients to pay a fee in lieu of commission on eligible securities.
The new service has no formal name, suggesting the firm's reluctance to promote the fee alternative. Clients are not required to open a separate account, but can simply choose to go with a fee in their regular trading account.
"The name 'fee-based pricing' tells you how we're positioning this-we see it as a pricing alternative, not a new product or different type of account," says Don Gartlan Jr., vice president and manager of the A.G. Edwards Asset Performance Monitor department. "If it's in the best interest of the client to do it, we hope they'll do it."
The firm says clients have inquired about fee alternatives and many of its recruits coming over from other firms had built fee-based businesses.
The annual fee begins at 2.25% (higher than most major firms) for a minimum of $100,000 in assets (also higher than some competing programs), falling to as low as 80 basis points for accounts worth more than $3 million (see chart below). Clients are allowed 40 to 120 transactions per year, depending on the size of the account.
Unlike other major firms, however, A.G. Edwards will not allow bonds or mutual funds to be purchased or sold through the fee arrangement. The firm is concerned that it would not be in the customer's interest to pay an ongoing fee on these assets. At a securities industry meeting this fall, CEO Edwards questioned the whole idea of fees. "Fees are popular toward the end of a bull market, but in a flat or down market, people are not as happy about fees," he warned.
He said brokers would likely spend more time watching a commission account, that they tend to get lazy with fee-based accounts. But Edwards feels competitive pressure forced his hand. "We feel pushed into competing where I'm not a believer."
Some A.G. Edwards brokers agree.
"We're doing it because everybody else is doing it," concedes one A.G. Edwards veteran in the Northeast. "Commissions can actually be a cost savings for clients. I've yet to have a client in 30 years become wealthy as a trader. I discourage trading." The one benefit for a client might be where they're restructuring a portfolio and making many changes.
Other brokers concur that it's important to have fee-based pricing as an option. "I don't think Ben's changed religions," jokes one A.G. Edwards broker in the Southeast. "He's smart enough to see that to be competitive, you've got to have all the arrows in your quiver."
A.G. Edwards already offers a managed money program called Asset Performance Monitor. Begun in 1987, the program offers a selection of 40 money managers. Not including managers' fees, the account starts at 2% annually for the first $500,000, dropping to 1.5%. Brokers also can choose to get compensated with commissions in the program.