Jones Decision

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Aug 17, 2006 8:23 am

Folks:



This has been a tough week.  I very much want to sign my contract with Edward Jones but there have been some serious issues raised by three people who have gone over the contract with me, one attorney and two CEO's.


I believe in the philosophy and the culture of the company but some of the issues they raised are great ones and give me some serious reservation.  Here are their questions and concerns.Your thoughts would be greatly appreciated.



1.  $75,000 to be reimbursed if leaving within the first three years.  Although understandable due to the amount of training they give you and the office they provide, thousands of companies will train you and not hold a cost over your head.  Also if they are expecting you to open 100 accounts in the first year, theoretically you could earn gross commissions that would cover that cost. May be slightly unlikely but if you are a superstar, it's possible



2. They retain all legal rights to sue you but you only have access to arbitration should an issue arise.In addition any legal costs THEY may have during a problem will be incurred by the IR.



3.  You are responsible not only for your mistakes financially, but for those of a client should they pull the plug or not hold up their financial end of the deal.



4.  The non-compete is obviously pretty standard but in addition, a one year moratorium on contacting your clients.



5. It appears that they also want you to get licensed to sell insurance and annuities but Jones keeps all the commission.  Why would you get licensed to sell these products if there is no benefit to you?


Obviously there are reasons why Jones puts these clauses in.  I am sure the have had people take advantage of their training and then leave, go to other firms and try and take their book etc.  Nevertheless, my two advisors thought these clauses were slightly excessive and wanted to know if there is any room for negotiation.



I would greatly appreciate only sincere and helpful responses as I must repsond to Jones in the next day or so.  Believe me, I am looking for every reason to join, but I don't want to put my family in jeopardy.


Thank so much for everyone's help.


Sincerely,


Aja1

Aug 17, 2006 8:44 am

Why are you going into a career worrying about what happens if you quit?


If you're fired you won't have to repay anything--all you have to do to avoid all that horrible sounding stuff is don't quit for at least two years.


Now, this brings up another reality.  If you don't have what it takes to get an offer from a place that will pay you for the first two years or so you damn well better have savings to see you through.


The ranks of ex stockbrokers is chock full of guys and gals who had enough to last six months, even a year, only to find that they had to get a job in order to pay the rent.


If you should decide to leave to go to another firm, that firm would not hire you if they didn't think you were worth at least $75,000 to them so they'll pay to spring you.


I think you should strike the clause about arbitration versus litigation--everybody should be equal and that should be arbitration.


All brokers are responsible for clients who don't pay for things they buy--if you think that is a common problem you need to avoid people like yourself.  Most people are honest, but apparently you're not if you don't understand that.


I'll defer on the insurance sales versus no commissions statement.  Either you have it wrong or there is something I don't know which can be explained by Babbling Loony who is the only ex-Jones broker with any credibility you'll find on this forum.

Aug 17, 2006 9:10 am

Ajai, on this.

5. It appears that they also want you to get licensed to sell insurance and annuities but Jones keeps all the commission.  Why would you get licensed to sell these products if there is no benefit to you?


EJ does pay on insurance and annuities, and I know some IRs that would focus on them because of the payout (75% of the 1st years premiums). EJ won't let you sell the products until you take a insurance test from Jones (it's not hard), and they want you to wait until you first 16 weeks are up.

Aug 17, 2006 9:33 am
SA_Jim:

Ajai, on this.

5. It appears that they also want you to get licensed to sell insurance and annuities but Jones keeps all the commission.  Why would you get licensed to sell these products if there is no benefit to you?


EJ does pay on insurance and annuities, and I know some IRs that would focus on them because of the payout (75% of the 1st years premiums). EJ won't let you sell the products until you take a insurance test from Jones (it's not hard), and they want you to wait until you first 16 weeks are up.



Are there state insurance laws that require such delays?  If so it could be that Jones has adopted a universal policy to coincide with the most restrictive state laws.


But the statement was they expect you to sell insurance, but not get paid--who signs the aps?  If it's anybody other than the sales person it's fraudulent and if it is the sales person it sure seems like fraud to withhold compensation.

Aug 17, 2006 9:39 am

"Why are you going into a career worrying about what happens if you quit?"


This is hugely important.  The chance of retiring with the same firm that one starts is very slim.  What happens when a person quits, but stays in the industry, needs to be a very important consideration especially on the insurance side of the business. 

Aug 17, 2006 10:00 am

NASD, it's not state required, but EJ has a timeline set up for new IRs and the first 16 weeks are allocated for prospecting and contacts, Jones calls it a "Fast Start" program. 25 solid contacts a day and for every contact you have to write down if you asked for the order, asked for a referral, an appointment and so on. It may have changed, for me that was over two years ago.


Again the IR will get paid for doing insurance business.

Aug 17, 2006 10:33 am
Aja1:

I believe in the philosophy and the culture of the company but some of the issues they raised are great ones and give me some serious reservation.  Here are their questions and concerns.Your thoughts would be greatly appreciated.



1.  $75,000 to be reimbursed if leaving within the first three years.  Although understandable due to the amount of training they give you and the office they provide, thousands of companies will train you and not hold a cost over your head.  Also if they are expecting you to open 100 accounts in the first year, theoretically you could earn gross commissions that would cover that cost. May be slightly unlikely but if you are a superstar, it's possible


If you truly fail and they fire you, I don't think that you can be held liable for the training costs, unless you are not even trying to succeed.   Yes, yes, yes, I  know, I'm not a lawyer.  It really isn't all that hard to open that many accounts if you really put yourself out there and work like a dog.


2. They retain all legal rights to sue you but you only have access to arbitration should an issue arise.In addition any legal costs THEY may have during a problem will be incurred by the IR.



3.  You are responsible not only for your mistakes financially, but for those of a client should they pull the plug or not hold up their financial end of the deal.


EDJ doesn't offer E&O insurance!! You might be able to buy E&O for the fixed insurance products, but I doubt you will find an affordable policy to cover the securities side, if at all.


4.  The non-compete is obviously pretty standard but in addition, a one year moratorium on contacting your clients.


There are ways around this, especially if you live in a right to work State.  They cannot keep you from "seeing" people and running into former clients at the golf course, the Rotary Club, Chamber of Commerce meetings or the grocery store.  You are just not supposed to overtly solicit their business and send them ACAT forms already filled out to sign. If they want to contact you, that is your former client's prerogative.


My attorney advised me that is was legal to send a letter that was informative of where I was working without any solicitation to move their accounts.  Placing prominent advertisements in the local paper about your new position is also permitted and worked well for me. 


Check with your own attorney.


5. It appears that they also want you to get licensed to sell insurance and annuities but Jones keeps all the commission.  Why would you get licensed to sell these products if there is no benefit to you?


They want you to assign your commissions to them so they can then pay you a lower amount than you would receive from the insurance company.  In addition if you leave the company the commissions stay with them.  In the real world of insurance, the writing agent gets to keep the commissions no matter where they work.  This is not an unusual situation.  I'm still the writing and servicing agent on policies that I wrote years and years ago when I was working at a Bank brokerage and the commissions were assigned to the internal insurance agency, so I get no compensation.  Well, other than keeping the rest of the client's business.  :-)


Obviously there are reasons why Jones puts these clauses in.  I am sure the have had people take advantage of their training and then leave, go to other firms and try and take their book etc.  Nevertheless, my two advisors thought these clauses were slightly excessive and wanted to know if there is any room for negotiation.


Nope, no room for negotiation.


I would greatly appreciate only sincere and helpful responses as I must repsond to Jones in the next day or so.  Believe me, I am looking for every reason to join, but I don't want to put my family in jeopardy.


Thank so much for everyone's help.


Sincerely,


Aja1

Aug 17, 2006 10:54 am
anonymous:

"Why are you going into a career worrying about what happens if you quit?"


This is hugely important.  The chance of retiring with the same firm that one starts is very slim.  What happens when a person quits, but stays in the industry, needs to be a very important consideration especially on the insurance side of the business. 



The only thing you have to do to avoid all this stuff is not jump ship for a couple of years.


Is that too much to ask?


I suppose if you're 22 years old you look at 2 years as being 10% of your life, but part of being 22 is also to grow up and act like an adult.

Aug 17, 2006 1:17 pm

"The only thing you have to do to avoid all this stuff is not jump ship for a couple of years."


NASD, it doesn't sound like you understand the insurance side of the business.  The longer that one stays, the more it will cost to leave. 


This cost is not upfront dollars, rather it is the loss of many future sales.  Many insurance reps make tons of money by selling term insurance and then converting it to permanent insurance over time.   These are very easy sales because the relationship and the trust has already been established.  Additionally, there are no medical questions.  If an agent starts at a company that doesn't accept brokered business and then leaves to go to a wirehouse or another insurance company, they lose these future sales and there is no way to service the client.  


Aug 17, 2006 1:21 pm
anonymous:

"The only thing you have to do to avoid all this stuff is not jump ship for a couple of years."


NASD, it doesn't sound like you understand the insurance side of the business.  The longer that one stays, the more it will cost to leave. 


This cost is not upfront dollars, rather it is the loss of many future sales.  Many insurance reps make tons of money by selling term insurance and then converting it to permanent insurance over time.   These are very easy sales because the relationship and the trust has already been established.  Additionally, there are no medical questions.  If an agent starts at a company that doesn't accept brokered business and then leaves to go to a wirehouse or another insurance company, they lose these future sales and there is no way to service the client.  



I understand that--but how many term policies are you going to sell in your first two years?


When you're a kid your most likely policy holders are other kids--how many of your fellow kids could not pass a second phyiscal to demonstrate insurability?


I know, you're not supposed to twist a customer by simply replacing one policy with another--and  you're not supposed to speed on the Interstates either.

Aug 17, 2006 2:01 pm

NASD.N is dead on here (except it is 3 yrs vs. 2).  If you kick a** for those 3 years and you can go anywhere you want for a nice price and further catapult your business.  If you fail or middle along and/or don't want to move, it doesn't matter.  The legal stuff in the contract should be considered a minor annoyance in my opinion.  Just don't do anything extra stupid.  As BL said, it is the clients' $, so if you leave and they "find" you, you're good to go.  It is also true that you probably won't sell tons of insurance the 1st two/three years unless that is your background.


--an ex-EJ broker w/no credibility (since I'm not Babbling Looney)

Aug 17, 2006 2:26 pm

NASD, you are correct that it doesn't matter too much if you quit early in your career from an insurance standpoint.  What happens if you don't quit in year two, but quit in year 10 instead?  Some companies make you wear a very expensive pair of handcuffs.      


It would be absolutely foolish to not go into a job without a complete understanding of what happens when one quits.  

Aug 17, 2006 2:53 pm
anonymous:

NASD, you are correct that it doesn't matter too much if you quit early in your career from an insurance standpoint.  What happens if you don't quit in year two, but quit in year 10 instead?  Some companies make you wear a very expensive pair of handcuffs.      


It would be absolutely foolish to not go into a job without a complete understanding of what happens when one quits.  



I agree, but you should not be planning on failiing from the very beginning.


Lots of firms use golden handcuffs to keep big hitters in place--it's not just the insurance industry.

Aug 17, 2006 3:48 pm

NASD, I'm proud of you!  Congrats for making the change in your thinking.


Nobody in this thread other than you has mentioned anything about failing.

Aug 20, 2006 8:15 pm

old dino a.k.a. NASD Newbie is just a schmoe who who tries to answer very question on this board ..... too bad his advice is about twenty years too old.