EDJ SMA question

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Apr 17, 2008 10:09 am

Could one of you EDJ'ers, or a recent defector, let me know what the absolute minimum fee is that you are allowed to charge on both a bond only SMA and bond/equity mixed SMA?

 
Thanks.
 
Apr 17, 2008 12:38 pm

The minimum fee on a Bond Fund would be 1.5%

The minimum fee on a bond/equity mix would be 1.65%
 
This is assuming a $500,000 account.  At the above rates the FA is not making any money but EDJ is.
 
If you go up the ladder on more assets the fees can go down on a sliding scale...  Tell me the dollar amount and I can tell you the rock bottom.
Apr 17, 2008 12:53 pm

Sorry, your numbers are close, but incorrect. 


$500K in bonds only maxes out at 1.5%.  You can discount it up to 25% which would drop it down to 1.13%.  Even with the discount the Jones FA still makes money.  The SMA manager gets .5% and Jones pays 40% to the FA on the difference.  The discount takes money out of the Jones FA's pocket, not the money manager.
 
$500K in a balanced program would be 2.10%.  With the max discount it drops to 1.58%.  SMA manager's fee is .65%.  Same 40% payout apply.   
 
If you want the real answer to your particular situation, PM me and I'll let you know what it would be.   
Apr 17, 2008 1:22 pm

No dog in this conversation, just an observation and possibly food for thought here:

 
1.  Personal flavor and opinion but those are pretty steep fees on bond portfolios at both the manager level at maxed out or a bit lesser extent on the full discount too. 
2.  Balanced program still seems to have a high manager's fee, but there could be some other intangibles offered not explained. 
3.  Look who is making out the best off those numbers...now it most likely isn't just a Jones issue v the entire wirehouse channel, but this is somewhat telling.  For example:
500k bond at 1.5% = The investment manager gets $2500, Jones gets $3,000 and the advisor sees the smallest portion which is $2,000.  Maybe it's just me, but there is something inherently wrong with that formula.  Especially when it comes to SMA platforms.
Apr 17, 2008 2:15 pm

Spaceman and CSMelnix,

I was number 20 in the entire firm in the SMA program at Jones when I left 2 years ago...
The numbers I quoted were from memory.
The reason the SMA program at Jones is a little bit flawed is they haven't been able to reduce the money manager fees for the platform.  The Money Managers are squeezing them...
For example the Gannet Welsh and Kottler, Muni Bond SMA is charging Jones .50 at Merrill they are charging them .25.  That's HUGE!
On the Balanced and Equity Side of things the percentages are even higher.  Lord Abbett charges Jones .75 basis pts in the SMA.  Goldman charges .75 basis pts in the SMA. 
The one I love is the Merrill guy in competition with the Jones guy for a $1,000,000.  The Jones guy says we have a SMA program with Lord Abbett.  The Merrill guy says the same thing...The Jones guy discounts it all the way to the end and still can't beat the Merrill guy and he doesn't even have to discount that much.
 
Anyway,  the long and short of it is...The GP's don't like the SMA platform because there is no revenue sharing with the firms. 
 
When the whole revenue sharing thing was disclosed at Jones all my clients were calling and asking me questions...I responded by saying that's why we have these SMA's so their is no conflict.
Apr 17, 2008 2:22 pm
spikedkoolaid:

Spaceman and CSMelnix,

I was number 20 in the entire firm in the SMA program at Jones when I left 2 years ago...
The numbers I quoted were from memory.
The reason the SMA program at Jones is a little bit flawed is they haven't been able to reduce the money manager fees for the platform.  The Money Managers are squeezing them...
For example the Gannet Welsh and Kottler, Muni Bond SMA is charging Jones .50 at Merrill they are charging them .25.  That's HUGE!
On the Balanced and Equity Side of things the percentages are even higher.  Lord Abbett charges Jones .75 basis pts in the SMA.  Goldman charges .75 basis pts in the SMA. 
The one I love is the Merrill guy in competition with the Jones guy for a $1,000,000.  The Jones guy says we have a SMA program with Lord Abbett.  The Merrill guy says the same thing...The Jones guy discounts it all the way to the end and still can't beat the Merrill guy and he doesn't even have to discount that much.
 
Anyway,  the long and short of it is...The GP's don't like the SMA platform because there is no revenue sharing with the firms. 
 
When the whole revenue sharing thing was disclosed at Jones all my clients were calling and asking me questions...I responded by saying that's why we have these SMA's so their is no conflict.
 
Spike, So you agree that you aren't qualified to answer questions on our fees because you left two years ago?
 
Miss J
Apr 17, 2008 2:54 pm

Spiked - It seems to me that the fees between the SMA and Jones will get lower as more money goes in.  We're small fish for them I'm sure.  The average Jones office doesn't even have a MAP client.  You being #20 could have meant you only had $5-10 mil in it.  Not a knock against you, but just the reality of Jones.  As of the last update there were only 1000 FAs that were using MAP.  We're yellow clients to those money managers. 

Apr 17, 2008 3:07 pm

I guarantee he had over 10 mill.  My training roomate's mentor had 30 million in MAP.  I don't think he was in the top ten. 

Apr 17, 2008 3:10 pm
spikedkoolaid:
Anyway, the long and short of it is...The GP's don't like the SMA platform because there is no revenue sharing with the firms.



When the whole revenue sharing thing was disclosed at Jones all my clients were calling and asking me questions...I responded by saying that's why we have these SMA's so their is no conflict.





Per csm's post: "500k bond at 1.5% = The investment manager gets $2500, Jones gets $3,000 and the advisor sees the smallest portion which is $2,000. "



Explain why on the above example where the "GP's" pull in $3000, why its better for them to only get $179 (based on American Funds revenue sharing) for the same dollar amount? Throw in the .25 bp trail after the broker's cut, the "GP's" only get $929. If EDJ were the evil revenue sharing empire you make us out to be, why wouldn't we push only SMA's and become the evil SMA empire? The math just doesn't add up to support your hypothesis.

Apr 21, 2008 11:22 am

Revenue sharing is typically the first complaint against Jones. I leave for the weekend and not one has rebutted my post? Slow weekend for posts or valid argument?

Apr 21, 2008 5:01 pm

The weather warms up, the board dies.

Apr 23, 2008 11:42 am

Hulk you make a good point about why wouldnt EDJ make the push to be big on SMA. In my time at EDJ I found that Mort and his team were terrific. They even traveled from STL to our region and helped people present and understand the product. And that hlighted the problems.



The firm gave very little support to that division in comparision to the Trust department. A trust department that cant even handle Real Estate. Despite SMA blowing the doors off of the trust departments revenue per employee and profitability, the SMA department was the red headed step child. I understand it was an uphill fight just to get extra staff. Mort is an awesome standup guy but its rediculous when he cant get the company behind him for more employees.



Second was the problem of making IR's (now FA's) understand what the SMA was about. These guys gathered and lived off of $50k to $100k accounts. The IR spends the next 4 years gathering $500k on a client. He splits it up between 3 MF companies or dumpts some into stocks and bonds alongside mutual funds altogether getting 3% commissions and now he has to switch to SMA and it doesnt feel right for a Joneser. A lot of them dont even understand how the program works and dont preposition themselves for it. Why, because they are so new to the business.



Finally, this is where Revenue Sharing and the change to "advisors" makes a difference. They are moving to a wrap mutual fund account and that will get them refocused on their ultimate goal, maximizing revenue. This means that the SMA department can really shine. SMA's are used more by advisors not brokers. If Jones reaches a decent size, renegotiates their fee structure with managers, gives Mort some help and respect, then the Big Green Machine will have a way to beef up the bottom line and be competitive.



Wait, I need a tissue... I'm a little emotional because I am so happy i am not there any more.

Apr 23, 2008 2:30 pm

The problem with Jones and the fee based biz/MAP account is that you have a bunch of guys who built their businesses beating up on other advisors for using fee based business running the show.  Bachman and Hill made a decision that if you wanted to do fee based biz, you had to leave Jones to do it.  "We" just didn't believe in it is what they said.  Well, when the "we" is no longer in control of the company, "we" suddenly think it's a great idea and are moving forward with it. 


 
You can't simply ignore a trend in the industry and hope that it goes away.  I believe that at some level, the Management Committee was just waiting for fee based to go away or be litigated out of existence.  Since that didn't happen, they had to shift gears.  In comes Weddle and voila - fee based biz.  It will be interesting to watch the profit margins over the next couple of years as that part of the revenue stream takes hold.
 
Apr 23, 2008 2:42 pm

Spiff - Can you explain to me what an FAs P&L in comprised of?  If the FA gets a 40% payout, for example, does the remaining 60% consist of your branch's top line revenue?  And then from the 60% you subtract rent and BOA salary and then whatever net income is left over is shared between the FA and Jones?  Thanks.

Apr 23, 2008 3:56 pm

Example:

 
BRANCH for 1 month:
Gross Commissions (income)   27,000
+Fees & Branch Credits:             1,000
= Total Branch Revenue            28,000
 
Less Expenses that the firm pays:
Advisor Commission (39 - 40%) (10,665)
Staff Payroll                                 ( 2,500)
Benefits                                       (  1,500)
Occupancy(Rent,Util, etc.)            (  2,500)     
Office Equip & Tech                       ( 1,250)
Other MIsc. (not listing it all)         (     500)
 
=Location "Margin"                        11,050
 
Based on this number, your trimester profit bonus is calculated (they add up your profit every four months to calculate your profit bonus).  I have no idea how these numbers compare to other offices, but this is pretty much my P&L for last month (rounded).  My BOA only owrk about 35 hours, and does not carry benefits (her husband has them), so my staff pay and benefits number is probably low.  Although, I am still within the 46 months (or something like that), where they subsidize most of my medical, so that line is probably about right.
 
FYI, the entire calculation methodology has changed at Jones, so it is a bit different than it was in the past. 
Apr 23, 2008 4:19 pm

Nice month, B24.  Just think of how much money you would have made had you been at LPL.  You probably wouldn't have to work at all this month and you'd still be ahead. 

May 12, 2008 7:56 pm

Spaceman - I agree with you that Bachman and Hill were the obstacle. Once Hill cleared and was on the way out some good changes started happening. The best thing that a good SMA and advisory mutual funds is to allow their IR's to grow up into FA's. and they can actually do a goodknight. I saw the revision of the goodknight plan from a friend that is still there. Nice improvement. I would still prefer to own the book and the clients but it is a change for the better. As the big vets really catch on to what SMA and fee base can do for them I think you will see dramatic changes in revenue. There are vets with $200mil AUM and they are pulling $300k year in trails. Its not so much the money as that there can be no service with 2000 households like that. That is where the advisor title became laughable.