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Apr 6, 2006 10:33 pm
'Preferred' funds make brokerage $172 million
By Tim McLaughlin
ST. LOUIS POST-DISPATCH
04/05/2006


Edward Jones' promotion of a small group of "preferred" mutual fund companies generated $172.3 million in revenue-sharing payments last year -- more than double the annual amount collected in previous years.

Revenue sharing involves payments made by mutual funds to Edward Jones. They are separate from normal sales commissions. The practice is legal, but in 2004 U.S. regulators cracked down on companies such as Edward Jones for failing to adequately disclose the arrangements to customers. The Securities and Exchange Commission hit the Des Peres-based brokerage with a $75 million fine in December 2004 for inadequately disclosing payments from seven mutual fund families.

Regulators enforced disclosure so that investors would know that the mutual fund advice they received from brokerages could be colored by revenue-sharing deals.

Edward Jones remains a defendant in nine civil class-action lawsuits in which the plaintiffs want the brokerage to give up $375 million in revenue-sharing payments collected from 1999 through 2004. Documents filed in U.S. District Court in St. Louis indicate the parties are close to reaching a settlement in all nine cases.
 
In October and December, the parties appeared before veteran St. Louis mediator Michael Geigerman, court papers show. A lawyer involved in the litigation said a settlement is "pretty close." Edward Jones said it doesn't comment on ongoing litigation.

In 2005, Edward Jones said the brokerage shared revenue with eight "preferred" mutual fund families. More than half of Edward Jones' revenue sharing came from Hartford Investment Financial Services LLC, which paid the brokerage $90.1 million. That amount included a one-time $70 million termination payment from Hartford.

Effective Dec. 29, Hartford ended Edward Jones' profit-sharing participation in Hartford mutual funds, an Edward Jones spokesman said Wednesday. In an interview last week, Steve Novik, Edward Jones' top financial officer, said the arrangement was effectively an ownership interest in Hartford mutual funds that started about 10 years ago.   

A Hartford spokeswoman was unable to say why the profit sharing was ended.

American Funds was the second-largest source of revenue-sharing payments for Edward Jones. American paid the brokerage $35 million.

Most revenue-sharing payments are based on the amount invested in mutual funds through Edward Jones.

The brokerage says these asset-based fees can range between $3.06 to $14 per $10,000 of mutual funds owned by an investor. The fees are ongoing and fluctuate with the size of a customer's assets.

Other preferred mutual funds may pay Edward Jones a fee based on the dollar amount purchased by an investor. Unlike annual asset-based fees, sales fees are not ongoing.

Virtually all of Edward Jones' mutual fund sales involve preferred funds.    

"The firm does not receive any significant amount of revenue-sharing payments from any nonpreferred mutual fund families," the company says in a disclosure statement posted on its Web site.

Despite their acceleration in 2005, revenue-sharing payments remain a small part of Edward Jones' overall business. Mutual fund commissions, for example, accounted for 32 percent of Edward Jones' total revenue of $3.2 billion in 2005, according to the company's financial statements.
 
http://www.stltoday.com/stltoday/business/stories.nsf/0/0DBF F567404AAECB86257148000E8A66?OpenDocument
 
 
Apr 7, 2006 9:16 am

I can see it now. Hartford assets shrink, am. funds assets swell.

Apr 7, 2006 10:02 am

They'll simply replace one with another.  That's all it will be.  As long as there is at least one preferred fund family, that revenue will go nowhere but up.

Apr 7, 2006 11:10 am

Despite their acceleration in 2005, revenue-sharing payments remain a small part of Edward Jones' overall business. Mutual fund commissions, for example, accounted for 32 percent of Edward Jones' total revenue of $3.2 billion in 2005, according to the company's financial statements.

Apr 7, 2006 1:26 pm
Maxstud:

Despite their acceleration in 2005, revenue-sharing payments remain a small part of Edward Jones' overall business. Mutual fund commissions, for example, accounted for 32 percent of Edward Jones' total revenue of $3.2 billion in 2005, according to the company's financial statements.


Hey Stud,


You might want to read the coverstory of this publication avail on this very website.  Here's a quote,


Critics also point to the firm's dependency on revenue sharing — making up about 57 percent of net income in 2005 — as a potential problem.


I honestly cant remember what side of this argument you fall on, nor do I really care but you might want to rethink your position on rev sharing and Jones' dependence on it.

Apr 7, 2006 7:38 pm

The Jones business model and growth initiative is completely dependent upon revenue sharing continuing as is, plain and simple.

Apr 10, 2006 5:24 pm

You have to cut him a break here, he's use to Gross income not Net income which is why it went way over his head.