Jones fee-based platform rumors

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Apr 27, 2007 8:09 pm

This is what someone heard from someone that heard something.


75 basis points across the board. Fund companies are to create a share class that does not charge the 12b-1. (I'm sure the preferred fund companies will rush to accomodate-others? Don't know where American Funds F shares stand since that does include a 12b-1) Any investment or fund company with a selling agreement is eligible in one platform, preferred fund models selected by Jones in another.


If all of the above turns out to be true, I don't see much to complain about if I was still an EJ guy. .75 isn't much when most advisors out there are charging 1-1.25, but it's better than what I expected they'd do. No info on ticket charges, etc.


I'm surprised I'm the first to post this info, this is hardly coming from someone that is on "the inside" at Jones.


Apr 28, 2007 2:45 pm

I bet a lot of things have been floated out there. But what you stated

above seems like something that would make sense to me (coming from

Jones). I plead ignorance here, but wouldn't most MFD companies have

an advisory share class already for all the other firms that have advisory/

wrap services?

Apr 28, 2007 3:51 pm

Some do, but many (if not most) funds in those platforms are just A shares

at NAV.



I doubt non-preferred families will go to the trouble of creating a "new"

share class just for EJ unless they are planning/hoping to get on the wagon.

Seems like if you only charge 75 bps , you can easily justify leaving the

12b-1 in because the firm is still only receiving 1%/yr total.



I've noticed that many firms keep the 12b1 one to themselves in these type

of platforms (instead of crediting the advisor's gross production); a nice way

to juice up their profits I suppose.

Apr 28, 2007 4:37 pm
CIBforeveryone:

Any investment or fund company with a selling

agreement is eligible in one platform, preferred fund models selected by

Jones in another.[





I think the issue with 12b-1 fee's might be related to those not flowing

down to RIA's who are not compensated with such fee's.



Give how much of GFA's assets came from EDJ, American funds is sure to

offer the new "E-shares".



As EDJ has claimed, they want to be a platform for the distribution of

financial products, not anything more than that.

Apr 28, 2007 5:18 pm

here come the conspiracy theories...  me first me first.



one of my preferred fund vendors that i work with quite a bit told me the version of the platform could end up hosing people looking to leave in the future as it locks the clients in pretty tightly to Jones.  As in the acct couldn't be transferred as is, it would have to be liquidated.  I don't know any of the details, that's just the dirt that is swirling at one of the fund families.

Apr 29, 2007 12:59 pm

I wouldn't be surprised if some attempt was made at that. This seems like a great way for an EJ guy to build a fee business up and then move it elsewhere to get a higher payout.


Jones has always been adamant they won't do prop products, though, and I would foresee a major uproar if they were to head that direction.


This will be interesting to watch.

Apr 29, 2007 8:17 pm
AllREIT:
CIBforeveryone:

Any investment or fund

company with a selling

agreement is eligible in one platform, preferred fund models selected by

Jones in another.[





As EDJ has claimed, they want to be a platform for the distribution of

financial products, not anything more than that.





Since when have they claimed that they just want to distribute products

and nothing more? Was it when you used to work for them? Oh, I forgot,

you never worked for them. If you currently had any affiliation with Jones,

you would know that their focus is clearly more than that.

Apr 29, 2007 9:08 pm

For many years, B24, product distribution was the focus of Edward D.

Jones. Wrap and fee based accounts were B..A..D, and those who

employed them were clearly minions of the Demon Satan according to the

Gospel of Saint Louis. A stock-and-bond business was clearly virtually

impossible for a new IR. That left annuities, mutual funds and bonds from

the Jones inventory. (Yes, yes. I know. The bond department isn't a profit

center. Yet riddle me this, Batman: Why put insurance on triple A rated

paper, while other firms sold the bond without? Obviously so when the

client wants to sell the bond, Jones is the only bidder, and can pick the

bond at a deep discount, then re-sell it to some other poor sap at par!

That's about as close to a proprietary product as one can get without

calling it that!)



In any event, I don't see the Vestal Virgins of Martyland Heights suddenly

doing an about face for a reason as stupid as it's the right thing to do.

There can be little doubt that there will be some major league strings

(ropes?) attached to any account before it can be converted to something

that every other firm does better! This should be interesting.



Apr 30, 2007 2:17 am

OK---Let's do the Math--

$200,000 at EDJ charging .75 basis pts.  That is $1500/per year gross commission.  Net to the IR/FA (whatever they are calling themselves) is 40% of $1500.  That's $600 per year in net commissions. 

I just can't see a Jones IR/FA passing up a $80,000 A-Share in two different fund families and $40,000 in 4 different 30 year Bonds paying 2.75 net. 
For a total of $7500 gross commission or $3000 net commission. 
I just can't see an IR giving up $3000 net for $600 net per year.    Agree?

Apr 30, 2007 9:52 am
spikedkoolaid:

OK---Let's do the Math--

$200,000 at EDJ charging .75 basis pts.  That is $1500/per year gross commission.  Net to the IR/FA (whatever they are calling themselves) is 40% of $1500.  That's $600 per year in net commissions. 

I just can't see a Jones IR/FA passing up a $80,000 A-Share in two different fund families and $40,000 in 4 different 30 year Bonds paying 2.75 net. 
For a total of $7500 gross commission or $3000 net commission. 
I just can't see an IR giving up $3000 net for $600 net per year.    Agree?



Isn't the point of having both is to do whats right for the client?  A 40 year old comes in with a 401k rollover of $80k  probably A shares.  A 40 year old comes in with a Vanguard portfolio and wants help with planning and asset allocation but loves Vanguard, fee based.  I get paid now and I get paid later.  Isn't that how it benefits everyone or am I naive?

Apr 30, 2007 5:24 pm
spikedkoolaid:

OK---Let's do the Math--

$200,000 at EDJ charging .75 basis pts.  That is $1500/per year gross commission.  Net to the IR/FA (whatever they are calling themselves) is 40% of $1500.  That's $600 per year in net commissions. 

I just can't see a Jones IR/FA passing up a $80,000 A-Share in two different fund families and $40,000 in 4 different 30 year Bonds paying 2.75 net. 
For a total of $7500 gross commission or $3000 net commission. 
I just can't see an IR giving up $3000 net for $600 net per year.    Agree?


Spiked,


You bring up a great point. I wasn't thinking about it this way, but at .75 the breakeven to the advisor is much farther out than at 1-1.25.


I don't know if you meant it this way, but you are also right from the standpoint that Jones IRs have the monthly pressure to produce beat into their heads so deeply that it would be difficult to make the changeover and take the heat that would go along with a dropoff in production.


The only missing ingredient here is what will be required to transition a client that has paid sales charges in the past over to fees. This will likely make or break the deal for many EJ guys.


Apr 30, 2007 8:47 pm
CIBforeveryone:

[quote=spikedkoolaid]OK---Let's do the

Math--$200,000 at EDJ charging .75 basis pts. That is $1500/per year

gross commission. Net to the IR/FA (whatever they are calling

themselves) is 40% of $1500. That's $600 per year in net commissions. I

just can't see a Jones IR/FA passing up a $80,000 A-Share in two different

fund families and $40,000 in 4 different 30 year Bonds paying 2.75 net.

For a total of $7500 gross commission or $3000 net commission. I just

can't see an IR giving up $3000 net for $600 net per year.    Agree?[/

QUOTE]



Spiked,



You bring up a great point. I wasn't thinking about it this way, but at

.75 the breakeven to the advisor is much farther out than at 1-1.25.



I don't know if you meant it this way, but you are also right from the

standpoint that Jones IRs have the monthly pressure to produce beat into

their heads so deeply that it would be difficult to make the changeover

and take the heat that would go along with a dropoff in production.



The only missing ingredient here is what will be required to transition a

client that has paid sales charges in the past over to fees. This will likely

make or break the deal for many EJ guys.







Despite what many think on these boards, some EDJ advisors DO know

how to think for themselves. First of all, not every advisor would do a

split MFD ticket with a handful of bonds on a $200K account. So not

every $200K account yields 7500 gross. Second, some of us have a

longer term horizon than this month. I, for one, would give up some fees

now for fees later. The thought of getting $2,500/yr gross on a $1mm

account is pretty pathetic. I am relatively young (mid-30's), so I have

many years for this strategy to pay off.



I would be careful about making blanket statements about the actions

and intentions of 10,000 advisors. And I have to tell you, some of the

crap I pull from other firms are things I wouldn't sell to my own mother.

And it doesn't matter whether theya re independant or wirehouse

accounts - there are lots of crappy advisors out there that use fee-based

and commission-based platforms.

Apr 30, 2007 9:03 pm

No offense B24, but an Edward Jones broker capable of rational thought is,

by definition, an EX-Edward Jones broker.



As to "crappy" advisors, no one has a monopoly on that. Not even Edward D.

Jones & Co.

May 1, 2007 9:44 am
Broker24:

And I have to tell you, some of the
crap I pull from other firms are things I wouldn't sell to my own mother.
And it doesn't matter whether theya re independant or wirehouse
accounts - there are lots of crappy advisors out there that use fee-based
and commission-based platforms.


Just because you don't understand the investment or it doesn't pay revenue sharing doesn't make it bad.

May 1, 2007 11:29 am

Broker24--


You are missing the point.  The producers who are producing at a high level at Jones are splitting tickets amongst two mutual fund families and selling 4 bonds and claiming that's diversification.


I remember veteran IR's saying they would never sell a bond fund.  I know now that it's because it goes towards the breakpoint and they didn't want to get near the breakpoint. 


I do believe that some (handful) of IR's would hit the $100,000k breakpoint on one of the trades.  But I can tell you most would not give two $100,000 breakpoints. 


You are fooling yourself into the fact that IR's are not doing this.  Once they figure out that Field Supervision allows you to use 2 different families and not hit the $100,000 breakpoint, it's "Katie Bar the Door".

May 1, 2007 1:03 pm

Excuse me Broker24....It was a sales idea I received from my mentor early on....give them one good breakpoint and use another fund family to make some money, throw in some bonds...this always throws field supervision off and if you get a pending..well tell them the client wanted diversification...it works ALL the time."  Good luck and Good selling you vacuum salesman!

May 1, 2007 1:04 pm

Broker 24...your a dumb*ss

May 1, 2007 5:34 pm
spikedkoolaid:

Broker24--


You are missing the point.  The producers who are producing at a high level at Jones are splitting tickets amongst two mutual fund families and selling 4 bonds and claiming that's diversification.


I remember veteran IR's saying they would never sell a bond fund.  I know now that it's because it goes towards the breakpoint and they didn't want to get near the breakpoint. 


I do believe that some (handful) of IR's would hit the $100,000k breakpoint on one of the trades.  But I can tell you most would not give two $100,000 breakpoints. 


You are fooling yourself into the fact that IR's are not doing this.  Once they figure out that Field Supervision allows you to use 2 different families and not hit the $100,000 breakpoint, it's "Katie Bar the Door".




I don't work at Jones, but I don't sell bond funds for the simple fact that I have more control over individual bonds.  Bond funds don't guarantee principal like and insured bond (yes, I know guarantee is only as good as insurance company).  If they fret about insurance, here's your CD, Mr. Investor.  Guaranteed by Uncle Sam.


Rarely, though, do I even use individual bonds for diversification.  There are a lot of good funds out there that do have some bonds in them along with equities.  To be honest, bonds and CDs suck right now.  Bank preferreds are a better alternative and there are some great closed end funds that made my clients 25% last year, but still are conservative and pay dividends twice as much as most CDs.  Granted, no FDIC, but if covered calls are good for large institutions, then why can't my little old client get in on it?


I guess my point is, the EDJ mentality is old school.  The investment world changes every year to few years as new products roll out.  Every client is different.  Some want to be more active in their portfolio's, and some don't want to have to worry about it.  There's a product out there for everyone.  It's not about, here are some mutual funds and some bonds, see you in 10 years when you retire.  Even then, I know brokers who will switch A shares like they're trading stocks.  When I have a client with over $100k in assets with me, my first thought is NOT mutual funds.  Fee-based isn't bad, it just depends on how your client wants to pay you.  Most good clients will want you to be paid.  Some of my most stingy clients who as me about every commission WANT me to be paid.  They then KNOW that I WILL WORK FOR THEM and keep on top of their investments and call them every 90 days or when something is wrong.


There are bad brokers out there, very true.  There are lots.  But, that just makes my job easier.  So, if you are good broker, be thankful there are so many bad ones out there because you can get that customer to move to you buy showing them what YOU do for YOUR clients.


Just my 2 cents.

May 1, 2007 7:34 pm

If I do my math correctly...EJ min. is 18k requiring $28.8 mil. in fee-based to make annual min. and the IR nets $86400 before paying for toilet paper, phone bills, health ins. and advertising.  I just don't think that the avg. EJ guy can feed his family and do a fee-based program.  Fee-based might work for a guy with $100 mil in AUM but those guys would be smart to leave EJ anyway.  I just don't see it working.

May 2, 2007 12:28 am

If I was a Jones guy looking to annuitize my business, I would go the UIT route. First Trust has some awesome UITs, with incredible (fairly long term) results. They pay a decent up front (2.25% or less), and then pay 1.3% every 15 months. That's just about 1%/yr on the money.  Jones IRs can buy these with no ticket charges, not a bad option in my opinion.