Jones Pays

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Dec 20, 2004 7:03 pm

Doug is paying brokers that accepted the LP two years ago even though it wasn't issued.

Dec 20, 2004 7:44 pm

$75 mil is NOT a slap on the wrist for a company like this. Morgan Stanley and Putnam were fined $50mil each and those companies are MUCH bigger players than Jones. This hurts EDJ BIG TIME.



I have to admit this surprises me more than anyone. I'm at a loss for words. This is real, real bad for EDJ. This has to be the single biggest blow this firm has ever seen.

Dec 20, 2004 7:52 pm

107,


And I got the ball rollin!!!!!


This is the best Christmas ever!!!

Dec 20, 2004 8:06 pm

I agree this is far from a slap.  Morgan Stanley did get hit $50 and they laughed at that.  $75 million is almost 1/2 of their net revenues from last year.  And we haven't even touched on the class action suit.  Let me just say the lead plantiff attorney is chomping at the bit on this slam dunk case.


What does Jones do to come back from this?  One last thing is the AXA case and what that means to Jones.  You don't hear much about this but if this comes back in play Jones will be paying out of pocket again. Just remember Jones brokers the policy regarding NAV transfers.  They were there if you wanted them, but you did not have to go that direction.  Hartford obviously is the biggest player here.  But the AXA case states that if a fund company offered an NAV transfer then it had to be used.  We all know brokers that moved to Hartford because of the high 12B-1 fees and received an upfront commission.


Maybe that compliance everyone said is so stiff is starting to rear its ugly face.


Dec 20, 2004 8:32 pm

First, in cases likes these the consideration is not the company size but rather the revenues generated.  This fine is less one years worth of 12b-1 fees.


Second, we need to put the Jones hating away and look at this from an industry prospective.  All of the companies involved were compliant regarding disclosure but regulators wanted more.  Changes would have taken years so the open and investigation and extort money and changes from the firms. 

Dec 20, 2004 8:43 pm

Frankstrom I don't understand your argument.









Morgan Stanely Revenues=$36 billion



Edward Jones Revenues =$2 billion

Dec 20, 2004 8:46 pm

The case was about disclosure of revenue sharing agreements. They are not wrong but they must be disclosed to clients. They weren't therefore the settlement today.

Dec 20, 2004 8:47 pm

Joseph- Apples vs Oranges.

Dec 20, 2004 8:58 pm

FRANSTRUM-


I don't understand your math.  $2.2 billion gross revenue and $203 million net revenue.  $75 million seems to be pretty significant would you agree?  As far as disclosure the revenue sharing was never disclosed and Jones new it could not make an argument.


NOGGIN-


It is apples and apples as both companies are in the investment industry.  For Jones to get fined $75 million vs. $50 for Morgan Stanley seems to me that they were sending a message or there was more seriousness to this claim.



Dec 20, 2004 9:18 pm

FRANKSTRUM....


Let me be the first or is it the 100th to say we told you so........


I was blasted for weeks when I said this hit would be major, but all of the Drones & Clones just kept attacking me, as well as others that posted here, with the same thoughts.


The fact is this is just the start !  75 Milion is a MAJOR FINE, and it's not over................................


Add to this Jones just stated to all their IR's that they had a 1% growth rate in recruiting........wow.. I got blasted when I said it was 3%, as it turns out I was too positive.


Things they are a changin at Edward Jones............ 


Dec 20, 2004 9:41 pm

Frank, 


Jones collect continual revenue sharing from vendors based upon assets on the books.  It was only disclosed in small print a a few prospectuses and not in a clear way.  The only firm which explained it in a clear way was Van Kampen who also named Edward Jones specifically within the prospectuses.  In all cases, it was not easy to find.


107, Was that you who said they had heard that was going to be no settlement? 


The fine is just a little less than one years revenue sharing fees.  12b-1 fees are more on average and are unrelated to the revenue sharing fees collectd from the vendors.  Also, Jones keeps nearly all of the revenue sharing fees.  There is only a small % that the brokers recieve.


I would like to point out that this is NOT a reason to leave Edward Jones.  Sure, I think the fine was deserved but there many additional reasons which are better to depart from Jones other than this settlement. 


To me, this settlement will force Jones to play by the rules in more aspects of the business than before.  They will go out of their way to be compliant in all areas.  They will be on the radar screens of federal and state regulators more than before.  This is clearly a negative for the brokers of the firm in many ways and I am curious to see if they adjust bonus brackets and what returns will be on LP.  Remember, LP has a guaranteed return of 7.5% per annum.  So, they will have to pay that at a bare minimum.


It's refereshing to see a firm that lies and misleads their brokers about how they are so "client first", get slapped with a serious fine for not putting the client first.  


It's a good day for justice.


Dec 21, 2004 12:48 am

Even so, California Attorney General Bill Lockyer called the settlement "inadequate" given payments from the funds that he said totaled about $300 million since January 2000, and declined to join it and filed a civil lawsuit against Edward D. Jones yesterday in Sacramento County Superior Court.


Mr. Lockyer called Edward D. Jones "the most egregious example we have reviewed so far" of secret revenue-sharing arrangements. California's suit, if it reaches trial, could seek repayment of the entire amount the brokerage house received, plus the "hundreds of millions" lost by investors who were sold inferior funds, Mr. Lockyer said.....WSJ


Tomorrow fancy boy Doug will likely go wing shooting in his private hunting club out in the Missouri hills....crumpets and tea Mr. Hill?  

Dec 21, 2004 12:59 am

The settlement does not call for Jones to stop accepting revenue sharing payments. "Revenue sharing itself is not illegal," Martin said. The problem was that the payments were not disclosed and, at the same time, they created incentives for brokers, he said.

But critics remain uncomfortable with the payments, whether or not they are disclosed. Michael Alderson, professor of finance at St. Louis University, said paying brokers to sell a mutual fund not only created the potential for a conflict of interest but also could backfire on the funds.

"It certainly would lead a lot of people to ask, 'Why does the mutual fund have to pay the broker to recommend it, if it's so good to begin with?'" he said.


http://www.stltoday.com/stltoday/business/stories.nsf/0/9438 CF021F19AECE86256F71001A0FCD?OpenDocument&Headline=Edwar ds+Jones+Co.+will+pay+penalty

Dec 21, 2004 9:13 am

Did I mention what a Happy Holiday I'm having?

Dec 21, 2004 11:04 am

Not privy to everything but Jones, through GP and LP capital has far more than this in reserves and quite frankly, I'd be surprised if this affects much of anything there. 

Dec 21, 2004 11:30 am

The firm has sold nearly $6 billion in mutual funds in California since January 2000 to nearly 300,000 accounts. Lockyer said 98% of the funds sold during that time were from the preferred group.... USA Today.


The big issue is the claim by Jones of "no proprietary products".  This arrangement with fund companies, and the resulting concentration of investment into them, is equivalent to manufacturing your own product.  Just a horse of a different color....They might as well rename Putnam Funds.....Edward Jones Fund family.  After all, they've underperformed right up there with Merrill funds! 


 

Dec 21, 2004 2:06 pm

"Edward Jones broke the law and broke faith with the working families of California who placed their trust in the company's investment recommendations, " Lockyer said in a prepared statement.


http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2004/12/21/ BUG01AESBG1.DTL

Dec 21, 2004 2:59 pm

Meanwhile in Edward Jones’ home state of Missouri, the state attorney general’s office has said it will not file a suit if the firm meets certain requirements over the next two years, including allowing clients to change their mutual funds free of charge.


Soooo, let me visualize this.... client comes in and says "I want to change to a better fund"..... broker says "why of course....we have six others to choose from..... no charge".  "But I need to tell you, this time, that we get a kick back for this no cost exchange..ok?"


Dec 21, 2004 5:38 pm

Wrong-o, Jonestown.  They can switch to any one of the 150 funds Jones has a dealer agreement with.  You people on this board REALLY need to get a life .. I'm guessing the average age here is about 26. 

Dec 21, 2004 6:03 pm

RadioOne,


And pray tell why is your firm permitting that?


Thanks for the age compliment, I use Oil of Olay