Jones Secrets Revealed, Part V

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Jan 5, 2007 6:29 pm

The liquidate and transfer form that Jones has clients sign is the biggest form of churning/unethical behavior that Jones covers up.


Let me explain:  Unassuming client brings in a statement to get a "free portfolio review".  The IR suggests that they transfer their account in to EDJ.  Instead of transferring in-kind the T-Rowe Price Int'l Fund, the Calamos Growth fund, the Phoenix Mid-Cap Value fund, the Alliance International Value fund, and the Legg Mason Value Trust.  They say, let's Liquidate and Transfer this $400,000 account and put it into two different fund families. 


I would hope that Jones would start asking the IR where this $400,000 check is coming from and why did the client decide to liquidate and transfer the account.  What funds were the client invested in, etc.  I just wish that the field supervision at Jones would ask more questions of the IR when they get a big check deposited into an account.

Jan 5, 2007 6:57 pm

Oh, and when the check arrives in the mail, be sure and wait until Shamrock Saturday to put in the trades because you can win an Edward Jones snow globe from the fixed income department if you generate over $1000 in gross commission if you are Segment 1 or Segment 2!


Then be sure you send a wire to the Regional Leader and let him know you are in working hard! (After you sign in on the class system of course).

Jan 5, 2007 7:09 pm

Woah Woah Woah!  If I had known they were giving away snow globes...

Jan 5, 2007 7:33 pm

Whereas, if you are"Indy", you just put them in a fee based account and

collect 1% for life. Much more ethical.

Jan 5, 2007 8:19 pm

B24-


What is more ethical? Do what you think is right for the client, or let the client choose their money management fees structure? I thought the same as you until I asked the client what they preferred. I was astounded to find that the client would prefer to pay me more over the long term with the understanding that I could avoid the obvious conflicts that you Jones brokers actually think is better for the client.  


I know you are going to find this hard to believe, but some clients actually prefer fee based. What I find even more interesting is now I don't care which way a client pays me. I let them choose. And some prefer that the inherent conflicts with transactions are not what they want with their financial advisor, so I can accomodate. You will too as more and more clients leave or probably never consider EDJ.


And you will wonder why..

Jan 5, 2007 8:38 pm
spikedkoolaid:

The liquidate and transfer form that Jones has clients sign is the biggest form of churning/unethical behavior that Jones covers up.


Let me explain:  Unassuming client brings in a statement to get a "free portfolio review".  The IR suggests that they transfer their account in to EDJ.  Instead of transferring in-kind the T-Rowe Price Int'l Fund, the Calamos Growth fund, the Phoenix Mid-Cap Value fund, the Alliance International Value fund, and the Legg Mason Value Trust.  They say, let's Liquidate and Transfer this $400,000 account and put it into two different fund families. 


I would hope that Jones would start asking the IR where this $400,000 check is coming from and why did the client decide to liquidate and transfer the account.  What funds were the client invested in, etc.  I just wish that the field supervision at Jones would ask more questions of the IR when they get a big check deposited into an account.




My own RL in NC told us regularly at our meetings that every client had 2 problems: taxation and diversification.  Liquidate and transfer were also readily talked about for new IRs to do like vets.

Jan 5, 2007 8:40 pm
footsoldier:

B24-


What is more ethical? Do what you think is right for the client, or let the client choose their money management fees structure? I thought the same as you until I asked the client what they preferred. I was astounded to find that the client would prefer to pay me more over the long term with the understanding that I could avoid the obvious conflicts that you Jones brokers actually think is better for the client.  


I know you are going to find this hard to believe, but some clients actually prefer fee based. What I find even more interesting is now I don't care which way a client pays me. I let them choose. And some prefer that the inherent conflicts with transactions are not what they want with their financial advisor, so I can accomodate. You will too as more and more clients leave or probably never consider EDJ.


And you will wonder why..



Footsoldier, I had the same experience when I left EDJ for ML.  Fee based accounts were explained in detail to my former EDJ clients versus the A shares that Jones pushed us new IR's to do.  EVERY SINGLE ONE OF THEM preferred the fee based.  The FA had a vested interest in a client's portfolio performing well and the client knows it.

Jan 5, 2007 10:54 pm
spikedkoolaid:

The liquidate and transfer form that Jones has clients sign is the biggest form of churning/unethical behavior that Jones covers up.


Let me explain:  Unassuming client brings in a statement to get a "free portfolio review".  The IR suggests that they transfer their account in to EDJ.  Instead of transferring in-kind the T-Rowe Price Int'l Fund, the Calamos Growth fund, the Phoenix Mid-Cap Value fund, the Alliance International Value fund, and the Legg Mason Value Trust.  They say, let's Liquidate and Transfer this $400,000 account and put it into two different fund families. 


I would hope that Jones would start asking the IR where this $400,000 check is coming from and why did the client decide to liquidate and transfer the account.  What funds were the client invested in, etc.  I just wish that the field supervision at Jones would ask more questions of the IR when they get a big check deposited into an account.



Spiked- One of my biggest gripes industry wide is what you just talked about..... I try to transfer inkind whenever possible and just do some exchanges if necessary for the client's risk tolerance. I personally like having to sign a switch letter as there is usually a reason that we are moving......not because I want a payday.

Jan 5, 2007 11:06 pm

Foot, actually, I don't think fee based is bad. I would love to have a better

platform to do it. My only issue is the general suggestion that liquidating

and transferring in order to move a client into investments you believe in,

AND earn a living doing good for your client is somehow wrong or

unethical. I am not going to take on a crappy portfolio and have

responsibility for managing it, AND not make money on it, just because it

is cheaper for the client. As most would agree, cheaper is not always

better.



Here's the thing, though. If a client has a really good MF portfolio (we'll

just talk about MF's for right now), that you can work with, but the client

just wants a better broker, one would instinctively think that you should

try to work with what they have. BUT, is it entirely appropriate for me to

not earn any money for managing that portfolio? You would be getting

1% for life, I would be getting zero (maybe .25% x 40% if it carries a

12b1). On top of that, I now have to follow and track investments that

are not part of my core focus (Indy or not, we all have funds and stocks

we follow and are partial to).



My point is, we all need to get paid for our services. At EDJ, I am not

fortunate enough to have an adequate managed money platform, so I

work it out on commissions (and some MM). I do not have a conflict of

interest, because I utilize the funds I believe in. Do I use the preferred

funds? Sure, about 85% of the time. But I would not even touch 3 of our

preferred families. But I am not going to take on portfolios with dozens

of different fund families, because I do not follow them, I do not believe

in them (because I do not follow them), and I am not going to try because

it takes my eye off the ball. I am not going to apologize for how I manage

money, because it is in the best interest of the client, just as what you do

is ALSO in the best interest of the client. We just have different ways of

doing it. AND, you make more money for doing it than I do.



Here's the thing: if you are good at what you do, are honest with your

client about fees/commissions, and you charge a REASONABLE price for

your services, there is not a conflict of interest under ANY platform, fee

based or commission based. A good, ethical broker will NEVER have a

conflict of interest. I am comfortable with doing the right thing for my

client AND making money doing it. Now, trading securities or moving

among A share families just for the purpose of generating additional

commissions is wrong. BUT, so is collecting 1% if you are not staying on

top of your accounts and just riding an electric cart every afternoon (I am

not suggesting that anyone specific does that - I am just stating that

there are potential conflicts of interest in EVERY model).

Jan 6, 2007 8:34 am
Broker24:

Whereas, if you are"Indy", you just put them in a fee

based account and

collect 1% for life. Much more ethical.





No offense B24, but hijacking this thread deserves a boot in the nuts.



I'd say take it to another thread for the 1% vs. A-share debate. It's been

covered to death in other places.



Liquidate and transfer documents from EJ will be on the forefront soon I

smell lawsuits (even if I have to initiate it myself) which will turn into class

action lawsuits.



This one will be a loser for EJ. It's a horrible practice, and terrible way for

a compliance department to turn their heads to the mutual fund

replacement issue and churning.



C



Jan 6, 2007 10:07 am

I do not have a conflict of interest, because I utilize the funds I believe in. Do I use the preferred funds? Sure, about 85% of the time.


B24-


You deserve to be paid. Period. You deserve to have all the options the marketplace offers so you can be totally and completely unbiased in your proposals to clients.


You must ask yourself as many of us have, am I in the right place or the right firm that affords me the opportunity to do the right thing always. I was in your camp for many years, but one day I realized I was being manipulated.


The conflicts you have as an agent transcend you when you are an employee. i.e., If you are representing your firm and they admit to conflicts of interest, and you can obviously not do anything about it, then the argument would seem reasonable that you in fact become part of the conflict. 


I felt the same was as you a couple of years ago. Now I can understand the difference and I can empathize with your situation. Don't fool yourself into thinking because you choose, that you are free of the conflict. The Jones box of goodies is extremely limited. And they get paid more through kickbacks than they do from commissions.


You can only be free one way in our industry.


Jan 6, 2007 11:06 am

Broker 24 and others-


You are missing the point.  The point is that I would like Edward Jones to require that all transfers be in-kind.  Then if you want to liquidate and move the money into something that you feel you can manage effectively, so be it.  At least then you will have to answer to your field supervisor as to why the change is necessary.


Pretty simple!


This is a HUGE loophole in the supervision of IR's and needs to be corrected.


Jan 6, 2007 11:11 am

I've been at Jones 2 plus years now and I've never even heard of this liquidate and transfer form.  I can tell you it's not something that anyone has ever encouraged me to use.


I understand the conflicts and all that argument (and agree to some degree with both sides) but the question I think is: 


Do you have a responsibility to research every mf that some prospect may have in order to keep the "best" ones?   


In my opinion this sounds like a terrible idea regardless of commission or fee based. (Of which I prefer fees)  


Now, to take into consideration capital gains is a whole different topics.


But say a client has a 500k IRA they are transferring to you.  My opinion (subject to change) is that the best approach is to liquidate and put them in the model you use and believe in and are able to monitor.  You will do yourself and your clients a disservice trying to track 250 or more funds. 


Jan 6, 2007 11:13 am

I don't know if this is old news but it was reported on financial-planning.com on January 5,2007.


Jan 6, 2007 11:14 am

I think this fine explains that there is loopholes in Edward Jones' supervision.  They don't have the technology nor the eyeballs to effectively manage the IR's who are abusing the "Liquidate and Transfer" form.  Please start using the ACAT and transfer in kind!

Jan 6, 2007 12:22 pm

Spiked-


How else will the Jones reps get paid?

Jan 6, 2007 1:45 pm
spikedkoolaid:

I think this fine explains that there is loopholes in Edward Jones' supervision.  They don't have the technology nor the eyeballs to effectively manage the IR's who are abusing the "Liquidate and Transfer" form.  Please start using the ACAT and transfer in kind!


I agree with you, Spiked...

Jan 6, 2007 3:24 pm
Broker24:

I am not going to take on a crappy portfolio and have
responsibility for managing it, AND not make money on it, just because it
is cheaper for the client. As most would agree, cheaper is not always
better.





That's why they pay you the big bucks. Just adopt a policy that
transfered in accounts go to a fee based platform. EDJ is holding onto
an obsolete business model.


Here's the thing, though. If a client has a really good MF portfolio (we'll
just talk about MF's for right now), that you can work with, but the client 
just wants a better broker, one would instinctively think that you should
try to work with what they have.



BUT, is it entirely appropriate for me to
not earn any money for managing that portfolio? You would be getting
1% for life, I would be getting zero (maybe .25% x 40% if it carries a
12b1). On top of that, I now have to follow and track investments that
are not part of my core focus (Indy or not, we all have funds and stocks
we follow and are partial to).





Funds are funds, you are not working in the best interests of the clients
if you run their money through the deli slicer again. How you get paid
and the best interests of the clients are two different things.


My point is, we all need to get paid for our services. At EDJ, I am not
fortunate enough to have an adequate managed money platform, so I
work it out on commissions (and some MM). I do not have a conflict of
interest, because I utilize the funds I believe in. Do I use the preferred
funds? Sure, about 85% of the time. But I would not even touch 3 of our
preferred families.





Just because you say you don't have a conflict, doesn't mean that there isn't one.



You take clients out of old funds, often already paid for, to put them
into new funds (thus earning fresh commisions).  Some of those new
funds even give you an extra kickback. In fact you transfer clients to
funds that give you a kickback 85% of the time.



Do you see how this looks to everyone else outside of EDJ?



The core problem is that the transactional model is not suited to long
term investment of money. I like EDJ and thier business system, but I
think the A-share model is obsolete and it is holding the company as a
whole back.



But I am not going to take on portfolios with dozens
of different fund families, because I do not follow them, I do not believe

in them (because I do not follow them), and I am not going to try because
it takes my eye off the ball.





Selling A shares?



I am not going to apologize for how I manage
money, because it is in the best interest of the client, just as what you do
is ALSO in the best interest of the client. We just have different ways of
doing it. AND, you make more money for doing it than I do.




How can more than one thing be in the "best" interests of the clients?



A good, ethical broker will NEVER have a
conflict of interest.





Sure they will, they will be presented with many conflicts of interest.



However the choice to take advantage of the situation is up to broker and his sense of ethics.



Now, trading securities or moving
among A share families just for the purpose of generating additional
commissions is wrong. BUT, so is collecting 1% if you are not staying on
top of your accounts and just riding an electric cart every afternoon (I am
not suggesting that anyone specific does that - I am just stating that
there are potential conflicts of interest in EVERY model).





LOL, clients pay me 1% so that I won't trade the account as much as they would, if left to themselves.



Someone once asked Seth Klarman about the fact that his fund was 45% in
cash during 1999. He said that he gets paid to act in the best
interests of the clients money, not to invest it. Smart man that
Klarman.

Jan 6, 2007 3:33 pm
gad12:

Do you have a responsibility to research every mf
that some prospect may have in order to keep the "best" ones?

 



If you are a doctor, do you not have a responsibility to know about
every disease that some prospect may have in order to make the
"best" diagnosis?

 

Ditto for a lawyer or accountant or anything else. I expect my plumber to know everything about the plumbing in my house



How long does it take to pull up a morningstar/S&P report on the
funds in someone's portfolio? You are going to have more credibility if
you come to praise ceasar than if you bury him.

[QUOTE]But say a client has a 500k IRA they are
transferring to you.  My opinion (subject to change) is that the
best approach is to liquidate and put them in the model you use
and believe in and are able to monitor.  You will do yourself and
your clients a disservice trying to track 250 or more
funds.[/quote]


Not really. What you do is asset allocation, Mutual funds are means
to an end, not an end in themselves. You keep what fits into your new
plan, and discard what does not.


But to trade Coke for Pepsi, just cause Pepsi gives you 3%
commision  is not in the best interests of the client. If someone
has $40K in Pimco real return, you arent doing them any good to shift
it Bond fund of America.

Jan 6, 2007 4:12 pm

Transferring in kind would never reduce the amount of switches.

Compliance is pretty much kept under control as long as preferred funds are

used.