Questions for EJ guys

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Apr 25, 2009 3:11 pm

Looking at our region commission screen this morning -- one word, very discouraging. OK, that's two words. I see lots of guys under the red line, even those out 5 to 10 years. I see guys I respect who are struggling.
Do you see any catalyst that will get this turned around? Because I don't. Economy is getting worse and investor sentiment is awful. I think a lot of guys are surviving by taking existing clients and selling them annuities.
How long before HQ starts whacking guys, or struggling FAs just walk. I see the classes of 2004 to 2007 as being very vulnerable.
And you get the feeling the vets are unhappy about so many new guys still being thrown out into the field.
I don't talk to many people, but I wonder if the GPs will do something drastic if we stay in the negative bonus bracket. Or what if we start losing money?

Apr 25, 2009 4:07 pm

My two cents... you will hear unofficial talk of people being "coached out" over the next couple of months but official word will be "were supporting you" until September or so when this new Goals Program starts cutting people.

The one thing they don't want is a big exodus all at one time. Nobody can afford that. ARs RLs and everyone else is hoping the new Transfer Broker compensation program will help soften the blow and keep experienced people backfilling the offices as FAs wash out.
The other challenge is keeping the volunteer program going. I know many who have "Battened down the hatches" and focused 100% of their time on their personal health at the cost of some newbe coming in who may or may not last.
Apr 25, 2009 4:20 pm

THanks, FA. Do you think they'll consolidate offices -- close the office when the guy with 10 million leaves and give those assets to the guy with 15 million so instead of having two vulnerable offices you have one FA with a good chance of succeeding? If you put a new guy into the 10 million office, you're really not getting anywhere, imo.

Apr 25, 2009 4:21 pm

In short, these market conditions are exposing the shortcomings of the Jones business model.  I believe there will be significant changes to that model by this time next year.  It's basically a pyramid scheme that has been outed. 

Apr 25, 2009 4:26 pm

In short, these market conditions are exposing the shortcomings of the Jones business model.  I believe there will be significant changes to that model by this time next year.  It's basically a pyramid scheme that has been outed. 

If that's the case, what happens then? If the GPs don't get paid, do they sell? Is there a market for EJ?

Apr 25, 2009 4:28 pm

I'm thinking there is a plan "B" to do just that. All depends on the cost of each office, the lease structure, etc., and the ability to leave it open based upon regulations. Without a licensed person in it, there is only a short period it can be unlocked with a BOA sitting there. In Florida, it must be closed immediately. Maybe some other states too that I am not familiar with.

I am betting if the market doesn't improve and the flow of recruits doesn't keep up with the attrition, forced by Jones or by personal situations, then there will be no alternative. I would think the "Plan B" would have to be initiated in 3rd TM 2009, or 1st TM 2010.
Apr 25, 2009 4:33 pm

"Pyramid Scheme"? "Needs to be outed"?
A business model, yes, pyramid scheme no. Is Enterprise Rental Car a pyramid scheme?
Apr 25, 2009 4:38 pm

I think a slow down of the proverbial "Twenty Mile March" will be the course of action. Maybe stopping to rest, take off the boots and dump the pebbles out, air out the socks, etc. is the likely course if  a "Plan B" is intitiated.

As stated earlier, only my two cents.
Apr 25, 2009 6:14 pm

One thing is certain...if there is no bonus the GP's still make their nut.

If they start losing money and the GP's have to spend their own money then everything is up for grabs. Look for diversification trips to be scaled back or eliminated. That will be the first sign of change. If they can't grow, then health will be the new directive.
Consolidation of offices would seem new broker needs a full time assistant. The wirehouse share 4 or 5 reps for one admin...not insinuating that Jones will consolidate that much but I wouldn't be suprised if they allow 2-3 brokers per office at some point.
Apr 25, 2009 7:10 pm

Why do some of you call EDJ a pyramid scheme? 

Either I don't truly understand the EDJ model, or you don't know what a pyramid scheme is...and I think it's the latter.

Ice, tell me why you think it's the latter (you must've worked there, right?)?
Apr 25, 2009 7:22 pm
Hus Bin Pharteen:

Why do some of you call EDJ a pyramid scheme? 

Either I don't truly understand the EDJ model, or you don't know what a pyramid scheme is...and I think it's the latter.

Ice, tell me why you think it's the latter (you must've worked there, right?)?

He means that the previous poster doesn't know what a pyramid scheme is.

Apr 25, 2009 10:01 pm

A two or three person office at Jones makes total sense to me. I think one of the reasons my region of 60+ brokers has only one person producing more than $700K is the high degree of detachment and isolationism. There's almost zero competition amongst us and there's a very low sense of comraderie.

I believe the firm would greatly benefit from merging two or three offices and getting rid of the unnecessary BOAs. (Can you imagine what we'd save in salaries and benefits?)
I'm a fairly busy Seg 3 office ($25mm), and my BOA has a TON of down time. She could easily support two additional FAs.
Apr 25, 2009 10:17 pm

Holy cow. I just looked at my region's performance chart. What a disaster.

Apr 26, 2009 12:17 am

Interesting discussion. How about "pyramid", but not scheme. Real products and services are delivered.

As a bystander, my impression is that the structure in intended to create brand loyalty. When a new advisor leaves, the salaried assistant often has a stronger relationship with the clients ... over multiple trainee blowouts, where a book was "inherited".
Thus, aggregating offices would be counterproductive to the pyramid structure, there would be stronger loyalty to individual advisors. By the time an individual Jones rep has become a "brand" to the clients he inherited and found himself, the economics of staying with the firm are favorable. Plus, he goes for the Jones culture of recognition on trips with other Jones reps, junior partnership, and so on. He is a self-selected long term "fit".
This will be interesting to watch. Costs must be killing the bottom line in this market, but the firm and partners must have very, very deep pockets. My guess is you won't see much outward change. Big picture, you'd have to say Jones is doing more good than harm, unlike, perhaps, the likes of The Mutual Fund Store.
Apr 26, 2009 12:30 am

EDJ haters are funny ... The firm has made money every month this year.  Until you wrap your minds around the fact we have no shareholders you'll not understand the culture.  It was tough for me but not being forced to report quarterly earnings gives EDJ a heck of an advantage to build for the long term. 

Here is my best guess on what will happen in the short term: New advisors will be forced or STRONGLY encouraged to share an office for a few extra months.  Older advisors that were living on trails and walk ins will either start picking up the phone or be moved out.  It's a VERY healthy time for Jones in my opinion.

Apr 26, 2009 1:14 am

I love times like these.  There are weak brokers no matter what firm you look at.  We have 7 brokers averaging over 45k/month in my region, with two over 100k.  As a new broker, If you can't open new accounts with muni's and Build America Bonds down the road, it doesn't matter which firm you're with.  I find it very encouraging when other broker's numbers are down, the industry is consolidating, and clients are very fearful and looking for advice.  The more assets you retain and bring in now, the better you will look when this whole situation is behind us.  If this was an easy profession, we'd all be making 30k.

Apr 26, 2009 2:08 am

I've modeled my firm off of the 3-4 advisor per office.  I for one pray that Jones sticks to the one advisor, one BOA office. 

If Jones went to that type of arrangement, made one of them an OSJ, they would likely be unstoppable.
And I would say Jones is more ponzi than pyramid.
Anyway, it's a great time to be independent. 
Apr 26, 2009 10:20 am

The Jones profit model was explained to me like this: Let's say a Seg. 5 broker grosses 500k a year. That's $5 million over 10 years, with about half of that going to the firm. A Seg 5 is very profitable to the firm. So the math becomes: How many failed brokers can we run out there to get a Seg. 5 broker? ... And remember, every failed broker brings in some assets and makes it easier for the next guy.
The problem that I see in this particular time is that 1. We have more failing brokers than we normally do, and 2. This puts enormous strain on the Seg. 5s, who will look elsewhere for options if we don't get into the profitability bonus soon.
Jones FAs like their firm, but they will do what's in their best interests just like anybody else.

Apr 26, 2009 11:49 am

Like I said before, the GP's always win.

Let's not forget to add the companies that Jones Financial owns that caters to....EDJ retail. It's not a scheme at all. It's well thought out, and incredibly lucrative to the owners in a vairety of ways. Check out the Jones 10K, it gives a glimpse of the other opportunities.
Ponder this...Do they really need to be that profitable? Would consolidation hurt their overall revenue (not just EDJ retail)?
No wonder RL's out in the field stay forever. It's great to be a partner.
Apr 26, 2009 3:34 pm

A successful pyramid scheme combines a fake yet seemingly credible business with a simple-to-understand yet sophisticated-sounding money-making formula. The essential idea is that the mark, Mr. X, makes only one payment. To start earning, Mr. X has to recruit others like him who will also make one payment each. Mr. X gets paid out of receipts from those new recruits. They then go on to recruit others. As each new recruit makes a payment, Mr. X gets a cut. He is thus promised exponential benefits as the "business" expands.  --from Wikipedia

So, not a pyramid scheme in a pure sense like say, Primerica.  But, not too far off either.  "Recruiting" like minded people.  "Bonus Brackets" and "LP Returns" and other phony mumbo-jumbo to get you a bigger cut of the action as your tenure, success, and loyalty to the firm grow over time.  Then, there's the entire indoctrination of the spouse and family.  The continued brainwashing that goes on that only EDJ is right and just.  Others firms are somehow morally corrupt, and Jones FAs have to go out and save the bluehairs from the evil competition.  All the while, those at the top (GPs) are raking it in.  The relatively few tenured brokers are getting profitability bonuses and LP payments which are essentially other people's money getting funneled to the top.  I'm convinced the whole thing was contrived by a marvelously intelligent evil genius.