WealthManagement Magazine

Edward Jones Raises FA Production Expectations

Edward Jones, now about 90 years old, “has prospered by dispensing buy-and-hold wisdom to small clients in small places.” That’s how we put it on our April 2006 cover story on the firm. But now Edward Jones is doing something very modern and very Wall Street: Like other firms, Jones is lighting a fire under its advisors’ feet to increase production.

Edward Jones, now about 90 years old, “has prospered by dispensing buy-and-hold wisdom to small clients in small places.” That’s how we put it on our April 2006 cover story on the firm. But now Edward Jones is doing something very modern and very Wall Street: Like other firms, Jones is lighting a fire under its advisors’ feet to increase production. On Monday Jones brass announced that it had laid out increased production expectations for its army of 12,700 advisors that will take effect next year.

Edward Jones measures production performance monthly based on whether an advisor is exceeding, meeting or below production expectations. Under the changes, Edward Jones is raising the exceeding and below standards for both U.S. and Canadian branches. According to the firm, currently advisors who are exceeding expectations must have $27,000 in monthly production at month 95 (8 years), and advisors who are below expectations must have $18,000 monthly production at month 56 (5 years).

Under the changes, in 2011 the exceeding expectation will increase to $30,000 monthly production at month 125 (10 years) and advisors below expectations must have $20,000 a month in production at month 66 (5-and-a-half years). In 2012, exceeding expectations will be producing $32,000 monthly at month 145 (12 years), and below will $22,000 monthly production at month 76 (6 years). Edward Jones also breaks advisor businesses out by six segments including, “new” segment, followed by Segment 1, 2, 3, 4, and 5. Segments are based on advisor production on four-month rolling averages and requisite educational criteria.

“It’s not surprising that Edward Jones, like all the major firms, is raising its production expectations,” says Mindy Diamond, Registered Rep. columnist and president of recruiting firm Diamond Consultants. However, Diamond says that $30,000 per month and $360,000 per year in expected production is pretty low compared to the average production at the wirehouses which is around $700,000-plus. “Advisors at that level are not being recruited at other firms,” says Diamond.

While the performance standards don’t take effect till next year, Dan Timm, head of branch development at Jones says, “We’d like to see them ramp it up now so they don’t get shocked in 2011.”

Jones employees are often criticized by others as being a cult, since they love the place so much, and are very vocal about it. Indeed, Jones reps rank their firm as the best in our annual advisor report card survey year after year. So far, this week Jones’ “suggestion box,” has only gotten 50 suggestions, 40 or so of which are less than happy with the production changes; the webpage where the changes are posted on got 13,000 hits, says Timm. A lively debate among Jones’ reps surfaced on the Registered Rep. Advisor Forum surrounding the production increases. Some advisors think the standards will force some reps to leave. As one anonymous forum poster put it, “We’ve got a lot of Seg 3 guys who are very happy producing $22-$25K a month, never hitting Seg 4 who may feel pressured by Jones to raise their production. My guess is they’ll either embrace Advisory Solutions [fee-based account], or go somewhere where they don’t feel pressured to do anything besides show up.” Others say the standards should be changed more often so the increase is less of an impact.

The performance expectations were originally established in 1997, and four years ago the firm increased the below standard. Timm says the firm backed off changing performance expectations further when the market went south. “With business and the economy improving we want to renew our whole performance for excellence theme, and really align that to what is in the best interest of the client,” says Timm.

There are also performance improvement plans (PIP) for advisors who fall below $12,000 in trailing four month average gross. The PIP gives advisors a four-month time frame to improve their performance, and the firm works with them to formulate a business plan to get there. While PIP has been in place for years, Timm says the threshold will be moved up every four months by increments of $2,000 starting in the latter half of 2010, meaning, by 2013 the PIP will match up with the below standard at $22,000. Twenty year veterans are exempted from the PIP, as are profitable branches—there are other exemptions, such as natural disasters. According to Timm, well over half of Jones advisors take the help and improve their business to get off the PIP, which is the firm’s goal. Today there are 350 reps on PIP, who might be the hardest hit from the production increases.

The variable compensation system—including the limited partnership, bonus, profit share and diversification trips—remains in place as is.

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