Edward Jones question?
Your response wasn't bad but you are missing the point on several issues and looking at thing from the wrong perspective. Jones treats its brokers like little children and restricts product and conduct rather than punish the guys who behave wrong.
"1) Changed the payout on C-shares from 40% to I think 25 or 30%. And no, it's not always better for the client to sell A-Shares. - It's actually 30% at all fund families except Goldman and American. At those funds it's the same as B shares - 35%. You are correct. Not everyone needs A shares. But my understanding was that we lowered the payouts to disincentive abusing the system. Just like not everyone needs A shares, not everyone needs B or C shares. I see that a lot with statements from other companies. Not a lot at Jones. Why not make the incentive positive and have a higher payout for A-shares...Jones lowers the payout even when there are times when B and C's are the best answer for the client. This incents the IR to use only A-shares...I know...you always do what's best for the client...if that's true...why won't Jones let you make that determination? To the GP's...you're a child.
"Reduced payout on EJ recommended stocks." I'm going to assume you meant NON-EJ recommended stocks. I honestly don't know, so I'm asking...at the wirehouses is there a difference in payout of stocks a broker sells that his firm doesn't cover? At one point, EJ payed 5% more for using EJ stocks but under the cover of darkness...they canned that.
"5) Not allowing a broker's PC to be connected to the internet." - 1998 was a long time ago, but I believe I remember always having access to the internet. I think you are misunderstanding the issue at hand with this one. I think this is more of a compliance issue rather than a Jones control issue. I know of several brokers who had PCs in their offices and Jones was OK with it as long as it was accessible for review by Field Supervision if they walked in. I had my own PC in the office from 1998 to 2003 when the banned use from accessing the net with our own equipment. Again...treating us like children. If somebody is sending emails to clients or other non-approved comm. then fire them...don't punish the rest of us. It was nice getting forms and sales material from the vendors via email and then printing the approved materials...but IR's are children and can't be trusted.
"Not allowing brokers to have tax software on their own PC if its in the office." - Why do you need tax software? You're not a tax advisor are you? I know you weren't at Jones. If you are giving tax advice I think more than Jones would have an issue with you. If you were spending your time giving tax advice, then I think you are also missing a golden networking opportunity with real tax pro's. My apologies for not making my point better...I only used the software for myself or family members and NEVER for my clients...I'm not a CPA. Why does EJ have the right to tell me what the hell I can do if I'm not breaking the rules and putting the firm at risk...oh yeah...because IR's are children.
"Only wholesalers from the Rev. Sharing (RS) families can call on you." - One of your "facts" that is your opinion. As registered reps we can talk with whatever wholesaler we want. I've had lunch with several outside the Jones preferred list. Acutally used some of their funds too. You are correct that only those of the preferred list get to get in front of us in large groups. How many fund families do you actually use and know well? I know of hundreds, use 4-5 routinely, know 2-3 really well. I'll bet I'm not all that unusual. In 5 yrs...only one non-pref. wholesaler came calling on any of the IR's in my county. Even the pref. guys can't mention unapproved funds...what a joke...because we are children. It's not how many I use...the point is...I CAN use anyone and you can't. I can easily get sales info. on about any fund. EJ limits access to that information and boils it down for you...how long were you at EJ before you even thought about other families? The bottom line...EJ get a kickback that that is why 98% of the funds sold are out of the pref.
"Are you telling your clients about RS? Please provide the line you use to explain it...I'm really curious." - I can't speak for the Hulk, but in my office when we are talking about expenses of funds I discuss it then. It's really simple to explain to clients that the fund families I use have a business relationship with Jones that's called Revenue sharing. It's a standard practice in the industry. It amounts to XYZ fund company taking some of their annual profits and paying them back to Jones. In exchange they get in front of us IRs more often. Most people don't care what goes on behind the scenes. They see it in print again when I place the trades and send the confirms. Is there any reason for the client to think that you are using pref. funds because they pay for shelf space or just because they are the best fund options out there?
"How many VA vendors can you use...2,3 maybe 4? " - 5 actually. Again, how many of your 20+ annuity vendors do you actually use. I'll bet not more than 2-3. I'd bet you have a couple of favorites that everyone who you think needs an annuity gets. That's just human nature. I've seen some other good annuity companies out there, but I wouldn't say they were so much better than the ones we use that my clients are missing out on something because Jones has a preferred group. Again...I have 20 or 30 companies with about 3 to 5 products each...you are correct...I only use 3 or 4...but I GOT TO PICK WHICH ONES!!! I'm treated like a child and limited to 5. Is it possible that there is another VA firm that has a product that might be better for a client? Especially with VA's, there are so many options which I guess is good if you are limited at EJ because you don't need to know how the others work. Sometimes I even wish there were less...but I get to choose...you don't.
"When your hired Jones says they pays you 40% of revenue...how much off the $300mil from Rev. Sharing did you get?...sorry...$100 mil after fines " - You've got to be kidding! There's a big difference between 40% payout on commisions and revenue sharing. You can't really even put them in the same sentence and call it a fair debate. Profitable brokers do get some of the revenue sharing. Where do you think some of the money for the AUM credits and profitability bonuses come from? Yes, the GPs get a good chunk of it too. If I'm an indy I don't get AUM credits or profitability bonuses. I get a higher payout. There's the trade off. I like having control over my paycheck...GP's control yours.
""If you work hard doing things that don't pay (mentoring) and are profitable, you'll get LP." Its been 4 or 5 years since LP was even offered (thanks to me and the WSJ art.)" - Actually it was 2003. They didn't finalize it, but they did offer it. Best investment I've ever made. I didn't have to pay into the pool and it spit out cash twice a year. Not to shabby. And I get to participate in this one even though my office isn't quite profitable because I was offered the last one. They offered LP in 2003 but nobody GOT ANY until recently. What happens to your LP when you leave or die...oh yeah...EJ gets it back. Why not just buy a bond?
"Very few folks come to Jones from other firms" - Again, are you kidding? We have people come from other firms to Jones all the time. We actually have a Producing Transfers class that gets them into the Jones system and culture relatively quickly. Maybe no one from your old region was a transfer broker, but we have several in ours. I didn't say NOBODY...I said very few and that is a fact.
For a lot of people, Jones is a great fit. Maybe some of them will jump to the indy world or to another firm later, but some will find Jones to be a great place to put down roots, spend time with your family, and have a nice career. I know you don't need me to say that to you, but I'll bet there are people out there reading this stupid board trying to figure out where to go with their career. I'd hate for your ego and arrogance to get in their way. It's not ego or arrogance...I've said it over and over on this board that EJ is a great place to start but after you get to $250k it's time to graduate and come into the light. You don't need light when you're starting out so it's fine in the beginning. Jones is a VERY VERY closed firm and does a great job with it's cultish approach...but the Internet is putting cracks in the dike.
Oh yeah, before I go - EDJ IS the best sales force in the world and all other brokerage firms do suck. I'll take that in the spirit that you intended.
I'm running out the door so I didn't spend time proofreading so please cut me some slack there.
I think all of us Jones guys and you are going to have to decide to respectfully agree to disagree. You have some very strong opinions about us that when voiced in certain conversations come across as ego and arrogance. I don't really know that anyone else cares that you were the guy that "got the ball rollin" or were the deepthroat in the WSJ article. Actually, I'll bet there a lot of us here at Jones what would say thank you. Doug was a great right hand man to Bachman, but maybe not the best Managing Partner for the company. Weddle stepped in and started changing things. So, maybe in the future you can take some pride in the fact that you helped get us get the ball rollin' in the right direction.
As far as this conversation goes, I'm sure at some point we will have it again. It seems to come up a lot on this board.
Have a great weekend,
Very nice response. I did try to change Jones while I was there to include a signed 2 page letter to Bachmann but was ignored...I was at Jones for 1 year at that time. I left because the firm changed and began making decisions without thinking them through. The culture changed and I made a business decision to move on to a firm that fit ME better.
I'm guessing nobody at Jones is thanking me for the WSJ article.
My issue with Jones people on this board is their blind allegiance to a firm that is often taking advantage of them or at the very least putting the home office above the guys making them the cash. For the most part, I'm not saying all, IR's live in a closed world and don't have a clue about what is outside. Jones is not a cult but they sure go out of their way to control information to their IR's. GP's have forgotten who they work FOR...GP's don't generate a dime of revenue (ignoring the Rev. Sharing issue)...they are a cost center. GP's should make less and pass on more profit to the IR's.
There you have it...have a nice weekend yourself...when your ready to graduate into the light...PM me.
"How many VA vendors can you use...2,3 maybe 4? " - 5 actually. Again, how many of your 20+ annuity vendors do you actually use. I'll bet not more than 2-3. I'd bet you have a couple of favorites that everyone who you think needs an annuity gets. That's just human nature. I've seen some other good annuity companies out there, but I wouldn't say they were so much better than the ones we use that my clients are missing out on something because Jones has a preferred group.
Spiffy - you have to know that many of these companies have something to separate themselves from the pack. When you have someone that has a goal to accomplish and you have a limited number of contracts to work with, you are not going to help them. To prove this, I have an 80 year old with a 20 yr old Allstate Fixed contract with a floor of 5%. This lady does not use her funds and wants to pass on to her daughter but is not willing to give up her 5% guarantee. None of your A share annuities will help her. I have one company (out of 30 appointments) that I have never used before but in this one case, it guarantees 5% annually on the death benefit to age 90. If this Lady was meeting with both of us, I win.
Yeah, if she was dumb enough to take your suggestion. Maybe there's more to this lady's situation than what you told me, but I wouldn't suggest to that lady that she do anything with her fixed annuity if the goal was to earn 5% a year. I especially wouldn't suggest an A share annuity at 80 yrs old. In fact, I'm not sure Jones would allow it.
What benefit am I missing with this lady that makes her want to come work with you. A new surrender period? Higher expenses on the new VA? Maybe it's your charming smile or the special brew of coffee you use.
I don't think you win. I think I win because I get her to let me be agent of record on the 20 yr old policy that she's really comfortable with. If she for some reason needs to get to the money she doesn't take a surrender charge, and when I call and explain this to her daughter, I get her daughter's money from you too because the daughter thinks you are just trying to make a buck, not looking out for her mom. If she doesn't need the money, I build a relationship with the daughter so that when mom is done with the money it stays in my office. OK, maybe it doesn't play exactly like that, but I'll bet it's close.
Like I said, there are some other good annuity companies out there. But for the majority of my clients the ones I use are just as good as the ones you normally use.
Just when I thought you were reasonable and then you make a mean spirited response like that. You're attacking the man and not addressing the issue.
The point being...There are so many VA companies and they all have their special twist to the product. With 30 companies, it's more likely that the best product can be found for the SPECIFIC client. It doesn't matter that the 5 you use work 80 or 90% of the time...what matters is finding the right product for the SPECIFIC client.
BTW...I think Jones is the only place demanding the use of A-Share annuities which by that very fact, limits the number of companies willing to work with Jones...that and the HUGE pay to play fees Jones charges the VA companies.
I don't know enough about the client in the example to comment but I think you are shaping your comments around the Jones Kool-aid. Have an open mind...maybe...just maybe...other firms do some things better. Jones is driven by their business model (you know...to make the GP's as much cash as they can) which is very expense to run because of the 2400 new IR's they train and have no return on for 2 or 3 years...then they wake up and leave...that's why the firm hasn't grown in the last 4 years.
I have an 80 year old with a 20 yr old Allstate Fixed contract with a floor of 5%. This lady does not use her funds and wants to pass on to her daughter but is not willing to give up her 5% guarantee
Are you saying you plan to take an 80 year old woman with an annuity well beyond the surrender period, that is probably highly appreciated, with a guaranteed floor of 5% and move her into a variable annuity? Hopefully it isn't a pre 1981 annuity!! Say it ain't so.
If she wants to pass along this asset to her daughter, have you explained the tax consequences to her daughter when she gets the annuity. The smarter move would be to do some gifting annually to the daughter from the value of the annuity and then reinvest those funds for the Daughter. At 80 Mom probably isn't in anywhere near the higher tax bracket her daughter is.
You will have helped both clients and made some income, instead of looking like a greedy salesman.
J&O - my apologies if I stepped on your toes. Uwec86 was correct that it did come across a little mean spirited. That's what happens to be the best of us when we get to the end of a long day.
Uwe - Maybe I will lose a prospect to another broker once in 5 years when this specific instance comes up. I think the percentages would be more like 99% of the time my products meet my clients needs. I don't think that 1% of the time means Jones is worse than any other firm. Just different. We're not trying to be all things to all people. I'll lose more clients to a broker who trades options than I will 80 yr old widows like this.
You are correct about the business model. We do everything in line with that model. GP's make a bunch of cash. So do VPs, CFOs, CEOs, etc at other firms. All at the expense of the RRs. Any time your payout is less than 100% you are losing money to someone with a title.
I'm tired of hearing the whole "pay to play" arguement. I'm going to bet all of the major annuity, insurance, and mutual fund companies out there have some sort of revenue sharing agreement with the brokerage firms they do biz with. For us it's a substantial part of the bottom line. At your firm you probably generate more money from fees. We're all out here to run a profitable business. In the end, it's always the client who pays us.
Here's the math on your HUGE pay to play arguement - The numbers might be off, but they'll give us a decent example. Let's say every one of the 10,186 branch offices puts $1 mil at the $100K breakpoint on an A share annuity into AIG SunAmerica this year. That's $10,186,000,000. They keep 50 bps = $50,930,000. Pay Jones/IRs the other 300 bps. Annually from now on they charge the client at a a minimum 85 bps M&E less the 25 bps services fees to me. $10,186,000,000 X 60 bps = $61,080,000. Just in the first year they've made $112,010,000 of which they paid back to Jones in revenue sharing $15/$10,000 = $15,279,000. They'll clear $96,731,000 year one. Year two and beyond they'll clear $45,801,000 for basically printing statements and filing paperwork. Now, if you're the CFO over at AIG do you pay to play or not? AIG makes money, Jones makes money, my clients save money in the long run.
Jones does revenue sharing. Maybe your company doesn't. I just looked on the LPL site at their revenue sharing disclosures. 26 different mutual fund vendors, 8 529 plan vendors, 23 VA vendors, 13 Life vendors all revenue share with LPL. Does that make LPL even more of a three headed monster than Jones?
Enough with the "pay to play" knock against Jones.
Oh, yeah. My apologies to the fine folks from LPL. Your firm just happened to be the one Google pulled up first when I searched it. You folks keep up the good work.
BL - Good point and well taken. With pension income, this lady is in the same tax bracket as her daughter, we have been gifting annually using a 10% free withdrawl from an indexed annuity some fly by night insurance broker sold her about 4 years ago. It is one of the dandys that give ELIs a particuarily bad name (18yr surrender starting at 20%).
I have to make sure that everyone is clear on the new annuity. The death benefit rachets up by 5% a year at a minimum. I am giving her the opportunity to get a minimum of what she already has and the potential to earn more. Spiff, I don't think surrender charges are an issue, the funds are going to her daughter at her passing. If she passes in two years, surrender charges won't be an issue. If she makes it to 90, I sure hope her return is better than 5% or I will have to find the position that NASTY NASD left because I won't be in business.
What you all must understand is this lady has more to her name than this one annuity. You must trust the fact that this change is to the client's goals. I wasn't asking for advice so I didn't tell you the whole story.
Do your clients really save money in the long run with A share annuities? If I remember right the difference in M&E for most of your vendors is .45% (as opposed to .75% difference in MF fees). This puts the payback period at about 10 years on a $100,000 annuity.
No business justifies capital expenditures on a 10 year payback.
Even if there was a slight savings, if the IRS told you they you were going to pay $100,000 in taxes over the next ten years but if you paid today they would only charge you $90,000 would you do it?
Also, my vote goes to 5% death benefit ratchet with market potential over leaving the client in a fixed 5%.
Rev. Sharing points:When I was at Jones, we were all told that the MFD and annuity companies were specially selected by the Investment Policy Committee because "the seven" had the best group of investments avail. Hartford came out with funds in 1996...how did they get on the list...They paid the most RS. My issue is that Jones lied to the brokers and at the time, I had no reason to question the wisdom of STL. Jones limits the number of firms you use to they can be a big fish in the MFD or Annuity company's pond. By EJ's own stats, the IR's do 98% of their biz with the RS companies. At one point, Protective did 75% or 80% of its total biz with EJ...Makes EJ kind of important. Jones uses this clout to increase RS payments and milk the firms for dollars to pay for the Diversification Trips and the Regional Meetings....and then they cound the trip as income. Let's not forget that EJ put that big ad in the WSJ trashing other firms for doing the same thing...before they were caught. Jones' "Our firm is more ethical than the rest" BS is what ticks off a lot of us. Jones also limits its products to narrow the education of its 2400 new IR's every year and not because it's better for the client. This all relates the their business model that is flawed. EJ's model does not address the needs and EARNED benefits of it's Vets...ie: Death ben. to the surviving spouse, sale of the biz back to the firm at retirement, allowing IR's to give the biz to their son or daughter (I've seen EJ tell a guy he'd have to give part of the biz to some new IR so don't tell me it doesn't happen), higher payout (forget LP...it's a bond you have to pay for), fee based products...and more. RS sounds like EJ would like to annuitize their biz...sounds like a fee-based model to me...but then again...Jones has been saying how bad that is for clients for decades. If a broker uses C-shares...he gets a lower payout and the firm keeps the dif. Almost 100% of EJ's net income comes from RS...kind of makes it important.
My beef with EJ is the misinformation and lack of interest in the broker. HQ is what is important and not the IR...HQ should be kissing the IR's butt instead of finding ways to milk more out of them and look down on the "the best sales force in the world". I was very rarely impressed with the home office staff and their willingness to get things done. HQ does not understand that their "customer" is the IR and not the client (I make this point knowing the feduciary responsibility I and all other brokers have for our clients). Without the IR, their would be now GP's...they think its the other way around. EJ says one thing but their actions say another. My and every firm has many of the same HQ staff issues but when I'm pay 61% for the service they provide instead of 10%...I feel differently about it. It's like paying for a Caddy and getting a Yugo.
I asked EJ to back date an RMD dist. (it was late because the client didn't get me the forms...after repeated calls) and they said they wouldn't do it even though it is legal and best for the client. At my current firm...they just fixed it. Another issue: In FL we had a tax on money market funds but if they were in cash on the last business day of the year they were not taxed. IR's regulary moved their clients money for a couple of days to the cash acct. and then back to MM on the 2nd of Jan. This move is perfectly legal and ethical. Jones put all kinds of road blocks up and even told us we can't do it...WHY?? Because they'd have to do some work. My current firm developed a system to make the whole thing run smoothly and even gave me a client list for me to easily make changes. This was really smart on their part and was working for the IR and the client...no down side. EJ wouldn't do it.
Yet another rant on EJ...but it's all true...or at least in my mind.
UWEC86 Don’t ever let the IRS find out about the RMD. As for EDJ I couldn’t agree more. My only question is WHY WOULD ANYONE IN THEIR RIGHT MIND JOIN THIS FIRM! You only get paid $2000.00 a month for a year with a small bonus. Then if you leave you owe them training costs. The health insurance is so expensive only the older members of the firm buy. They allow you to sell a few products which make them the most amount of money. Why are they still attracting new brokers? or are they?
I've said it before...Jones is not a bad place to start...keeping in mind that EJ is the only place I have knowledge of. Once you get to 250k gross I can make a very very strong financial and life style case for moving your book to an Indy firm. Spiff...PM me your personal email address and I'll send you the spreadsheet so you can check for yourself.
The concept of being in a one broker office is the perfect place to get ready for Indy land. You learn how to work alone and it's real easy to print all the information you need to move your book without a Branch Mgr. standing over you.
Great post. When Space sees the light he will have come out of juice induced coma. Not unti