Performance a Must at Jones
Well, since Jones is highly profitable for the current owners, I don't know why an "inefficient capital business model" would be reason for them to sell. You consider selling when your business is in great demand from other companies, or you are on the brink of collapse - neither of which is happening right now. So I guess I am still confused.
[quote=Bluetang]I’m sorry, I thought the question was why would Jones be selling, not why would anyone buy them. And thank you for confirming it. There is your one reason.
Again, not defending Jones. I just don't see the argument for selling (other than to go public).[/quote] I'm confused also. First you asked why would Jones sell? I gave you an answer to which you agreed, but said why would anyone buy? Then you said my answer was wrong. Which is it. As far as being HIGHLY profitable, Jones is not. GP's individually make a VERY good living, I am not denying that. But compared to other B/D's profit margin is slim. Another reason to sell, margins in the brokerage business are becoming increasingly tight. Do you honestly believe that Jones is rolling out a wrap program because they have seen the light? No way in hell. They are doing this to increase revenue in light of the hit they took on RS. Another hypocrisy, but we can discuss that elsewhere. They are bringing in wraps because they see the writing on the wall. This is the plan that Spiff mentioned they would institute when their business model started failing. Spiff was also nice enough to mention why someone would buy them and how it would not be easy, but not impossible to consolidate offices for cost effectiveness. Massive defections probably would not occur. Same thing was said about AGE, yet only 10% of brokers and more importantly 2% of assets have left almost a year out. We teach our clients to sell high, Jones may at some point (not saying today) realize that they have maxed out and time to sell.
Whenever you wrap your clients in fees the value of your business goes up. Are they doing this b/c this is what the client needs? I doubt if any Jones folks have their money wrapped. They are feeing this and feeing that, raising quotas, etc. Something is going on folks. Maybe the plan was to downplay the lawsuits like they are no big deal and increase fees slowly and blame it on a hit me all at once inflation adjustment. Just come out and say the lawsuits hurt and take it like a man. How many more million would the suits need to be before you say “damn that hurt.” But, then again maybe they are landscaping their offices for something bigger in the future like a sell. Its one or the other for sure. We’ll see.
Gentlemen (I assume you are not ladies…),
I am not defending Jones. I am looking at it from their perspective. Yes, they do not have the highest profit margins in the industry. BUT, they don’t have to spread that profit over as many owners as most public companies (i.e. Merrill, Citi, etc.). GP’s have been getting 60%+ returns, and LP’s 20%+ returns for decades. And it has been extremely consistent because they basically only do brokerage. If they went public, all of the owners would have a HUGE onetime payday. But after that, I doubt the firm would be as profitable for the “new” shareholders (due to dillution).
You are correct, nobody (well, not me anyway) is under the false impression that the wrap program is for the clients. It may be to give the client more options (which leads to capturing more clients), but at the end of the day, Jones saw the writing on the wall that the entire industry has shifted this way, and that their long-term business model is flawed because their revenue sources are very narrowly focused (A share commissions and revenue sharing…from A share MF’s). I don’t think it is “hypocritical” when a company OPENLY acknowledges that their business model is flawed (our 5 year business plan STATES it). There has been a change of management, and that new team is attempting to correct some of their potentially fatal flaws. But I highly doubt they are somehow setting themselves up for a sale. It is simply to become more profitable (and the last time I checked, that was the goal of ALL for-profit companies). They will surely cloak some of their changes as being “for the best interest of the clients”, but don’t all companies do that? Frankly, I am impressed that they have openly stated all of their flaws in their business plan, for all to see.
And I am not so sure they will “max out” and decide to sell. Sometimes just earning a consistently high rate of return year after year is enough, without going for that onetime BPD (big payday).
Now, I may be proven wildly wrong at some point. Who knows. I am just a little cog in a giant wheel. But that is just how I read theings from my perspective.
The hypocrisy is telling brokers (and therefore clients) that wrap programs were a money grab for firms and brokers and not the ethical Jones way of doing business. Wrap programs are not for every situation, but there are many instances where a wrap program makes sense. For years Jones said in NO cases was a wrap program appropriate as it was not the cheapest way to invest. Now that RS has been severly limited, they are going to introduce wraps. Hypocrisy is doing one thing when it benefits you, and then doing another when it suits you.