Say whatever you want about Edward Jones. But one thing it does not do is chase fads. As a result, the firm, founded in 1922, has avoided many of the missteps that humbled its more “sophisticated” rivals in recent years. Indeed, Edward Jones didn't even offer its advisors company email until August of 2006. And, in May 2008, the firm finally launched a fee-based advisory program (called Advisory Solutions). About as sexy as the name of the town where it is headquartered (Des Peres, Missouri) Jones actively promotes its squareness.
But the pressures of the modern world (higher compliance and technology costs) have come home to roost and, finally, after years of leaving them alone, Edward Jones increased production expectations for its army of 12,700 advisors. While the new production minimums created a small tempest on this magazine's advisor forums (where many Jones advisors are active), it turns out most Jones advisors weren't too worried about the production increases. (The new standards take effect in 2011.) After all, it will affect few Jones FAs. According to the leader of the firm and the guardian of the culture, managing partner, Jim Weddle, about ten percent of the Jones FAs will be adversely affected by the increased expectations if they don't improve.
Edward Jones sets payout rates based on whether an advisor is exceeding, meeting or “below production” expectations. It used to be that advisors who generate $27,000 in monthly production at month 95 (8 years) were exceeding expectations, and advisors who generate $18,000 in monthly production at month 56 (5 years) were below expectations.
Under the changes, the “exceeding expectations” threshold will increase to $30,000 in monthly production at month 125 (10 years) and the “below expectations” number will rise to $20,000 a month in production at month 66 (5.5 years). And by 2012, the exceeding expectations threshold will rise to $32,000 at month 145 (12 years), and the “below” threshold will jump to $22,000 in monthly production at month 76 (6 years). Edward Jones measures advisor performance in six segments including a “new” segment. Which segments the advisor falls into is based on his four-month rolling average production and on some educational criteria.
One former Wachovia executive and industry veteran says Edward Jones makes “changes at a glacial pace,” compared to the rest of the industry. “I'm convinced they are going to make change very slowly, and only when they are beat on the head by the 10,000 or so FAs they have had for years.”
Change Is Scary
“We don't like change,” says one Edward Jones advisor. “I've been with the firm since the mid-90s. [But] it's not the same firm today as it was back then. It's roughly three times the size. With that growth we've lost a bit of our culture — a culture that a lot of vets, including myself, really appreciate. In my opinion, any changes that are made that move us away from that culture are bad changes. My fear is that if the firm changes too much, we look just like the other brokerage firms out there.”
But change in some areas might be exactly what the firm needs. For example, the fee-based advisory accounts have grown from zero to $35 billion in less than two years. After all, as our annual “broker report card” survey found last year, the biggest gripe Jones advisors have with their firm is in the area of product and services. Of course, most aren't looking to trade options, but they wouldn't mind a unified managed account, which the firm says it is building and will roll out next year. As one top-producing Jones advisor puts it, “We are evolving into a solutions and advice-based firm far faster than many realize. I know people think our deliberate pace is because we are unsophisticated. Think back over the last two years and how that deliberate pace has saved us and our clients mountains of grief and bad decisions. I am not saying we are perfect.”
Indeed, this top Jones advisor went on to say that Edward Jones is not without its weak spots, one of them being its ability to cater to high-net-worth clients. “We held ourselves out as, and trained new FAs as — and thought as if — we weren't capable or concerned with helping high-net-worth. That was dumb. It is our own fault.” The advisor says the firm's ability to serve HNW clients is not a technology or investment problem; rather, “It is — was — cultural.”
That said, its deliberate pace seems to work for the firm: Jones is one of 12 surviving brokerages who brought the Ford Motor Company public in 1956 — out of more than 200. The advisor says he and other top producers like him at the firm know about the big checks and more “sophisticated” investment options offered at wirehouses, but says, “If we were going to leave in droves, wouldn't we have started already? I don't need to make my life or my clients' lives more complex.” Of the 84 advisors the firm lost in the first quarter, only ten were top producers (there are 5,000 segment four or five advisors); that is eight-tenths of one percent annualized, says Weddle. Overall, Jones' attrition rate runs around 14 percent annualized, but only 2.8 percent of those who left stayed in the business, Weddle explains.