Can Your Edward Jones Financial Advisor Really Serve Your Best Interests?

Editor’s note: What follows is an examination of the broker-dealer business model, using the specific case of Edward Jones as an illustrative example. It’s longer than normal, but I hope you’ll find it well worth your time. -- B.R.

In 2004, the highly regarded investment firm Edward Jones stumbled over allegations that it didn't disclose important conflicts of interest. The question of whether its model possesses too many conflicts still bedevils the company and much of the financial advisory industry today.

Edward Jones agreed, without admitting any wrongdoing, to a $75 million regulatory settlement with the SEC for allegedly failing to disclose that it received tens of millions of dollars from preferred mutual fund partners each year on top of commissions and other fees.

Today, Edward Jones continues to receive revenue-sharing payments from its preferred mutual fund partners, but it provides a detailed disclosure of those payments on its website. The company earned $98.1 million in revenue-sharing payments from mutual funds and another $54.1 million from insurance product partners in 2011. It earned approximately $4.6 billion in overall revenue during the period.

Where the trouble starts
The company admits that those payments, which are common to the industry, represent potential conflicts:

We want you to understand that Edward Jones' receipt of revenue-sharing payments represents a potential conflict of interest in the form of additional financial incentive and financial benefit to the firm, its financial advisors and equity owners in connection with the sale of products from these partners.

In another document titled "The Fiduciary Dilemma" -- a memo produced by Edward Jones and circulated among congressional staffers in February 2010 -- the company conceded that there were potential conflicts of interest inherent in the broker-dealer model in general, but that its model served investors well as long as those conflicts were disclosed.

In a nutshell, the broker-dealer advisory model is one in which financial advisors provide advice and assistance to customers in return for commissions, fees, and other payments that result from financial transactions. Edward Jones argues that this model benefits ordinary investors by offering them counsel and guidance that is free, unless there is a transaction. As long as potential conflicts are disclosed, everyone wins, according to the company.

As a result of our research, we disagree with this view, and while we're great believers in disclosure, it's not enough of a protection for the ordinary investors who often see their investing returns diminished by high costs they don't always understand.

And any model that incentivizes the sale of expensive mutual funds to investors with relatively small portfolios is particularly flawed. Financial advisors at Edward Jones are primarily compensated on a straight commission basis. They get paid by selling customers financial products that generate commission revenue to the firm and themselves. Most financial advisors in the broker-dealer industry are paid on a roughly similar model. Unfortunately, academic research in behavioral ethics is pretty clear that "when people have a vested interest in seeing a problem in a certain manner, they are no longer capable of objectivity."

A case study of Main Street's broker
In order to better understand why the broker-dealer model as it is practiced today is generally inferior to a fiduciary model for individual investors seeking advice, we've taken a closer look at Edward Jones, a registered broker-dealer that has more than 12,500 advisors spread across 11,100 offices serving 7 million clients. This year, it ranked fifth in Fortune's "100 Best Companies to Work For," and it came in first  in the J.D. Power and Associates 2012 U.S. Full Service Investor Satisfaction Study.

We're not talking about a fly by-night operation here, but rather one of the most popular financial advisory firms in the country.

Because we've been critics of the broker-dealer model in the past, and after reading this series by Motley Fool blogger Sylvia Kronstadt, we set out to explore one central, guiding question: Is a broker-dealer like Edward Jones, regardless of its intentions, capable of putting the interests of its clients first?

Who's that person knocking on your door?
The financial advisors at Edward Jones come from diverse backgrounds and are provided with a great deal of training and development opportunities. Many of the former Edward Jones advisors we spoke with, however, told us that the role is primarily about gathering assets and generating revenue for the firm.

The team of financial advisors at Edward Jones has extremely high turnover, and many of the less-experienced advisors are probably unqualified to make investment recommendations. Ultimately, we found that the firm’s very business model -- which, again, is representative of broker-dealers at large -- is structured in favor of revenue generation, at the expense of providing the best possible investment advice. Importantly, our findings come despite the fact that the current and former Edward Jones advisors we spoke with are people of integrity.

According to Edward Jones Managing Partner Jim Weddle, who has been with Edward Jones since 1976, the company seeks out individuals with diverse backgrounds. The average new employee is in his or her mid-30s, and most have non-financial professional experience. "Everyone comes from somewhere," Weddle says. "We employ teachers, accountants, engineers."

Adam Koos, who earned an undergraduate degree in psychology, doesn't have a traditional financial background. Before joining Edward Jones in 2001, he was a would-be Olympic athlete who was sidelined by an injury, and considering trauma surgery. Attracted by the autonomy of the Edward Jones model, he filled out an application, passed a personality test and, with the help of headquarters, began the process of being a broker.

His story is not unusual. Edward Jones brokers come from a variety of backgrounds. One broker in Los Angeles was the former programming manager at a cable television channel; a South Carolina advisor was formerly a placement specialist at a technology staffing firm; and another from St. Louis was a shift supervisor at UPS.

And Edward Jones isn't shy about this. In a recruiting video, Kim Webb, a principal with Edward Jones, offers this piece of advice:

If you're new to the industry, what I think I'd want you to know is, it doesn't matter.

Unfortunately, recruiting individuals who have no experience providing investment advice does not inspire confidence for customers working with newer brokers. That's because the company's aggressive employee training program is mostly spent knocking on strangers' doors to gather new clients, and burnout is high for trainees who don't produce enough sales. Despite what the company says is an investment of nearly $60,000-$70,000 in every new broker hire, one of its executives told The Wall Street Journal in 2009 that 23% of new financial advisors hired by Edward Jones quit during the first four months on the job.  (UPDATE: Edward Jones officials claim that overall attrition is now below 10% and in line with other firms in the industry.)

Intense (sales) training
The word Brenda Lutz-Kiser uses to describe her initial training period at Edward Jones is "intense." Now a broker in Mooresville, N.C., Lutz-Kiser spent two months at home studying for her Series 7 & 66 exams. That the Series 7 is the barrier to entry at Edward Jones makes sense: It's the General Securities Representative exam, the qualification needed to buy and trade stocks. Series 66 is a requirement for all securities agents and investment advisor representatives.

Once she passed, she was flown, as all new hires are, to headquarters for a week of training called "Know Your Customer." "We spent an intense week at headquarters, then training in the field, knocking door to door and face to face, gathering information. It was about two months of that, then back into headquarters for another week."

"So many people start and can't make it," she says. "The training is intense, but it's the reputation we have; that we have the best training." In addition to initial training sessions at headquarters, advisors have quarterly meetings, mentorship programs and a 'boost coach" when they have difficulty meeting their targets.

Door to door (to door to door)
The door-to-door process is distinctive to Edward Jones, and it inspires love or hate from those in the field. When asked if newly hired agents were qualified to approach people's homes and discuss their investments, Weddle says it's not just the new people who go door to door. "Meeting people face to face, asking what they need, explaining how you can help, is something our people do throughout their careers at Edward Jones."

Weddle says that going door to door is the best way to build a career at Edward Jones, and that's a necessary part of serving customers. "I wouldn't invest with someone I hadn't met," he says. "I think that would be crazy."

Asset gatherers or money managers?
Koos, now the president of Libertas Wealth Management Group in Columbus, Ohio, went back to school for a degree in financial planning and has a Certified Financial Planner credential. And while both Weddle and Lutz-Kiser say career-long training is the norm at Edward Jones, Koos says he was discouraged from gaining additional certifications.

Koos says the exams he passed are not nearly enough to make Edward Jones brokers qualified to manage portfolios, and the focus on door-to-door introductions over gaining advanced financial acumen is counterintuitive. "These agents have Series 7, but they don't know what they're doing," he says. "They're asset gatherers, not money managers." 

For Lutz-Kiser, managing about 400 portfolios is a full load. She says advisors in other cities may have as many as 1,000. "If you have more people than you can call, you can't serve them."

Burnout/turnover
"Of the 14 people who were in my class from the very beginning, I think there are only four, including myself, that are still in the field," says Koos. "Everyone else moved into banking or some other non-advisory role." 

"It's a great career -- one where you can do wonderful things for your clients all while making a fantastic, unlimited amount of income -- but it's not easy, especially getting started."

Alan Canton was one Edward Jones customer whose broker left for another firm. Canton opted to follow his broker, and says he was surprised that no one tried to stop him. "No one at Jones ever bothered to call me to ask me to stay until a new broker came to the office," he says, "or to offer me an interview with other Jones brokers in the area. I was going to follow my broker anyway, but I was surprised that Jones never made any effort at all to retain me."

Koos says that most customers don't notice the turnover of agents. "Edward Jones does a good job of keeping it from their customers. Clients have learned unless you're working with someone who's been there at least three years, they won't be there long."

Lutz-Kiser, who has been with Edward Jones for four years, says that for some, finding a comfort level at Edward Jones seems to take a while. "There's definitely a hump. If someone makes it through the first three to five years, they're likely to stay." When asked if she would recommend potential clients avoid brokers who had been with Edward Jones less than five years, she says, "No, because that would mean they wouldn't work with me."

Dan Weedin, of Toro Consulting in Poulsbo, Wash., has been with his Edward Jones broker for at least 10 years. He takes an active role in his portfolio management and largely steers the planning, with his brokers' implementation. "I do also trust he is always acting in my best interest. I just like to be the one who makes the decision with his help and advice," he says. "This is a business relationship and it hasn't failed me."

Koos considers his time with Edward Jones well-spent. "At the end of the day, if I had to do it all over again, I'd still start at Jones," he says. "In my opinion, if you can't make it at Jones -- you can't make it as an advisor, on your own, anywhere."

The surprising way that your Edward Jones advisor gets paid
At this point, we need to take a closer look at how Edward Jones makes its money.

Financial advice, of course, is not free, and Edward Jones is not the only financial advisory company that derives a lot of its revenue from commissions. To its credit, Edward Jones does a very good job in disclosing how its financial advisors get paid. Here are just some of the components of one of its financial advisor's compensation:

New Edward Jones brokers are on salary for only a portion of their first year -- they eventually work solely on commissions. Advisor Lutz-Kiser was on full salary for the first six weeks. "At some point in that first year, it dropped to one-half salary," she says, "then one-quarter, so that by the end of the year, I was on commission only."

For instance, when a client pays a front-end load of 5% on a $10,000 investment in a mutual fund, the Edward Jones advisor would typically pocket 36% to 40% of the $500 commission, or about $200.

The typical financial advisor at Edward Jones is paid an hourly rate while studying for licenses and training. Having completed the training, a middle-of-the-pack advisor would earn roughly $60,550 during her first year and $62,500 (likely all from commissions) in year three. According to the company's own literature, a top-performing financial advisor would earn more than $100,000 in year three.

A tough job and an unavoidable conflict
This payment model -- not at all uncommon in the industry -- means that experienced financial advisors must sell financial products in order to get paid and meet their monthly quotas. And much of the selling is door-to-door, which requires a thick skin along with exceptional motivation and optimism. It's extremely difficult work, and we suspect that many of these financial advisors work hard for their clients.

Indeed, many of the customers we spoke with were complimentary of their brokers. Among their comments were common themes: brokers who had been with Edward Jones for several years seemed to do better by their clients in communication and disclosure and account management. Newer brokers, however, tended to cut corners either unknowingly or willfully, and leave customers feeling frustrated and wary.

On the whole, Edward Jones financial advisors stack up pretty well next to their peers in the broker-dealer industry, as the firm's J.D. Power ranking would seem to validate. Nonetheless, a straight commission model that requires the sale of expensive mutual funds does not serve the best interests of individual investors.

In Blind Spots, a standard text on behavioral ethics, professors Max Bazerman and Ann Tenbrunsel explain that reward systems "are usually well-intentioned, yet they tend to miss the mark because they fail to anticipate how employees will respond to them." In the case of Edward Jones, a straight commission model makes selling financial products the primary aim of the relationship between advisor and customer. Bazerman and Tenbrunsel's theory would argue that this model is driven by extrinsic motivation (selling more funds benefits the advisor and the firm), while discouraging "an intrinsic motivation to do what's right" for the client.

As Adam Koos put it, "if it weren't for those up-front commissions (paid by the preferred funds), I could've never put food on the table until I had enough clients to abandon the commissions. ... It sucks, but it's a conflict that you can't avoid. They paid us a salary of $24,000 for the first year. After that, I was on my own. With no clients to start with, commissions were my only income."

Why their interest is not your interest
Besides knocking on more doors to gather more client assets, another major way an Edward Jones advisor can generate revenue for the firm (and, thus, themselves) is to sell Class A shares of mutual funds.

This class comes with a front-end load that is deducted from the original investment. For an investment of $10,000, the sales charge can be as high as 5.75%, which means that $575 will be deducted right off the bat. For an investment of $100,000, the load might be around 3.5%, which would result in a $3,500 deduction. According to Edward Jones, a financial advisor receives a greater percentage of the sales charge obtained by the firm for A shares than for B or C shares.

Michael Connolly, a former Edward Jones financial advisor, told us that this approach didn't always serve the best interests of investors. If an investor wants a low-cost exchange-traded fund or index fund, according to Connolly, he or she "will be absolutely discouraged from doing so." Connolly also said no Edward Jones financial advisor is going to call you and pitch an index fund to you: "Surprise, surprise -- every financial advisor that gets your phone number will be calling with an A share mutual fund."

How loads hurt the small investor
Burton Malkiel, author of the investing classic A Random Walk Down Wall Street, told Bloomberg that "in no event should you ever buy a load fund. There's no point in paying for something if you can get it for free." This is a point that John Bogle, founder of Vanguard and a leading proponent of index funds, has made as well throughout his long career.

But advocates of front-end loads -- like Edwards Jones -- argue that they work well for investors with long-term time horizons. The investor pays for the advice upfront, and the load pays off after around eight years or so. With Class A shares, investors get access to actively managed funds and the fee for the recommendation comes right out of the investment itself.

Problem is, academic research shows that load funds consistently underperform no-load funds. The data also show that most folks hold an equity fund for approximately 3.3 years, which means, as Bloomberg put it, a front-end load is a bit like "paying a lifetime's rent for a place you might live for only a few years." While it's possible that Edward Jones' customers have longer than average time horizons, it's also important to note that investors with smaller amounts of money to invest often pay higher percentage loads on Class A shares -- a regressive tax of sorts on smaller portfolios.

It's instructive to take a closer look at a typical fund that might be sold to an Edward Jones customer. According to company filings, it received 19% of its 2011 revenue from just one mutual fund partner: American Funds. The biggest fund from American Funds is the Growth Fund of America, so it's very likely that Edward Jones clients have had this fund recommended to them.

The Growth Fund of America's Class A shares come with a 5.75% front-end load, along with total ongoing fund expenses of 0.71%. Below, we've put together a hypothetical illustration of how a $10,000 investment in Growth Fund of America A shares would stack up against a typical low-cost index fund from Vanguard.

Over 10 years, investors would have paid a whopping 13% of their initial $10,000 investment in fees, an incredible amount for what is arguably a commodity-like product. It's true, of course, that financial advice isn't free. Should it cost this much, however?

As you can see, it wasn't a great decade for equity investors in general, and the Growth Fund did outperform the index fund. Total fees and expenses, however, were so large, that the Growth Fund's profit was meaningfully smaller than the index fund's. For those investors who didn't hold for 10 years -- and we know that investors hold for much shorter periods on average -- the Growth Fund would have included a very poor fee structure for investors.

Regardless of its relative performance, Edward Jones advisors have a compelling incentive to sell this fund. The Growth Fund of America's Class A shares put money in their pockets, while also helping them to hit their monthly quotas. And financial advisors have the added incentive of selling products from the No. 1 provider of revenue-sharing payments to Edward Jones -- in 2011, American Funds paid $32.5 million in revenue-sharing to Edward Jones.

It’s important to note that Edward Jones is one of many broker-dealers making money from revenue-sharing, an industry term that describes money paid to broker-dealers by the fund companies in return for the sale of their funds. These payments are in addition to sales loads and other fees.

Investors get what they don't pay for
Edward Jones, which is organized as a limited partnership, is a profitable and growing business. As of February 2012, it had 37,000 full- and part-time employees, including 12,169 financial advisors. The partnership received 70% of its total revenue in 2011 from sales and services related to mutual fund and annuity products. Of its $4.6 billion in total revenues in 2011, $1.7 billion came from commissions with another $1.8 billion coming from asset-based fees. As mentioned earlier, its net income for the year was just shy of $500 million.

Clearly, this is a profitable model for the partners of Edward Jones. It's doubtful, however, that a model based on selling expensive load mutual funds to retail investors is delivering as much value to customers.

The fact that Edward Jones discloses possible conflicts of interest on its website -- and presumably its financial advisors disclose them over the kitchen tables of their customers -- doesn't change the fundamental calculus. Edward Jones is benefiting handsomely from all of the various financial transactions, and these benefits might outweigh those that are realized by its customers.

With cheap options like ETFs available, paying a lot for an actively managed mutual fund is the last thing a small investor should consider. Edward Jones and the entire broker-dealer advisory industry need to rethink how they practice their business model.

Are broker-dealers like Edward Jones required to serve your best interests?
Aside from these serious conflicts of interest, many investors would be surprised to know that most financial professionals who are paid to offer you advice aren't actually required to give their best advice.

That's because professionals offering personalized investment advice come in two basic flavors: "brokers," like Edward Jones and numerous other financial services firms, who are paid on commission to execute trades, and "investment advisors," who are paid a fee to manage your money. Different rules govern how they're allowed to treat clients. Fiduciary investment advisors have an ongoing legal obligation to act in the best interest of clients, whereas brokers are only required to deal fairly with clients.

But investors aren't generally aware of this fine legal distinction.

Adding to the confusion, many professionals are registered as both brokers and investment advisors, sometimes acting in a fiduciary capacity toward a client, othertimes not -- a practice known in the industry as "switching hats."

What's more, brokers often market themselves ambiguously as "financial advisors" or "financial consultants." According to an SEC-commissioned study, 59% of investors are under the impression that professionals with those designations are required to act in their client's best interest. (A separate survey by the Consumer Federation of America found that 76% of investors mistakenly believe that professionals who call themselves "financial advisors" are required to put their clients first.) Just as troubling, only 34% of investors knew that such professionals typically receive commissions based on the fees they generate through their recommendations.

Paula Hogan, founder of a Milwaukee-based fiduciary financial planning firm, explained the lack of clarity over titles: "If you go to an M.D., you know that's different than going to a chiropractor. And that's OK. But can you imagine not knowing?"

But all that might be changing. As part of the 2010 Dodd-Frank financial reform legislation, Congress gave the SEC the authority to hold brokers to the same fiduciary standard as investment advisors when making personalized recommendations.

Not everyone was happy with the idea. Prior to the law's passage, Edward Jones even circulated a document on Capitol Hill titled "The Fiduciary Dilemma," warning that a fiduciary duty could lead to "unintended consequences" that could "severely limit or prohibit the broker-dealer from providing the most appropriate investments or services to the client." It also insinuated that the law might be interpreted to prohibit commissions, thereby limiting their ability to provide "professional assistance" to "hundreds of thousands of smaller investors in this country."

In fact, both House and Senate versions of the bill would have required brokers to provide the most appropriate investment recommendations and specifically permitted brokers to continue using a commission-based model.

In early 2011, an SEC staff study recommended the SEC go ahead and hold brokers and investment advisors to the same "unified fiduciary" standard: "when providing personalized investment advice about securities ... act in the best interest of the customer."

It's unclear why, in nearly two years, the SEC still hasn't acted on the recommendation. Aside from opposition by the insurance industry, which might not be able to justify recommending expensive annuities as easily under a fiduciary standard, the most likely culprit is grueling financial industry opposition to the rest of Dodd-Frank. More than three years after the financial system overhaul was passed into law, only about one-third of its regulations are in place, as agencies have been bogged down by lobbyists, political pressure, and the threat of lawsuits.

But it's also possible the SEC is in no hurry to create a unified standard, preferring to issue a rule after brokers have been gradually eased closer toward a fiduciary standard. In recent years, FINRA, the self-regulatory organization for brokers, has been steadily beefing up its standards. Mercer Bullard, an associate professor at the University of Mississippi, believes that "FINRA rules and interpretation have expanded to reflect the broader context in which brokers advertise and deliver retail financial services, and they approach the fiduciary standard that traditionally has applied to advisory services."

Under FINRA's updated rules, brokers need to have a "reasonable basis" for believing that trades or investment strategies they recommend are "suitable" for their clients, based on factors such as age and financial situation. When selling products directly to clients, prices have to be "fair and reasonable" (the maximum permitted markup rates are 5% or lower). And brokers will be responsible for keeping an eye out for changing circumstances that could render their previous recommendations unsuitable.

That's a big improvement in the minimum permitted standards of conduct for brokers. But it still leaves the door open for brokers to advise their clients to buy expensive, underperforming products over superior ones in order to generate higher fees.

What needs to be done
The SEC needs to fix the loophole whereby professionals providing personalized investment advice are held to different standards.

When providing personalized investment advice to ordinary investors, brokers and investment advisors alike should be required to put their client first. (The CFA survey found that 97% of people agree.)

We recognize the importance of the brokerage service of processing trade orders. It serves a necessary function. But when an investor hires a professional to provide them with personalized investment advice, that professional's loyalty should be to their client for any recommendations they make.

Brokers who don't want to bear a fiduciary responsibility for their advice simply shouldn't offer personalized investment advice or advertise as a "planner," "advisor," or "consultant." Just stick with "broker" or "salesman." Advertisements and professional standards of care ought to reflect real-life functions, rather than fictitious legal distinctions between true investment advisors and sorta-investment advisors.

As professor Jim Fanto of Brooklyn Law School puts it, "You've got to really simplify things so that people aren't bamboozled and get a baseline protection when they're dealing with financial professionals. And a baseline protection means the professional is acting in their client's interest."

Investors shouldn't need to worry that they're getting fleeced by the very person who's being paid to advise them. While that's certainly not the way most brokers probably perceive their work, investors are at greater risk of being taken advantage of when their advisor is not required to put them first, has strong economic incentives to generate fees, and doesn't need to disclose those conflicts of interest in a particularly clear way.

Like investment advisors, brokers who provide investment advice should also be required to explain any important conflicts of interest in a clear way before opening an account with clients, and at relevant times during their relationship -- such as when they make recommendations.

One objection that's sometimes raised is that a fiduciary duty would interfere with brokers' commission-based funding model, thereby limiting the availability of advice for lower-income investors. That is, if brokers needed to recommend cheaper options to their customers, the reduced kickbacks from mutual fund companies wouldn't be generous enough to cover broker expenses.

But even if the reduced income really were to cripple brokers providing advice on a commission-basis, they could shift toward charging their clients an hourly or asset-based fee for advice. This would increase fee transparency, curtail conflicts of interest for brokers, and reduce distribution expenses for mutual funds.

A study by professors Michael Finke and Thomas Langdon, which compared states that hold brokers to a fiduciary standard with states that do not, indicated that a fiduciary standard doesn't seem to reduce the range of services provided, limit brokers' ability to provide tailored advice, or restrict access for lower-income clients.

Should brokers find that a fiduciary duty makes it untenable to recommend certain products -- say, expensive annuities or sketchy structured asset-backed securities -- they probably shouldn't have been recommending them in the first place. Investors could still find out about such securities from advertisements and professionals who accurately identify themselves as brokers or salesmen instead of advisors.

And if there's less "liquidity" for bad products because fiduciaries can't recommend them, that's OK. It's not the job of ordinary investors paying for advice to be the dupes of financial markets. Bad or clearly inferior products don't need liquidity. No one mourns the loss of medical saw manufacturing sales that must have occurred once doctors were able to begin treating infections with penicillin instead of amputation. Likewise, it should be viewed as a good thing for our financial health if better investment advice causes expensive, underperforming funds and annuities to be replaced with superior financial products.

As we've seen over the course of our investigation, a lot more is needed to ensure that investors receive the quality, loyalty, and care from their advisors that they deserve.

If you'd like us to keep you up-to-speed on investor protection and financial reform, just shoot a blank email to financialreform@fool.com.

In the meantime, you can take a look at our recommendations for how to improve the financial advisory model:

Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Read/Post Comments (138) | Recommend This Article (282)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 07, 2012, at 6:04 PM, rbraseth wrote:

    The single finest piece of journalism Motley Fool has ever done. I used to be a client of Edward Jones until I began to take a closer look at my statement which in turn led to take a closer look at my agreement. Edward Jones put their clients in those up front load funds -- American Funds -- and others that take a huge bite out of a person's ability make money in those first crucial years. The real problem is they keep going back to the well. And when money is passed back and forth between funds and investment folks, I'm sorry, but the investor is the last one to be considered. And then there are the yearly charges. Edward Jones cost me about 3-4% percent for more than 10 years when the market was actually decent. Edward Jones was just what I needed to leave and take care of my own affairs. I'm not great, but I'm better than them. Excellent job on the story. Just incredible.

  • Report this Comment On December 07, 2012, at 6:13 PM, Ostrowsr wrote:

    Just like all brokerage firms, you are paying the fees and salaries of the brokers and company. Good chance you will lose if you stay with them for more than a few years. Happened to me about 5 times before i got wise. DO NOT GIVE YOUR HARD EARNED MONEY TO ANYBODY. Do it yourself with a discount broker and good recommendations like this site provides.

  • Report this Comment On December 07, 2012, at 6:21 PM, aclark1998 wrote:

    I have an account with Edward Jones now.

    Rationally, I knew something was wrong about a year ago when it came to fees, but I didn't realize how wrong until I started doing some research, like reading John Bogle and using SigFig. That's when it dawned on me that I was paying huge fees, specifically on American Funds.

    In a few months, I intend to roll the IRA and money market into Vanguard or something - as soon as I can figure out a smart and cost effective way to do it.

  • Report this Comment On December 07, 2012, at 6:23 PM, phatandfoolish wrote:

    they didn't do it for me, and their incompetence cost me a few thousand in the process of leaving them - didn't feel like paying for arbitration to try to get the money back.

    i got out and now manage my own IRA with Vanguard and am doing very well.

  • Report this Comment On December 07, 2012, at 6:53 PM, moonbuffer wrote:

    Vanguard is the only fund family that a person with limited assets ought to consider purchasing.

    Their online site is fairly easy to use.

    The statement that, A 1% fee is the highest fee to consider paying for advise, applies to a person with a larger portfolio who wishes to invest directly in shares of stocks.

    A DIY portfolio based on Motley Fool stock recommendations can easily outperform many advisors on size fits all advise.

  • Report this Comment On December 07, 2012, at 7:01 PM, Snertie wrote:

    Doesn't surprise me at all. Nearly 10 years ago after my mother-in-law passed, I had to threaten to sue before we could get her estate cashed out. During the whole process, Edward Jones seemed to act as though this was the first time in the entire history of the firm that one of their clients had died; nobody seemed to know what to do. Then they seemed to drag their feet at every step. They lost the file with our liquidation request no fewer than 3 times! Each time, we'd have to start from scratch, order more death certificates, fill out the forms from scratch, etc. I got the distinct impression that they were hoping that we'd just give up, and let them continue to manage the estate, which is definitely not what we wanted, especially after the supposed incompetence we endured.

    After the 4th set of liquidation documents were submitted and more feet dragging, it was only after I set a drop-dead date for a check and threatened to sue that a check finally arrived and we were done with them. This took the better part of a year.

    Since then, I along with all members of my wife's family have sworn never to do business with Edward Jones, and to encourage others not to either.

  • Report this Comment On December 07, 2012, at 7:18 PM, ginandlin wrote:

    Great article! As naive investors with a recent windfall, we too got burnt a few years ago after our Edward Jones "advisor" put us into a bunch of Class A funds after showing us very convincing data (all produced by Edward Jones for him to regurgitate, of course) that all but proved Class A shares are the "serious investors choice". Yeah, right.

    But another even more sinister effect of this payment model is the temptation to increase 'churn' in accounts where the investor essentially hands over the management reigns. And it's exactly this kind of trust that your local, friendly Edward Jones advisor wants to foster.

    For example, this same guy that cost us a bundle still manages my mother-in-laws retirement money (and many other seniors in the same town I'm told) and she does indeed trust him implicitly; he can do no wrong. I mean, he sends her a sheet of penny stamps when the postage rates go up - how nice and thoughtful of him! I am not privy to the details of her account but I have seem the odd trade confirmation lying around, and there is no way my 87yr old mom-in-law understands the implications of an emerging market bond fund (or she wouldn't be in it!). I fear he's generating a stream of revenue from the account by trading her in and out of stuff, but no doubt with her blessing based on his "advice". Grrr!

  • Report this Comment On December 07, 2012, at 7:43 PM, bluesharpbob wrote:

    Wow,great article! Nice work by all involved.

  • Report this Comment On December 07, 2012, at 8:13 PM, BullJeep wrote:

    As a former Edward Jones Financial Advisor, I agree that the primary role of a new FA is asset gathering. Unfortunately, this must be, or the new FA will not have income. I hired on in June of 2008 and I left the firm after a year and a half. I was meeting my expectations, but I had a family to provide for and my revenue stream was diminishing, even though I was using the Edward Jones formula. I can honestly say that, doing what's best for the customer was a philosophy of the firm. I also know that some adhered to the philosophy more faithfully than others. Without going into more details, I realized that at Edward Jones, the new Financial Advisor is simply a tool to gather assets. If you make it, great; if you don't, just be sure to bring in as many assets, as possible, before you go. I brought in about $1.3mm in assets (door-to-door and phone-to-phone), before I left the firm. I think this may typical of new FAs, more or less. I really don't think our Edward Jones district management was interested in my personal success. He was very interested in the assets I brought under Edward Jones management. I must say my short time, as a Financial Advisor was awesome. Meeting people, helping them achieve their financial goals and providing investment solutions, was very rewarding. I wish I could have made the situation different.

  • Report this Comment On December 07, 2012, at 8:16 PM, CRLarimore wrote:

    A very "interesting" piece from people who have an axe to grind against mutual funds with a sale charge. In fact, the Jones approach of attracting potential investors who want and need personal, and personalized, advice is borne out over the past 50+ years. Yes, people are incentivized to create "new customers", people who otherwise have no exposure to opportunities beyond bank CDs, etc. Delivering face-to-face service in more than 11,000 locations is a "higher cost" model than most brokerage firms employ...requiring revenue commensurate with the costs. For those who believe the personal relationship with their financial advisor is valueless, there are many other options. For very many investors, those options are not very attractive.

  • Report this Comment On December 07, 2012, at 8:20 PM, CRLarimore wrote:

    ginadlin's comment is very far from the way Jones operates....they are probably the least likely investment firm to "churn" anyone's investments. The firm has been built, for many years, on the "buy and hold" principle...the turnover in customer accounts is among the lowest in the country, and the retention rate of mutual funds account holders is the highest that I know of. There may be objections to the Jones model, but churning accounts is certainly not a valid one.

  • Report this Comment On December 07, 2012, at 8:30 PM, MyPortfolioGuide wrote:

    Very informative article in that most people have no clue as to what Edward Jones or any other advisory platform is all about. Here's one other take on the whole industry :

    http://myportfolioguide.com/blog/150-happy-halloween-what-co...

    Ask yourself "What Costume Your Financial Advisor is Wearing?"

  • Report this Comment On December 07, 2012, at 8:35 PM, jiminpedro wrote:

    The irony is nothing is free in life or as cheap as anyone wants it, and those who don't want to pay for advice end up being the ones who really need the help. The bloggers dump on EJ, American and promote ETFs. Well guess what, many smart investors invest in volume with American and make a ton of money, while others will nickel and dime with ETFs about which they know nothing, and loose out. The world of investing is huge, and impossible to know enough to be successful when investing on a part time or low volume basis. I do not use Edward Jones, but another broker / dealer. I do not use an FA because I am unsure of their particular bias or motivation. I have worked with the same broker for 15 years, and this is a personal relationship which works both ways. I know how he makes his money, and he helps me make money. Our gains in American funds are 6 figures. His advice has been priceless.

  • Report this Comment On December 07, 2012, at 8:43 PM, bryant769 wrote:

    The comment in support of Edward Jones comes from Ron Larimore who is a retired General Partner of Edward Jones, he was in charge of the training program for Edward Jones when I went through the Edward Jones training program back in the early 1990s. It is OK for him to have this point of view, he has become very wealthy because his time as a General Partner with Edward Jones. But it is NOT OK for him to not identify himself and his lack of objectiveness while trying to pass himself off as another investor with a different point of view. This is just another example of Edward Jones not disclosing its conflicts of interest.

  • Report this Comment On December 07, 2012, at 9:09 PM, CRLarimore wrote:

    Bryant769...OK, there was not intent to deceive here. Yes, I was in charge of training...as well as many other parts of our branch operations. However, none of that has anything to do with the veracity of my observations about Jones and its contributions to the investor community...especially the underserved, less-than-rich investor community.

  • Report this Comment On December 07, 2012, at 9:11 PM, CRLarimore wrote:

    P.S. Bryant....I did not attempt to "pass myself off as another investor"....I am passing myself off with someone who has intimate knowledge of the mission and objectives of Edward Jones.

  • Report this Comment On December 07, 2012, at 9:21 PM, dschmelter wrote:

    I've been an Edward Jones advisor for 35 years and I find some liberties that have been taken in the research of this article. Sure, the American Funds are a preferred fund family that Edward Jones and yes we get paid for helping our clients save for retirement. I have often heard John Bogle harangue about the low cost of his Vanguard Funds, and I've also seen the study of the performance of his funds vs load funds. What is forgotten about the comparison, the average investor doesn't benefit as well as the fund in it's performance, because when the market really gets funky and scary, those No Help funds lose investors when they should be helping them stay the course. Say what you want about why we get paid, because we are providing our clients with help, when they need it. I understand that not everyone needs our services because they can do it themselves and they feel comfortable doing their own investing. And you know that's ok.

    When the markets have acted up over these last 30 plus years, I have worked the hardest to keep my clients focused on why long term investing works. I'm a Motley Fool subscriber because I like most of what you provide, even your cost to be a member, so you too get paid. In you research about index fund comparison with Growth Fund of America, which isn't the same style of funds, you used AMRMX as the symbol, which was incorrect. So, methinks there could be other inaccuracies.

  • Report this Comment On December 07, 2012, at 10:04 PM, TMFBane wrote:

    @dschmelter,

    In the comparison, we are talking about The Growth Fund of America, Class A shares and the 3.62% annualized return figure is correct. The prospectus is below:

    https://www.americanfunds.com/pdf/mfgepr-905_gfap.pdf

    You are correct, however, that we have the wrong ticker in the infographic. It should be AGTHX. We actually had made the correction in an earlier draft, but the incorrect ticker made it into the infographic. We will have one of our editors correct it as soon as we can. We're sorry for the error.

  • Report this Comment On December 07, 2012, at 10:48 PM, dschmelter wrote:

    Thanks,

    I think the no load vs load controversy gets muddled, and Growth Fund of America has a great "long term" track record after costs. So, tell me how many investors stayed the course in this ten year period? The difference of $615.00 over ten years leans toward the index, but what you are emphasizing are the fees of the respective funds. I'd love to know, how many hands did that index hold during one of the most volatile 10 year periods of the S&P and the DOW? I can tell you, I work whether the markets are good or bad, and I think the expenses of the load funds that I receive for my part is earned.

    I respect what the Fool is doing, but unless you sit down and have a discussion about our business model with those who can actually show your writers what we do on a daily basis, what you have tried to explain is incomplete.

  • Report this Comment On December 07, 2012, at 10:48 PM, RussellB6 wrote:

    Editor’s note: What follows is an examination of the broker-dealer business model, using the specific case of Edward Jones as an illustrative example. It’s longer than normal, but I hope you’ll find it well worth your time. -- B.R.

    As a matter of fact, I do not find it worth my time. A weekly harangue against Financial Advisors does nothing to enhance my selection of stocks, which is the reason I suscribed. While the article may be essentially factual, many of its points can be disputed. There is nothing inherently fairer about fees than commissions. Beyond entry level work, most pay structures offer tangible performance incentives. Furthermore, in a 15 trillion dollar economy with a workforce of 130 million, there are enough bad actors to provide endless blogger fodder.

    The Fool conveniently ignores all the services FAs offer which are supported by the revenue their investment advice generates. Meanwhile, none of this gets me any closer to what I signed up for.

  • Report this Comment On December 07, 2012, at 11:00 PM, dschmelter wrote:

    Thanks,

    I think the no load vs load controversy gets muddled, and Growth Fund of America has a great "long term" track record after costs. So, tell me how many investors stayed the course in this ten year period? The difference of $615.00 over ten years leans toward the index, but what you are emphasizing are the fees of the respective funds. I'd love to know, how many hands did that index hold during one of the most volatile 10 year periods of the S&P and the DOW? I can tell you, I work whether the markets are good or bad, and I think the expenses of the load funds that I receive for my part is earned.

    I respect what the Fool is doing, but unless you sit down and have a discussion about our business model with those who can actually show your writers what we do on a daily basis, what you have tried to explain is incomplete.

  • Report this Comment On December 07, 2012, at 11:03 PM, TMFBane wrote:

    @dschmelter,

    Thank you for your thoughtful comments. I think we do have a lot to learn from your experience in the industry.

    Here's what we were thinking with the comparison -- which I agree isn't a slamdunk either way.

    The Growth Fund is more expensive, and those returns are over ten years. We know, of course, that most people don't hold on for ten years. The number quoted by Bloomberg was 3.3 years on average. A Class A share with a front end load would, of course be disasterous for such a short time frame.

    But assuming one were to hold on for the full ten years, one is paying for advice and for active management. For individuals with small portfolios, the index delivers a return that is pretty close, and yet it's low expenses results in a higher overall performance.

    As I said, there remains some nuance here. But we feel the index fund is better for individuals with smaller portfolios -- and that's true even for the very small percentage of folks who can hold on for ten years or more. Ultimately, if active investing is worth more, it should deliver total returns above the index after commissions and fees (of course, the cost of the 'advice' is another variable to consider).

  • Report this Comment On December 07, 2012, at 11:04 PM, dschmelter wrote:

    Thanks,

    I think the no load vs load controversy gets muddled, and Growth Fund of America has a great "long term" track record after costs. So, tell me how many investors stayed the course in this ten year period? The difference of $615.00 over ten years leans toward the index, but what you are emphasizing are the fees of the respective funds. I'd love to know, how many hands did that index hold during one of the most volatile 10 year periods of the S&P and the DOW? I can tell you, I work whether the markets are good or bad, and I think the expenses of the load funds that I receive for my part is earned.

    I respect what the Fool is doing, but unless you sit down and have a discussion about our business model with those who can actually show your writers what we do on a daily basis, what you have tried to explain is incomplete.

  • Report this Comment On December 07, 2012, at 11:31 PM, dschmelter wrote:

    TMFbane

    Sorry that I double posted that last comment again.

    It's not out of the ordinary that client's hold these funds for ten years, twenty years, thirty years. Index funds for smaller investors may seem like the better way to go, if you assume that the relationship ends there. If the investor does indeed keep the fund, who is guiding them when the funds value increases over the long haul? I can tell you, the no load funds don't stay in touch with the investor. The locations are in Boston, Philly, New York or wherever. My clients get get me at home, which they did in 1987, and what is inconsistent is our industry and what is understood about the differences in firms.

    Again, I appreciate the discussion. I would love to discuss the real details of costs in time. I have some relatively simple questions for anyone about this subject. The Fool has some great research, good information that I love to read, but what are your investors doing? Are they all successful in your eyes? Of course I know that you don't have retail clients. So, is the Fool's advice worth it? How do you know?

    Thanks again,

  • Report this Comment On December 08, 2012, at 12:23 AM, WishToRetire2 wrote:

    Supposing they were bound by terms that obligate them to put their clients first....

    They would still be incapable of giving good advice

    Because they're just salesman who know nothing about how to deliver returns on a portfolio of financial assets.

  • Report this Comment On December 08, 2012, at 1:13 AM, ncupunk wrote:

    One other piece that isn't talked about is how working with an advisor helps with things like putting a plan in place. I started investing with seriousness after working with my advisor. The reality is saving is counter-intuitive. Sometimes it takes someone to come along side to help us. My financial advisor also helped with understanding my company 401k and what the choices really mean. I started understanding diversification more and I know he never made a penny on that.

    I stopped accidentally investing because of my advisor. I know most of the readers are people who don't use advisors but advisor are maybe more for those of us want a teammate in making these decisions.

    I completely see the potential for a HUGE conflict of interest. No one cares about your money as much as you do, so I take responsibility for the decisions made and am glad to have an advisor who helps me with investing as well as helped me get a great term life insurance policy and helped me get on the right track.

  • Report this Comment On December 08, 2012, at 8:17 AM, buynhold55 wrote:

    EJ has solid roots, but the lure of big money and broker performance standards built on a long bull market have compromised the firm's underlying standards. Their common sense "buy stocks and bonds of quality companies and hold them for a very long time" is a founding principle of the firm, but the EJ business model in practice will boot out a rep trying to replicate this standard in real life. Young reps are bombarded with pitches from preferred mutual fund and annuity sales reps. I was a rep for EJ and got off to a great start, but was forced out when a harsh market downturn slowed my commission sales momentum below the firm's bull market benchmarks. Again, the firm has solid intent of putting its clients in quality investments for the long haul and buy low/rebalance suitable portfolios -- but alas the broker "up or out" sales commission ladder weeds out all but a very few. EJ's common sense, old school principles are good for any investor, but in reality the firm's brokers to survive are forced to sell products that aren't necessarily in line with EJ's "do what's best for the customer" mantra - with plenty of cases of churning and worse for EJ's compliance operation to deal with. EJ's history is another story of mission creep and the greed factor of the human condition. The partnership aggressively started thousands of new branches during a great bull market for both stocks and bonds. They made that decision, and their business model now deals with the consequences of covering all of those costs. And, as the MF article accurately points out, the EJ partners wouldn't have been able to do this without the financial backing of their mutual fund and insurance "partners". In summary, the results for EJ clients are I'm sure a mixed bag. Perhaps what is really needed is solid financial literacy education in all of our high schools and colleges. Successful EJ clients are probably fairly smart investors who just don't have the time or stomach to invest on their own.

  • Report this Comment On December 08, 2012, at 9:21 AM, LongLookNH wrote:

    I was never with EJ buy was with both Schwab's Private Client and LPL for periods of time. Both these relationships were only for the benefit of the firm and not for me. I learned the hard way in late 2008-early 2009 that the only way to make your financials guilt free is to read and learn, use a discount broker and do it yourself. Even if you don't match the returns these outfits claim, the fees soon out strip any real benefits. I now use the discount broker research, the WSJ, Kiplinger, and a couple of other sources for information and am doing okay. I don't worry that I'm 0.2% behind the professionals. I know what I own and if it loses, it is my fault.

  • Report this Comment On December 08, 2012, at 10:06 AM, boolanger wrote:

    As a retired broker with 31 years experience, I have to say some of your conclusions are either erroneous or rather jaundiced. Let me address just a few.

    *Your implied conclusion that if one isn't legally working in a fiduciary capacity they cannot work in the best interest of the client is inacurate. Does signing a paper make it so! You are only looking for a legal remedy as the nature of working for commission necessarily dictates one work in the best interest of the client if they intend to make it a career as an investment advisor.

    *Had you written this article about medical doctors, you could have had a field day. If a doctor recommends a hip replacement he is going to make money for the surgery and perhaps from the manufacturer of the product. That makes this doctor a commissioned professional and he doesn't even tell you how much it is going to cost. You want to discuss conflicts of interest? Maybe the good doctor just needs to make a payment on his yacht! Because he signed an oath to act in the best interest of the patient seems to placate you. Financial advisors are professionals too. While you will always find "bad eggs", I suspect the percentage is not too different from those professionals in law or medicine. The fact is you do not consider these advisors professional! Please take some time to review the series 66 test and let me know your conclusion!

    *I believe it was Fidelity who sponsored a study which found, much to their surprise, that investors who paid a load had superior investment results to their no load funds although many Fidelity funds actually out-performed the loaded funds. They concluded that most people who pay no entry or exit fee have a tendancy to purchase (and sell) too often and especially at the wrong time. Therefore, would you conclude that a fiduciary must then charge a commission in order to work in the best interest of their client? Just because you are a fiduciary doesn't eliminate most of the problems you are trying to solve.

    *You actually used the word "kickback" in your article. I believe that reveals a bit of bias in your otherwise well researched article.

    I have always felt the client is the captain of the ship and the investment advisor is the navigator. When one acts as both he limits his advantage!

  • Report this Comment On December 08, 2012, at 10:20 AM, WBROWDER wrote:

    Thank you for a fine, truthful, intelligent article concerning brokerage firms. i am not a financial consultant and have never received a fee for financial advise or planning. That said; because I have been investing in the market for over 50 years, I have had numerous friend or friends of friends who have ask that I look at their portfolio and provide advise as to how they may met their investment goals. A number of "my referral" have had Edward Jones accounts. After looking at their accounts, I had come to the conclusion that Edward Jones consulting was not in the always in the consumer's best interest. I have recommended that a change of brokerage would be advisable. It is good to see I am not the only one with such advise.

  • Report this Comment On December 08, 2012, at 11:51 AM, richie54 wrote:

    Great article. Bottom line, everyone has to learn how to invest on their own through a discount broker.

  • Report this Comment On December 08, 2012, at 12:15 PM, TMFNoonan wrote:

    Great work guys. The biggest challenge/opportunity in financial advice industry = creating and scaling a conflict-free model of quality, personalized financial planning, accessible to the masses and profitable for both sides.

  • Report this Comment On December 08, 2012, at 1:41 PM, TMFTomGardner wrote:

    Terrific article, backed by a lot of research. Thank you.

    We are fast moving into a new era for financial advice. The most important development is going to be the creation of forums for investors to present their entire portfolio (with percentages, not dollars), complete with all fees, to a public audience online for review.

    The firms that will succeed in the 21st century are those that operate openly -- for whom any public review would lead to nothing more than tweaks. Business models that have been developed over the past 25 years that are not tightly aligned with the client's best interests will perform no better than the newspaper companies have over the past decade.

    There is no firm and no situation, according to Burton Malkiel (with whom I agree), where an individual investor should pay an upfront load of 5% on a mutual fund. The only remaining reason for it is customer ignorance (which is going to be diminished through online education and community reviews).

    Believe it or not, I am cheering for financial firms to make the shift. But for those that don't, I won't shed a tear. Companies are going to be hit with a tidal wave of transparency. . and not just in 10 years or 8 years. But oncoming, now, in the next 2 years.

    I urge a firm like Edward Jones to go back through all its procedures to make sure that overpriced products are not being sold; that no accounts are being churned from one high-priced product to the next; and that every piece of advice that is given can withstand the scrutiny of an online community reviewing it (because it will happen).

    This story is not at all a hatchet job. It's a thoughtful, probing piece with a wide-open comments area for public review. Every financial advisory firm is going to have to lay out its process in full online, as well. To me, this is essentially a mandate to adopt a fiduciary standard.

    Tom Gardner

  • Report this Comment On December 08, 2012, at 1:49 PM, kirkydu wrote:

    My brother works at Vanguard now and I own Bluemound Asset Management a fee-only RIA (as well as being a member of the Fool Blog Network and kirkydu on Caps). We both left brokerages in the past few years as we saw more and more of the conflicts and outright bad service at full service B-Ds.

    Folks need to remember that most brokers do not have an economics or finance background. In most cases, probably about 3/4, brokers are simply sales people who have moved into greener pastures (read as "higher commissions).

    Today, another problem is just starting, that of "advisors" who are hybrids, both an investment advisor representative and still a broker. They use the word fiduciary very loosely. Beware, most of them are just sales people looking for a bigger revenue stream.

  • Report this Comment On December 08, 2012, at 2:26 PM, mikecart1 wrote:

    Nothing new here. Ameriprise is the same way from my experience back in the day.

  • Report this Comment On December 08, 2012, at 2:52 PM, realamay40 wrote:

    great article! most older investers want to trust their advisor and discove later that their interests are not being served.I do my own and yes I am conservartive but safe.

  • Report this Comment On December 08, 2012, at 3:39 PM, faber100 wrote:

    Fantastic article!! Consumers need to unite and demand advisors with the sole responsibility of ensuring that there investments perform above the market, and when they do not, the client understands the reasons for underperformance. The problem is that so few firms and/or advisors are capable of delivering above average returns. If they were, they wouldn't need the upfront commissions and trailer fees from the funds. The SEC needs to move on the fiduciary rules, and the pot of gold is there for the first major firm to swear off those commissions and start to reward advisors on their investment skills rather than there asset gathering/churning abilities. The first firm to do this, will be the "Apple Computer" of financial services. A real game changer. How many firms compensate advisors based on the gains of the customer? Most rely on how much of the customers money becomes the firm's money.

  • Report this Comment On December 08, 2012, at 3:44 PM, Dburgett1234 wrote:

    I agree with Faber, only issue with a lot of these ideas assumes investors are rational and will not panic. How would I compensate my advisor if my funds gained 12% and the market did 10% but I got nervous and sold out around the election time and only got a 3% gain. Because as anyone who subscribes here likely understands people invest emotionally and rarely get the returns any American fund or index fund actually gets. That would be difficult to pinpoint on how to compensate any advisor but the idea in theory is a great idea it just seems like there would be a lot of potential issues like that.

  • Report this Comment On December 08, 2012, at 4:34 PM, Tomohawk52 wrote:

    +1 Dburgett1234

    Also, what benchmark are you going to use? Some people are willing to sacrifice some measure of return for safety and it would be unreasonable to punish an advisor who recommended a safe course of action in line with their client's wishes only to have an angry client because they didn't get maximal returns. Perhaps the best approach is to just pay these people a flat fee by the hour?

  • Report this Comment On December 08, 2012, at 6:06 PM, TMFTomGardner wrote:

    I think the flat fee per hour model is a good one. With complete transparency that there are no other fees associated with management of the account. I'm a fan of fee-only fiduciary financial advisors. The problem for them is that they simply don't have capital to advertise. The clients have to come find them. No knocking on doors; no Super Bowl advertisements. In the short-term, that makes it hard to grow. Witness Vanguard. With low fees and total dedication to customers, they were unknown for a long time. But then -- particularly when the Internet doors were opened to the world -- Vanguard began to take off and now is the largest mutual fund company in the world.

    I'm confident that fiduciary fee-only advisors will win this game as well. Internet transparency is what will begin to accelerate the change.

    Tom Gardner

  • Report this Comment On December 08, 2012, at 7:02 PM, XMFAlaska wrote:

    Hey folks. Thanks for all the great comments. Molly here (one of the authors.) Our intention in this piece was to have a conversation with all of you. To Bryant769's point, thanks to everyone who disclosed their relationship, whether with EdJo, with another broker, or as a broker themselves. Doing so elevates the conversation from a series of disconnected comments to a thoughtful, erudite discussion among stakeholders.

    To dschmelter: Yes, Fool.com charges for some of its investment advice (but not all, including this article). However, when I write an article about Starbucks, I disclose that I own shares in Starbucks. There's no worry that Starbucks is paying me to endorse their stock, or that I receive a payment for every person who buys that stock as a result of that article.

    Second, you said "Unless you sit down and have a discussion about our business model with those who can actually show your writers what we do on a daily basis, what you have tried to explain is incomplete." I personally interviewed CEO Jim Weddle, several current and former brokers, and had in-depth discussions with two of the public relations team members, as well as several current and former customers. Please tell me, who else could better describe the company?

    In researching and writing this piece, we strove to be fair, and accurate. As Tom said, we are for educated investors, with transparent advisors who put their clients' best interests first. That's it.

  • Report this Comment On December 08, 2012, at 8:05 PM, dschmelter wrote:

    Tmfalaska

    I can appreciate that you spoke with Mr.Weddle and others who know how our firm works. I do own American Funds also, and I would not own them if they didn't perform. As a perk, I didn't pay a sales charge when I bought these funds, which I've owned for 35 years. Just make sure your readers know that they will not pay the maximum sales charge as they make future purchases, we recommend the A shares because there are lower sales charges based on the breakpoints they receive and our firm pays attention to getting the lower sales charges for our clients. Again, I would be interested in the length of time those clients who need the help of an advisor would stay the course.

    I know that when I started in this business I didn't know much, I didn't have the experience, but I was trained to contact people and make recommendations based on what the clients long term goals for educating their kids, having a comfortable retirement, leaving a legacy to their families.

    I have the clients interest first, and we get paid too! Do you think every time that I speak to my client's that I charge them?

    I think much work needs to be done to fully understand what is the best method for investors. I honestly believe that mutual funds if kept for their prescribe period of time, are what is the best choice for most investors. Of course keeping those funds, is best done with the help of an advisor.

    Thanks for the forum. dschmelter

  • Report this Comment On December 08, 2012, at 9:58 PM, MartianX wrote:

    minor comment:

    "The pursuit of a CFP designation should be the goal of all advisors".

    This comment is ridiculous. As an investment advisor who has focused exclusively on performance for 18 years, what possible value would there be for me to be certified in income tax or estate or insurance planning and the other requirements of a CFP? I'm a money manager and could care less about these areas. In fact, studying in these areas is counterproductive to what I do.

    I'd like the 2nd the comments about advisors folowing the fidicuary standards - there is simply no way to prove that is actually happening.

    My solution is much simplier:

    *require time weighted returns for standardized periods be prominently displayed along with a detailed breakdown of all fees paid. Many b/d are actually starting to offer this number (ML does for example though you have to look for it online)

  • Report this Comment On December 08, 2012, at 10:10 PM, MartianX wrote:

    one other comment that I didn't make clear in the above post:

    CFP are NOT money managers. There is no formal training beyond canned simplistic analysis. If you HAVE to require a designation to actually manage money, the CFA makes a whole lot more sense.

    Course, I'll admit that I don't have a CFA either and not having it hasn't my results. However, the fact that these authors don't see to even understand what a CFP does makes me dubious about all the things mentioned - and I'm an advisor, not a b/d.

    Life is not this simple.

    A minor thing - most individual investors that I've met have no conception how to compute their own time weighted returns. They also don't track their expenses, and they don't have informed opinions on their investment philosophy. They don't even have a philosophy.

  • Report this Comment On December 08, 2012, at 10:36 PM, MartianX wrote:

    one other comment this article fails to mention (by the way, I don't disagree with anything mentioned about the b/d model, but to offer RIA or CFPs as an alternative is naively foolish in a Foolish way)

    how much training does your reg investment have? Well, you have to pass a Series 65 test. Takes 2 hours.

    That's it - presto-chango, you too can be an investment advisor! (you do have to register, get bonded, and pay a bunch of fees, etc)

    There is no other training requirement, and the Series 65 is a LAW examination, not anything to do with investment management.

    So how do you know if you manager is any good?How do you know if your b/d is any good? How do you know your brother in law is any good? Are YOU any good?

    You ask about

    *approach

    *track record

    *fees

    *returns

    and hope for the best but you monitor EVERYTHING.

    Look, I love the Fool, but you have to present a clear picture of all sides to this story.

    Most advisors I've met pitch balanced portfolios, don't provide performance measurement, don't provide track records to measure, and completely overstate their qualifications and approach. Most folks use a simple MPT approach that you can easily do on your own....if you have the time and effort.

    Buyer beware, period.

  • Report this Comment On December 08, 2012, at 11:07 PM, MartianX wrote:

    disclaimer:

    *some CFPs do a great job. Seeing a financial planner is, in general, a good idea for anyone

    *some reg investment advisors do a great job. Many post on Fool.

    *some individual investors do a great job. I'm guessing here though cause it isn't always clear

    *Fool is the best site on the planet (morningstar is a close 2nd) with smart posters, smart authors, and smart founders. But they aren't perfect but their motives are as pure as you can get based on my 12 years here.

    A final message - I can't help but point that out that many advisors use low cost ETFs and then put a 1% to higher expense ratio on the top, which essentially transforms a dirt cheap product to a not-so-dirt cheap product. Charting 1% is ok but in theory if you buy an American fund with a load and keep it eventually you will pay less for it then if you pay 1% on - hopefully - an ever increasing balance like you would with an advisor. So there are many ways to spin this, and this article - though nicely researched - has a clear bias and has no conception of how to fix the basic problems mentioned.

    Course, nobody does. This is the way this industry has worked for 100+ years, and it isn't going to change.

  • Report this Comment On December 09, 2012, at 2:23 PM, XMFAlaska wrote:

    dschmelter: You wrote: "I think much work needs to be done to fully understand what is the best method for investors" and I think we can agree on that, as well as agreeing that there is no one best method for all investors.

    Appreciate the conversation. Molly

  • Report this Comment On December 09, 2012, at 6:45 PM, wiseradvisor wrote:

    First things first ... I am an EJ advisor

    I think this is a well researched article but you do have innaccurate information on how EJ compensates us.

    --> We do offer BOTH fee based OR commission based models that clients/advisors can choose between ( so not EVERYONE has Growth Fund of America that they paid 5.75% commission to purchase ... )

    --> Our fee based model has an index model option ( again we don't only "push" active management )

    --> We no longer get paid differently on A vs. C share purchases ( your article states we get paid more on A shares versus other products which is not true as of this year )

    --> I am a CFP. Edward Jones paid for me to become a CFP. It is false to rely so heavily on one advisor who didn't make it with our firm and publish that Edward Jones doesn't want "smart" advisors and only "asset gatherers" who don't know how to "manage" sophisticated portfolios. In my town alone, we have 6 EJ advisors ... 5 of which are CFP's. As a side note, I believe holding the CFP is a HUGE step in the direction to "weed" out the many "advisors" from ANY firm that really don't have the education or experience to give comprehensive advice. I think there are many GREAT advisors that do NOT have the CFP designation but at least you know what you are getting with a CFP who has proven their knowledge base on a wide range of financial topics ( by the way many topics of which we give advice and guidance on all day long to our clients for NO CHARGE *gasp* to help our clients reach their goals )

    --> You specifically point out to the 5.75% Load that is connected to American Funds for a $10,000 purchase. How does your index data change when you take a breakpoint into the mix ( which we push heavily ) ? I just invested a check for 250k last week, that client paid a load of 2.5%, how would that have done assuming they held for the last 10 years versus the index fund ? What if you go back and compare AGTHX versus the the s&p index since its inception ? Even at max load, the Growth fund of America has CRUSHED the performance ( net of fee's ) of the index. The average hold of mutual funds at Edward Jones is MUCH longer than industry average, this is the number you should have used in your piece so heavily focused on EJ. Call Jim Weddle again, we have the data and I am sure he would share it with you

    --> At the end of the day every company has good and bad apples. If we really had such a great "scheme" as this article makes out, why would we rank so high year after year ( ahead of Fidelity and Charles Schwab and some of the other "non evil" discount firms )

    --> Using a financial advisor is a personal choice. I can assure you that hundreds of my clients over the years ( and their families ) would tell you that it was worth EVERY PENNY to help them reach their goals and to be the emotional buffer between them and their money. If your ONLY goal/wish/need is to have the lowest possible fee structure for your investments and you need NO advice ( I assume you only use WebMd for any medical advice too ... ), then perhaps an advisor is not right for you after all. If you are like the 75% of Americans who can't even properly balance your checkbook ... ( likely not the audience reading this forum ), then I would argue you NEED to have a qualified advisor and unfortunately ... they get paid for their time ... a lot like your job come to think of it.

  • Report this Comment On December 09, 2012, at 7:54 PM, TMFBane wrote:

    Thanks for all of the great comments, everyone! I’m really enjoying the discussion

    .

    There have been a lot of excellent topics raised, and I hope to write more on some of them in the future. For now, here are just a few things I’d like to add.

    1) It seems like the topic of financial literacy is a big part of any discussion of the financial advice industry. My colleague Ilan and I wrote about this a while back:

    http://www.fool.com/investing/general/2012/09/05/19-alarming...

    Greater literacy might result in investors choosing to avoid expensive loads, fees, and other costs. And it might give them the ability to evaluate the qualifications and performance of financial professionals. Ultimately though, investors need to do a better job of educating themselves. For example, they need to develop the right temperament to withstand some of the extreme volatility we’ve experienced in recent years. With more education, a lot of investors will choose to utilize flat-fee only advisors, while purchasing low-cost index funds and ETF’s. I completely agree with Tom Gardner that the fiduciary fee-only advisors will win this game in the end.

    2) I’m a firm believer in a uniform fiduciary standard that is applied to all investment professionals. Is it really too much to ask that financial advisors act in the best interests of their clients, while also disclosing all conflicts of interest? Here’s a great article that lays out some compelling reasons for a uniform standard:

    http://blogs.cfainstitute.org/investor/2012/08/23/5-reasons-...

    As an aside, the author was once my accounting professor at Johns Hopkins – he now works for the CFA Institute.

    3) Finally, I just want to say that I believe that financial advice is important, and that many financial advisors are doing great work on behalf of their clients. We’d like to see the broker-dealer model reformed, and welcome this opportunity to debate the key issues. For me, this is about a flawed model and the regulatory framework under which it operates.

    @wiseradvisor, thank you for taking the time to write your informative post. It’s really helpful to get your perspective. One note – the point about the firm and advisors receiving more on the A shares was taken directly from company documents. Here what is written on your site: “Edward Jones financial advisors receive a greater percentage of the sales charge received by the firm for A shares than for B or C shares.” https://www.edwardjones.com/groups/ejw_content/@ejw/document...

    It’s good to know that that has changed, however.

    Anyway, I’m looking forward to writing more about some of these issues in the future.

    Thanks again,

    John Reeves

  • Report this Comment On December 09, 2012, at 9:12 PM, MartianX wrote:

    "I’m a firm believer in a uniform fiduciary standard that is applied to all investment professionals. Is it really too much to ask that financial advisors act in the best interests of their clients, while also disclosing all conflicts of interest? "

    Are you really so naive as to believe that the imposition of a fiduciary standard will result in the benefits that you describe? Many investment advisors disclose any conflicts of interest in the ADV, a document that most clients - in my experience - do not read.

    As far as McMillian's article, some of the statements are truly absurd - for example, the idea that advisors only work with individuals with 500k to 1m is simply not true. I've never met anyone with minimums that high (though I'm sure they exist of course) - though I am a small advisor myself and don't know too many big advisors.

    This all reminds me of an academic exercise rooted in theories where the authors have no actual experience in the real world.

    If you are so sure that the imposition of a fiduciary standard results in 'superior results' for a client (which is what we are trying to achieve), then answer me this: how often is the average registered investment advisor audited by some type of regulatory authority (state or federal)? What EXACTLY is the regulatory standard for becoming a registered investment advisor (I've already answered this)?

    I'm not arguing that a fiduciary standard is somehow a bad thing or that it isn't important (nobody can logically argue that it shouldn't be uniform for any person giving financial advice for a fee), but pretending there are obvious solutions is simply being blind to reality.

  • Report this Comment On December 09, 2012, at 9:20 PM, MartianX wrote:

    KING OF THE WORLD COMMENTS

    truly my final post (long week ahead with end of year coming)

    If I were king of the world, here is how we "fix" the financial services industry:

    *require time weighted returns for standardized periods reported to clients on a quarterly basis

    *disclose ALL fees associated with an account on a quarterly basis, including cumulative totals since inception

    *require a specific benchmark for performance (a very difficult thing to do but this is what I'd require)

    *lastly, don't allow any investment advisor to sell a product that he/she doesn't own in their own portfolio. This would infer a regular reporting of EXACTLY what each financial professional has in their own portfolio.

    That's it. Then you let the chips fall where they may. Why are index funds so popular? Cause people know they usually outperform active funds. Apply the same principle to investment professionals of any stripe.

    I HAVE SPOKEN! :)

  • Report this Comment On December 09, 2012, at 9:34 PM, wiseradvisor wrote:

    John,

    You are correct that we did get paid more for A share sales than we did from B or C share sales. I sent in the suggestion that this was asking for litigation down the road and they did in fact change that policy ( I assume from many other suggestions and an honest evaluation of what really was far, something my firm truly does and actually does make the right choice for our clients best interest ). We used to get 40 basis points on A share sales and 35 on B or C share sales. This also included a reduced payout on the 12B-1 trailers. This is all at 40 basis points now on anything. We have also stopped offering B shares all together and now you would choose from A or C if you opted for the transactional based model to compensate your advisor.

    --> As was earlier pointed out: IF and a BIG IF you actually did follow our long-term buy quality and hold philosophy ( not buy and ignore ) the A share is going to be one of the cheapest ways you can compensate an advisor. There is and can obviously be abuse with this method as well. Often times this would be cheaper than the above mentioned "low cost ETF or Index platform, with a 1% fee added on" ( common practice industry wide )

    --> Some of the American Funds A share expense rations are in the 50-60 basis point range which is honestly not that bad for a tenured portfolio management team to invest your money. Out of curiousity what is the expense ratio on Motley Fools own proprietary mutual funds ? I assume you don't have a load. Is this cheaper than the something like Growth fund of America or a Franklin Income Fund ( FKINX ) ?

    As the end of the day ... is it too much to ask an advisor to do the right thing for their client ? Absolutely not. As a CFP, I do have a mandatory fiduciary obligation to put my clients interest before my own. You would think this is an obvious trait for anybody who wants to have a successful business, but as your article states ( correctly ), a majority of advisors DO NOT need to act as a fiduciary and may sell you any product for any reason. Often times with no recourse, even if their advice was completely wrong in the first place.

    I agree that a "fee only" model seems to be the cleanest way to go. I think this becomes a challenge, and ultimately the achilles heel is to then come up with a "fair" price to compensate the advisor to receive the advice. If we sit down for 1 hour and I get paid $100 for my time and advice ( a nice hourly I think most people would love to work for ), and we assume I can run 40 appointments a week ( sounds high ? ) then I would make 108k for the year before taxes. I don't think any "top notch" professional in ANY career would be happy to net 75k take home for their high level of expertise. Not to mention I would need to prospect or have a lot of money to market myself to get those appointments lined up ... so maybe now I gross 80k and net 65k ? Yikes. Are you sure your advice is going to be good :-()

    Can I ultimately give comprehensive advice in a one hour appointment once a year ? Would you be afraid to call me and ask a question ( My 401k is swapping to these funds ... is this still the best mix for me ? ), or would you just not ask because you are afraid the clock ( your wallet ) is ticking ? If I asked about your family or kids because I geniunely cared ... do you think I am milking the clock ? If you can't trust my intentions without watching the minute hand on the wall clock, how likely are you to trust my advice that you just "bought?" I just think the fee only platform has a lot of flaws as well. I know I get scared to call my estate planning attorney for these very reason.

    My best clients know that outside of them, nobody does truly care more about their financial well being and helping their family reach their goals ( often multi generational ones at that ). On average I get paid about 1% per year for my intellectual capital. Some products are slightly more, some are a lot less ( VIG is a large holding in my book ), but on average it works out to be 1%. Are there cheaper methods ... you bet ya ! Is 1% unreasonable ... I don't think so at all.

    --> Real estate agent ... 6-7% REALLY !?

    --> Waitress 20% for serving me dinner !?

    Many of my clients would tell you I am UNDER paid for what I do and they would gladly pay more. Often times the crux of the do it yourself argument of the "do-it-yourselfer" is that "nobody cares more for your money than you do" is true ... sometimes to the point of paralysis. If I do the wrong thing at the wrong time with my life savings ...yikes... maybe cash is safest for now ( three years later ... oh things aren't better yet ...this is a suckers rally ... my buddy said... but the news said ... ) but but but. Sometimes it helps individuals to have a confident experienced professional to help give them the okay to do the things they know they should be doing.

    If I save you from moving money once at the wrong time for the wrong reason ... I likely saved you far MORE than the 1% cost. If I helped you refinance your mortgage from a 30 year loan to a 15 year loan and shaved off 100k of interest ... where do we calculate that in your "rate of return" on your index or actively managed fund/etf/stock * fill in the blank.* Oh you don't know how to calculate your RMD and you got a 50% penatly from the IRS ? Gift tax returns ? Historical Cost basis calculations from the stock certificates you got from your Uncle Herman 20 years ago ... you don't know how to do that !? ALL things we do daily for free for you ... I think you get the point, we are not just a button pusher to buy a loaded fund so we can giggle all the way to the bank and buy nice fancy things for ourselves.

    Bottom line:

    --> Do your homework. Interview several advisors ( if you are choosing to work with one ). There are a LOT of bad ones out there but there are a LOT of good ones too.

    --> Fee's are not evil. Make sure you know what they are BEFORE you agree to pay for anything though. If it seems to be a fair trade for the service you get. I don't see the problem.

    --> No model is perfect and until you can find a way to compensate QUALIFIED advisors to earn a fair living ( another can of worms ... ), I don't see the current models changing.

    Sorry to ramble, I am passionate in my choosen career, I am passionate about my company. You struck a nerve :)

  • Report this Comment On December 09, 2012, at 10:33 PM, MartianX wrote:

    fwiw, you seem to be a wee bit confused - fee only RIAs who are money managers usually charge a fee based on a percentage of assets. They don't 'meet with clients' to generate billiable hours.

    My impression from your post is that you care a great deal, do a great job, and work hard at many financial planning responsiblities.

    The only issue I'd have is to wonder is if you actually have any verifiable investment skills (sorry, nothing personal). After all, we do want to point out that if you sell that A fund and collect that fee you'd better darn well hope that American funds can produce acceptable returns (or something in the family of funds if you can switch at no cost) cause you've essentially married that fund to the client. Since American has variations in performance, significant changes in asset flows, and a huge asset base, if you make a mistake (and good luck with guessing the future) then there will be real pain involved for the client in the way you manage money regardless of the tenure of the managers involved (which is really a lame sort of comment, don't you think?). An advisor with a 1% fee on top on ETFs can change the portfolio at will. Let's strive to present a balanced argument here.

    Course, I do see the irony of Fool advertising a 9 out of 10 success ratio in their options newsletter without few other caveats as I type this.

    Ok, I promise - this is it.

    What a great article. I've had a lot of fun reading this and assorted responses....

  • Report this Comment On December 09, 2012, at 11:52 PM, wiseradvisor wrote:

    @Beatle

    I realize there are different types of fee based advisors.

    Wikepdia MUST be the place to turn for this definition :-p

    http://en.wikipedia.org/wiki/Financial_adviser

    Most do in fact charge a fee as a percentage of portfolio assets. However there are other advisors that do charge an hourly fee based on their advice they give.

    You do talk about performance a lot ... makes sense as that is a component of our job. I think that cheapens what you do though. What if you say your return net of fee's is 8.85% per year. I then tell your client I can get them a return of 9.25% per year with my "magic mix." Are you now fired ? What was the risk I added ( or subtracted ) to get that return over your portfolio ? It is so hard to have a legitimate apple to apple comparison of my portfolio versus yours. More importantly, are my goals the same as yours ? Should we have a one size fits all ( with different percentages based on age/risk tolerance ) portfolio ? I vote no.

    I assume you do a great job of researching and building portfolio's and I don't need to see every NBA player make a lay up before I know they can play basketball.

    Final point on investments:

    I honestly don't care if somebody wants to go into my "transactional" model versus my "fee based" platform. I show and present both options and ultimately end up with a diverse client base ( and revenue stream ) for that matter.

    You are correct. If you choose an A share mutual fund option through the transactional side, we better hope we can manage your behavior to stick with it ( to make this the lower cost option ) or we better hope that American Funds ( using this name for the same theme, I use many other fund families & ETF's in my transactional side ) doesn't suddenly forget how to manage money ( done okay since the '30's ... ).

    The original authors are correct. If you buy a A share loaded fund and only it hold it for 3.3 years then suddenly decide you found the next best thing ... it was a big mistake to purchase it in the first place. If an advisor knows you had a short time frame and sold you an A share anyways ... they should have their license taken away. Game over.

    I like/love fee based and so do a lot of my clients. If we are to be truly honest though. 1% wrap + internal expenses of ETF/Mutual Fund ( range .10-1.25 let's say ) is going to end up being far more costly over 20 years than most A share portfolio's from most larger institutions.

    Ultimately maybe the real question(s) should be ... What is the role of an advisor ?

    - Lowest possible cost products ?

    - Highest NET return on portfolio's ?

    - Behavioral management/finance coach ?

    - Help you meet your goals ?

    - Smartest stock selector ?

    - Lowest volatility while hitting an agreed upon benchmark ?

    We all have a different response to this question. There is your problem and there is why we will not get a simple solution.

    Good talk. Good reading. Good night !

  • Report this Comment On December 10, 2012, at 3:24 AM, kahunacfa wrote:

    I have talked to several Edward Jones offices. I have actually found several Edward Jones brokers who were actually interesting. One an attorney, the other the top of his graduating class at a Major state university. Both were smart, but had really very limited investment knowledge and experience.

    One I asked about the name of the Firm which used to be in the nineteen seventies and nineteen eighties: Edward D. Jones. I asked what happened to the middle initial?

    The very unsatisfactory answer I received was that the firm could have been confused with "that other St. Louis based firm - A. G. Edwards. A.G. Edwards is in fact a highly regarded retail as well as Institutional Brokerage and Investment Banking firm, whose offices overlook the Mississippi river near the famous Arch.

    That ridiculous reply would have made me laugh if the answer were not so sad and ill-informed.

    I asked this same broker about these issues: 1. Web-trading -- NOT available, 2. Fees to buy 100 shares of Apple? Several percent of the amount of the trade -- a Fee that high is simply totally unacceptable to any investor. End of the conversation.

    The Edward Jones Model of walking neighborhoods and knocking on doors and ringing door bells is also: 1. Silly, and 2. unacceptable to me.

    To sum-up Edward Jones: 1. poorly investment training of sales men and woman, 2. High, outrageous fees, 3. No Internet Order entry by the client. Why any client would ever view Edward D. Jones as a reasonable place for their investment business is a Total mystery to me.

    My background: Series 7, Series 63, Chartered Financial Analyst from the CFA Institute, about four decades of successful investment experience -- seven years on the Sell-side, the remainder of the Buy-side as an Analyst/Portfolio Manager.

    Kahuna, CFA

  • Report this Comment On December 10, 2012, at 11:15 AM, MVPanther wrote:

    Very interesting article, and even more interesting comments! But I was hoping that the article would use Edward Jones as an example, and then widen the target to include comments about other "investment" firms. We've had a small amount of money tied up with American Express/Ameriprise for 25 years. Not sure if they utilize the same business model as EJ, but it has always bothered me that they wouldn't answer the question about compensation in a very direct manner. All of our new investments are done through a discount broker with the assistance of MF research and recommendations - needless to say, the results have been significantly better!

    Anybody care to compare the Ameriprise model to the EJ model?

  • Report this Comment On December 10, 2012, at 12:24 PM, MartianX wrote:

    wiseradvisor:

    fwiw, performance is the ONLY thing I care about. However, I certainly don't promise anything other than to do my best both in terms of effort and disclosure and accountability to a benchmark. And yes, I mandate a one size fits all philosophy (my account is the model).

    --

    "I strongly believe in measurement. The investment managers mentioned above utilize measurement constantly in their activities. They constantly study changes in market shares, profit margins, return on capital, etc. Their entire decision-making process is geared to measurement - of managements, industries, comparative yields, etc. I am sure they keep score on their new business efforts as well as the profitability of their advisory operation. What then can be more fundamental than the measurement, in turn, of investment ideas and decisions? I certainly do not belie the standards I utilize (and wish my partners to utilize) in measuring my performance are the applicable ones for all money managers. But I certainly do believe anyone engaged in the management of money should have a standard of measurement, and that both he and the party whose money is managed should have a clear understanding why it is the appropriate standard, what time period should be utilized, etc.

    Frank Block put it very well in the November-December 1965 issue of the Financial Analysts Journal. Speaking of measurement of investment performance he said, " . . . However, the fact is that literature suffers a yawning hiatus in this subject. If investment management organizations sought always the best performance, there would be nothing unique in careful measurement of investment results. It does not matter that the customer has failed to ask for a formal presentation of the results. Pride alone should be sufficient to demand that each of us determine objectively the quality of his recommendations. This can hardly be done without precise knowledge of the outcome. Once this knowledge is in hand, it should be possible to extend the analysis to some point at which patterns of weakness and strength begin to assert themselves. We criticize a corporate management for failure to use the best of tools to keep it aware of the progress of a complicated industrial organization. We can hardly be excused for failure to provide ourselves with equal tools to show the efficiency of our own efforts to handle other people's money. . . . Thus, it is our dreary duty to report that systems of performance measurement are not automatically included in the data processing programs of most investment management organizations. The sad fact is that some seem to prefer not to know how well or poorly they are doing. ..”

    Frankly, I have several selfish reasons for insisting that we apply a yardstick and that we both utilize the same yardstick. Naturally, I get a kick out of beating par - in the lyrical words of Casey Stengel, "Show me a good loser, and I'll show you a loser. " More importantly, I insure that I will not get blamed for the wrong reason (having losing years) but only for the right reason (doing poorer than the Dow). Knowing partners will grade me on the right basis helps me do a better job. Finally, setting up the relevant yardsticks ahead of time insures that we will all get out of this business if the results become mediocre (or worse). It means that past successes cannot cloud judgment of current results. It should reduce the chance of ingenious rationalizations of inept performance. (Bad lighting has been bothering me at the bridge table lately.) While this masochistic approach to measurement may not sound like much of an advantage, I can assure you from my observations of business entities that such evaluation would have accomplished a great deal in many investment and industrial organizations.

    So if you are evaluating others (or yourself 1) in the investment field, think out some standards - apply them - interpret them. If you do not feel our standard (a minimum of a three-year test versus the Dow) is an applicable one, you should not be in the Partnership. If you do feel it is applicable, you should be able to take the minus years with equanimity. - in the visceral regions as well as the cerebral regions - as long as we are surpassing the results of the Dow."

    - Warren Buffett, Jan 1966 partnership letter

  • Report this Comment On December 10, 2012, at 2:23 PM, rabbitt0 wrote:

    Hey all (and TomG), I am an unlicensed, self taught invester of 27 years. I started with one book extolling no-load funds and have read ten or twenty more (buffet, Lynch etc). I started reading the Fool in the mid 1990's and have subscribed to their newsletters since the early 2000's (SA, HG, RyR).

    I am currently beating the S&P by 4+ points(MyScorecard) since buying my first stocks (again, early 2000's). I should also point out that I am apprx 80/20 equites to cash/bonds.

    I also advise several family members and report their results to them regularly. None would have a clue about how to measure their return if not for my detailed explanations.

    The true need is certainly for education and fiduciary duty!

  • Report this Comment On December 10, 2012, at 5:06 PM, wiseradvisor wrote:

    @ MVPanther

    It is hard to compare EJ versus Ameriprise because Ameriprise has a few different channels for their advisors. It depends on what one you are in to have a fair comparison.

    Ameriprise STRENGTH = usually very educated advisors. Heavy emphasis on designations.

    Ameriprise weakness = higher fee's than most other firms. You traditionally have to pay to get any "financial planning" done through their software and projection models. I was recently at a football with an Ameriprise advisor and he said that he charges $750 annually to do any planning or to discuss investments that are not at his branch ( 401k etc. ). He then gets a 1.75% fee off of the assets in your portfolio per year. He did say he can discount that but chooses not too as many are fine with that fee.

    Compared to EJ. You would have a MAX 1.35% fee in your advisory platform and you get free financial plans with the "financial assessment software tools" called "FAST."

    Again, wide range of options at Ameriprise so this is just an example from his specific set up. Ameriprise can be vastly different. EJ is going to be the same pretty much across the board at any office. We CAN discount the 1.35% on the fee based platform for anyone or you automatically get the discount for 500k and up based on total assets under care.

    Ameriprise can be one advisor or a team. EJ is always going to be 1 on 1 relationship.

    @ Beatle

    I do think it is obviously important to provide good performance given the allowed allotment of risk your client allows you to take. If you honestly want to have a "yardstick" and say here is my best number ... you will soon be out of business as there can only be ONE best performance record.

    Everyone has the best idea's ... untill they don't anymore. Which raindrop is going to get to the bottom of the window first ... ? Nick Murray is right ... I don't know and it doesn't matter.

    @ Kahunacfa

    A few follow up questions:

    1) How do you get compensated for your time and skillset ?

    2) 100 shares of AAPL would be slightly less than a 1% fee, not "several" percent like you stated. Yes, this is higher than a discount broker.

    3) You are correct, we do not offer online trading. As a follow up scenario ... I am your new client, you have a CFA, I have a love for Jim Cramer and reading Motley Fool articles ... you are hired by me to manage my portfolio, you buy 100 shares of AAPL ... LUCKILY I have online trading though so I can switch back out of that position when I get home because my buddy told me AAPL was going to go lower before it goes higher.

    Really !? Is this what you want ? I like not having online trading platforms.

    To sum up your comments: Silly.

    You talked to "several" EJ advisors ( nice sample size ). Because one didn't know the right commission on AAPL for 100 shares ( or you didn't remember what they said ) or more importantly WHY we dropped the D. from Edward D. Jones ( who cares honestly ... ), we are all now " poorly investment training of sales men and woman" with "outrageous fee's" seems to show you lack enough information ( something CFA's love to gather ) to prepare your "research opinion."

    As to why anybody would want to do business with us ... 7 + million clients have scored us consistently number 1 or 2 above ALL other brokerage firms ( discounts included ) every year JD Power has run their independant survey about client satisfaction ... we must do something right.

    http://www.jdpower.com/content/press-release/hNsvcQt/2012-u-...

    That is the 2012 study ... you can see the others if you really care.

    Nobody is perfect. Overall we are pretty darn good. 7 million people agree.

  • Report this Comment On December 10, 2012, at 5:14 PM, TMFMorgan wrote:

    <<Overall we are pretty darn good. 7 million people agree.>>

    That assumes those 7 million people are totally informed about fee structures and alternatives, right?

    Millions of people invest in SPY when you can get VOO (the exact same fund) for almost half the management fee. Inefficiencies exist.

  • Report this Comment On December 10, 2012, at 5:30 PM, wiseradvisor wrote:

    @ TMF

    If only it were that simple ... another reason you likely would benefit from an advisor.

    http://etfdb.com/tool/etf-comparison/SPY-VOO/performance/

    Why is SPY YTD outperformed VOO ? Do the millions of people that pick SPY know something you don't ? Does tracking error matter ? Fund size ? Liquidity ?

    I agree ... normally you would want the lower cost option and odds are good over time it WILL outperform. I am simply pointing out it is simple as it seems. VOO should do better as it does have a lower expense. But oddly enough, it has lagged so far YTD even though they follow and own the "same" things. Interesting !

  • Report this Comment On December 10, 2012, at 5:34 PM, TMFMorgan wrote:

    <<Why is SPY YTD outperformed VOO ?>>

    Why has VOO outperformed SPY in the last year by four basis points (the exact amount of its lower management fee)?

  • Report this Comment On December 10, 2012, at 5:39 PM, TMFMorgan wrote:

    <<Do the millions of people that pick SPY know something you don't ? Does tracking error matter ? Fund size ? Liquidity ?>>

    No. The link you posted measures 7 different time spans. VOO is outperforming or tied with SPY in six of them.

  • Report this Comment On December 10, 2012, at 5:41 PM, TMFMorgan wrote:

    << I am simply pointing out it is simple as it seems. >>

    Agreed! It is as simple as it seems. Given an identical fund, the one with the lower management fee will outperform -- as the link you provided proves. Steering clients into funds with unnecessary fees is a disservice to investors, and is what the heart of this article is about.

  • Report this Comment On December 10, 2012, at 5:52 PM, TMFTomGardner wrote:

    Two additional thoughts.

    1) I believe an increasing number of people look suspiciously at JD Power accolades. I'm not sure how deep the conflicts run in the financial category. But it isn't a go-to for me as a consumer.

    2) Whatever number of customers are happy at a business is, over time, less important than the number of customers WILL BE happy in the future. Borders had many happy shoppers, until Amazon.com came along. Same thing for Kmart before Wal-Mart. Same thing for Taco Bell before Chipotle (although that one is still playing out -- yet I think Chipotle has the potential to absolutely devastate Taco Bell over the next decade).

    My strong belief is that the Internet is an absolute game-changer in the financial industry -- as regards the retail investor. More and more capital is going to go into providing solutions online that offer:

    a) total fee transparency

    b) total performance transparency

    c) easy access to second opinions and reviews

    And these solutions will be built to scale.

    I'm not saying any of this is a layup. I am saying that I believe the tide is turning. The 50-year-old of today is not going to accept the conflicted financial advice that the 65-year-old of today is accustomed to. Furthermore, the way financial products are sold by advisors in the US would be illegal in Australia (which we pay close attention to via Motley Fool Australia).

    The buyer of services is not responsible for providing jobs or profit margins to the sellers of services. And I believe that the buyers of financial services are only going to get smarter over the next decade -- particularly as they commune with other consumers online.

    Inefficiencies are going to start getting wrung out. Consistency across ALL planners at a company will be critical. Total transparency on fees and performance. . with comparables. . will be a requirement. And in my opinion, the profits made per customer in financial services are about to spiral down substantially over the next 10 years. And I think it'll happen faster than that.

    To the Fool member who posted about Ameriprise, I would say that though there are differences, the risk of conflicts and the lack of transparency exists at Ameriprise. Do not feel at all uncomfortable about demanding absolutely clarity on all forms of compensation for your advisor. If you don't get clear answers, continue to level up your questions in the system to make sure you get what you need.

    The beauty of this is that. . everyone in this comments area appears committed to helping the world invest better. I think, then, we can all agree that total fee transparency is coming. Of course, it is NOT just the fee that matters. And for those advisors that say their guidance makes that fee cheap. . excellent. But. . make sure the client is aware of the alternatives.

    Tom Gardner

  • Report this Comment On December 10, 2012, at 6:19 PM, wiseradvisor wrote:

    @ TMFMorgan

    Sorry for the typo's ... I was typing too fast.

    This isn't an attack at you at all. My point is the link shows that the performance between the two funds is different at every point of measurement.

    One would assume that VOO would always be .04% better than SPY ( VOO is in fact .04% cheaper ). As that chart shows the true performance numbers are hardly ever .04% different from one another. Often times at a wider gap and oddly enough some even have SPY with a BETTER return ( as the year to date comment was pointing out ) even though they are supposedly tracking the same thing and SPY has higher fee's ( Chart shows YTD SPY 15.18% vs. VOO 15.16% ) ... how can it do better than VOO ?

    It is never as simple as it seems.

    I agree with you though VOO SHOULD do better in the long haul and if you were looking to get exposure to the S&P 500, that is the route I would go as well.

    @ Tom

    I agree. The internet is good. Businesses change. New ones emerge, old ones fall.

    I also agree with the fee and the Ameriprise ( or fill in the blank firm ) advisor not coming right out with the real number. If somebody won't tell you exactly what it is, run.

    I think both worlds can and do exist well together. If you really want to do your homework and be a DIY investor, you can save fee's. Nobody disputes this.

    Oddly enough, not everyone will buy things on Amazon though ... which makes me think Walmart might be around for a few more years.

    I am all in favor of complete transparency for all firms. Way too many "sophisticated" proprietary prodcuts created by brokerage firms ( EJ is truly excluded from this ) that have done far more damage than good. Clients don't understand what they own or why the own it or how much it costs.

    Funny that during the 2008 downturn the "best" money management firms all took bailout funds or had government orchestrated mergers ... these are the same people who tell you how to manage your own money. Interesting that they can't even manage THEIR own money. Again, Edward Jones was not part of this group. Never took a dollar of tax payer money and didn't lay off a single employee. I just think there are differences amongst the firms that you can choose to put your money with. I think this article lumps all of the brokerage firms together as "bad guys." There is a big difference there.

    Thanks for the information and providing people with an informative piece and importantly encouraging education. Something I think we all agree is best for everyone.

  • Report this Comment On December 10, 2012, at 6:50 PM, wiseradvisor wrote:

    @ TMFMorgan

    <<Steering clients into funds with unnecessary fees is a disservice to investors, and is what the heart of this article is about.>>

    For clarity ...

    Is it better to buy the Motley Fool ( are YOU in fact a brokerage too ... ? ) mutual funds with an expense ratio of 1.35-1.45% or to buy VOO with an expense of .05% ?

    Are you also sterring clients into funds with unncessary fee's ?

  • Report this Comment On December 10, 2012, at 6:52 PM, wiseradvisor wrote:

    I assume no response will come to this one...

  • Report this Comment On December 10, 2012, at 7:13 PM, MartianX wrote:

    tmfmorgan:

    you said, "Millions of people invest in SPY when you can get VOO (the exact same fund) for almost half the management fee. Inefficiencies exist."

    If it matters, SPY is usually on the no-transaction list for many brokerages while VOO is not. For truly huge sums this is irrelevant but saving the cost both in out (if held 30 days) is going to factor into the decision, enough to justify one over the other even if more expensive (by the way, I don't use too many funds and ETFs - I'm a Peter Lynch follower). Plus, I have no idea how big is the spread in SPY vs. VOO?

    wiser:

    you said, "Funny that during the 2008 downturn the "best" money management firms all took bailout funds or had government orchestrated mergers ... "

    just curious, who would you consider the 'best' money managers? I have a hard time coming up with one that fits your description above.

    --

    On my approach it is what it is, and I've been struggling in business for 18 years with a general lack of wit, charm, good lucks, and social skills.

  • Report this Comment On December 10, 2012, at 8:03 PM, wiseradvisor wrote:

    I am being sarcastic.

    Merril Lynch, UBS, Morgan Stanley all have reputations as being the most presitgious "smartest/best" money management firms... yet all would have gone extinct without government intervention.

    Do you want your money manager to file bankruptcy before giving you advice ?

    Great point for VOO vs. SPY. One I hadn't considered.

  • Report this Comment On December 10, 2012, at 8:44 PM, KDT wrote:

    I have been a long time reader of the Fool, since the mid 90's as well as an investor. I have had accounts at TD Ameritrade, which I managed myself as well as Ameriprise (back when it was still American Express advisors) and Edward Jones.

    I found the conversations with my advisors very beneficial and was grateful for the ideas they offered to me as an individual as well as a business owner. In all my reading and studying on the Fool and other places, I was still lacking in knowledge of some things. I was able to set up a retirement plan for my employees with an advisor's help. Though I did not always choose to invest every time my advisor mentioned something, I had that option. With the Fool - I got great advise on stocks, but I did not know anything about bonds or diversifying all of my holdings. I got this information from my advisor.

    I owned my own business, sold it for a nice sum, and had to find a new career. I love investing and helping others, so I then became an Edward Jones advisor. I wanted to put my love of investing to work at helping people. I felt Edward Jones had a basically good philosophy of putting the clients first and helping families who might otherwise not seek out help since they did not meet larger firms' minimum account size.

    I agree, Edward Jones, as well as many other firms, have minimums that are required of their advisors and it is sometimes difficult to maintain them without 'pushing' "A" share funds onto people. IN fact you really have to justify investing too much into "C" shares with EJ.

    I found it a constant moral struggle to gain a client's trust, move their accounts over from some other firm, only to feel compelled to find a reason to move them out of their "other" mutual funds into the firm's preferred fund family "A" share funds in order to produce a revenue for the month. In fact, on many of these accounts, I chose not to move their money around if the funds they had were decent (some were Vanguard). If they funds were performing well and fit in with what the client's needs/goals were, it did not seem necessary to change them around.

    I have since left Edward Jones and have gone with an independent broker/dealer. I still do not get paid on some of the investments, but I am not hounded by the higher ups to meet any requirements other than to service my clients as I deem necessary.

    I do believe many people are able to manage their own fincances and investments - as we witness every day from the people who are commenting on this website. But, I, as an advisor, am not working with the types of investors you might find in the blogs on Motley Fool - we are an elite group of beings who love to dig and investigate and take the risk of buying and selling on our own. We are a very small subset of investors. My clients are average people with various jobs and families who would rather not delve into the details of a PE ratio or income statement. They want advice and help to figure out a plan of action and where to put their money that will benefit their families. I have to get paid to give that advice. That is my business, that is why I am here and I have to put food on the table too.

    Can those same people go buy into a no-load fund? Sure, if they go out and research it and find one to invest in. But, if they come to me, it is because they would rather not have to do all that. They want advice and they know that costs money, just like going to the doctor, lawyer or accoutant does.

    Sure we have conflicts of interest, but as mentioned earlier, so do many other professions - like the dentist I just went to who wants to change out every filling in my mouth!

    I make a point of telling my clients how much investments cost them, and compare that to other choices as well as telling them if I own a particular stock or mutual fund in my own account. Not that the investments I own are always something they should own themselves, but I tell them anyway.

    That's it,,,,,just my thoughts after reading all these comments...............

  • Report this Comment On December 10, 2012, at 9:01 PM, wiseradvisor wrote:

    Well said KDT

  • Report this Comment On December 10, 2012, at 11:12 PM, MVPanther wrote:

    I usually don't make it to the end of these comment sections, but this time I'm glad I did . . . very well stated KDT. There is an ethical line that can be crossed in any industry, but doesn't have to be.

    I chose American Express/Ameriprise early in my career when I was focused on other things, and was a bit overwhelmed with having to make decisions about where to put our money. Now the kids are grown (almost), and I have more time on my hands, I would rather pay for a few subscriptions to MF than pay a mystical amount in fees to support a fully staffed office of an advisor - - so here we are, maybe there are no definitive answers to be had here, but there is certainly a lot of learning going on!! Fool on!!

  • Report this Comment On December 11, 2012, at 8:58 AM, boolanger wrote:

    Thank you KDT for keeping things in perspective. Well said. Interestingly, I suspect virtually every CEO in a Fortune 500 company has a financial advisor!

  • Report this Comment On December 11, 2012, at 11:47 AM, MartianX wrote:

    A final, I hope comment. I've spent most of my time talking about the issues with alternatives mentioned in these articles along with supposed solutions, but the list of offenses by this industry goes on like a dirty laundry list (non-traded reits, oil and gas partnerships, bad funds, terrible asset allocation, unncessary fees, terrible statements, you name it ).

    I had my own brush with this in 2008 to 2009 when I foolishly purchased closed end auction notes for my clients (90% my fault) and then dealt with a host of fund companies who were either compassionate and helpful and trying to find a solution while others didn't give a rat's you know what.

    I mean, when no less a person than Bill Gross is on the cover of Barron's telling people to buy closed end funds cause of the low cost of leverage without mentioning that they had holders prisoner in a misrepresented securities (and they can spin this anyway they want, but people were 100% clear this was 30 year illiquid paper nobody would buy it) it tells you everything you need to know about this industry.Think of it - a 'patron saint' in the industry, as highly respected as anyone, is a toad.

    While the people posting on these boards seem to have sincere intentions, the industry is rife with bad apples, gross incompetence, and people who have no more training that anyone would picks up a book every few months on financial matters would have. Beware!

    For Many Auction-Rate Investors, the Freeze Goes On

    http://online.wsj.com/article/SB1000142405297020396080457724...

  • Report this Comment On December 11, 2012, at 11:58 AM, TMFTwitty wrote:

    @wiseradvisor, Thank you for your question. Motley Fool Asset Management and The Motley Fool are separate companies, so we cannot provide further information here, but you can find a wealth of information about Motley Fool Asset Management and its services on its website at http://www.foolfunds.com/

  • Report this Comment On December 11, 2012, at 5:04 PM, DefenseFirst wrote:

    Great article, Molly! Thanks for including me - I think it was all wonderful information for current and prospective Ed Jones clients, alike.

    Thx again!

    Adam D. Koos, CFP

  • Report this Comment On December 12, 2012, at 7:29 AM, gregorynp wrote:

    This is more a comparison of 'do it yourself' vs using a full service firm. Your trashing of Edward Jones is misleading. When real comparisons are done by Consumer Reports, JD Power, Smart Money etc they compare like firms. BTW, all three said EJ is the best full service firm compared to it's peers. It's peers are MS, ML, Ameriprise, Independents, etc. not Vanguard or Fidelity. Some people change their own oil to save a few bucks, some don't have the skills or the time. There are more tools to help an investor have a full plan for retirement and wealth transfer rather than just buying no load funds. Life insurance for weather transfer, certain lifetime income instruments, long term care and a combination of all may be appropriate. Most do it your self investors buy high and sell low as well. I would recommend Fool readers also read this article praising Jones from 2001: http://www.fool.com/news/foth/2001/foth011211.htm

  • Report this Comment On December 12, 2012, at 7:59 AM, xedwardjones wrote:

    As a former Edward Jones advisor, I can tell you this article is 100% accurate. The truth is that an advisor cannot make a living, if he just does what is best for a client. That is why I am no longer working there. Unless you sell mutual funds with upfront loads and recurring yearly fees, your business will not make it. Thanks for such a well written article. It should be required reading for all investors.

  • Report this Comment On December 13, 2012, at 10:57 AM, ScottyB121 wrote:

    I base my choice of advisors on performance, commitment and availability. My portfolio has performed well over the past few years and, according to most of my friends, I am in the minority. Keith Steidle is always available to discuss my accounts, his staff is helpful and I have been happy with his approach. I don't think that any advisor that makes a "top 10" list could possibly be able to service clients with any sort of personal approach like that.

  • Report this Comment On December 13, 2012, at 2:46 PM, XMFAlaska wrote:

    Folks, thanks again for the great comments. If you all enjoyed our article half as much as we're enjoying your comments, I'm calling it a win.

    Adam: It was great speaking with you. Thanks for taking the time to share your experiences.

    ScottyB121: Thanks for sharing your comments on your advisor. It's always encouraging to hear about happy customers, and to know good advisors are out there.

    BeatleMartian: I'm going to go ahead and second your King of the World Comments title.

    GregoryNP: While you might have read the article "praising" Edward Jones in 2001, you clearly missed the author's bio: "Guest columnist Whitney Tilson is Managing Partner of Tilson Capital Partners, LLC, a New York City-based money management firm."

    Tilson was a guest columnist, as we frequently have. We've even invited Edward Jones staff to contribute a guest post in response to this article. And, as you probably know if you read the Fool regularly, we all have our own opinions, guest columnist or not.

    I'd wager that many of us have changed our views on the financial services industry since 2001. Back in 2001, housing looked like a great idea, we never thought mortgages could go wrong, LIBOR was infallible, and missing customer funds from segregated accounts was unfathomable. The industry's changed, and with it, our opinions of it. We were still thinking the same way about our money and the industry as we did back in 2001, we'd all be lower case fools.

    Molly

  • Report this Comment On December 13, 2012, at 6:27 PM, ComeAtMeBro wrote:

    Wheres the data on average mutual fund holding period for an Edward Jones client? Last time I checked it was over a decade. Not really fair to use the industry average for holding period (3.3 years) as a reason why its not a good deal to buy A shares from EDJ, when EDJ clients are holding their funds 3-4 times longer than the rest of the industry. Given this FACT, isnt it true that EDJ clients are getting their moneys worth out of their FA, if that FA is helping them to remain invested for 3-4 times longer than the rest of the industry? If this article is not a hatchet job, why was this crucial piece of data ommitted?

    EDJ is not a non profit. But neither is Vanguard or any other no load fund. Your pay them too, but what value is being added to a 500 Index Fund? You get what you pay for. If paying less is your goal, buy Vanguard. If total return net of fees is your goal, then the best managed funds with loads have clobbered the indexes over any meaningful period of time you want to measure. That is, assuming you compare apples to apples and are properly diversified. Which brings up the following...

    Its very misleading to compare the Vanguard 500 fund with the Growth Fund of America. They are not even the same style of Fund! But of course, if you had chosen a more balanced American fund, and compared apples to apples, it would have beaten your precious Vanguard index fund, and ruined your axe grinding. Comparing a large cap growth fund to a large cap core fund, and claiming it proves something about the Growth Fund is the height of absurdity. The only thing it proves is that the author is clueless, and clearly has a bone to pick.

    Do it yourself investors get happy feet. The data proves this. Yet at EDJ, investors tend to stay invested alot longer, and as such have much better results over time. Yes you pay more than with a no load, but whos gonna tell you to sit tight in 2008? How many do it yourself investors missed out on the great returns of 2009? The data says alot in the industry, and very few at EDJ.

    Also, there is no correlation with cost of a fund and the subsequent recomendations by and EDJ FA. Funny you dont mention that American Funds pays less in 12B1 fees back to EDJ than any other fund company, but yet it is the most recommened by EDJ FAs! If financial incentives prevent EDJ FAs from serving clients best interest, how do you explain the FACT that the Fund company that pays the least to EDJ is the most recommended by EDJ?!?! So much for your conflict of interest theories.

    In conclusion, your Edward Jones FA can serve your best interests by recommending the best managed funds or even index funds, either with or without loads (fee based), and above all by helping you to remain invested and on track with your financial goals. Doing it yourself and buying index funds may save you a few dollars in fees, but when the going gets tough, how likely are you to abandon your plan at the worst possible time? The data says thats highly likely on your own, and not likely if you have a good FA.

    This is the value added proposition of having an FA, and it works quite well for the most part. Of course even at EDJ we have FAs who do things wrong. But picking a former disgruntled employee and a new struggling one to make a commentary about the firm as a whole is the very definition of muckracking. Keep it up and maybe you can be on the Suze Orman show for journalists posing as Financial Advisors.

  • Report this Comment On December 14, 2012, at 9:37 AM, TMFDowCalls wrote:

    @ComeAtMeBro,

    Thank you for sharing your insights. Our aim is to learn, so we welcome your alternative view.

    I’m still not convinced, however, that front end loads (or other expensive loads and costs) make a lot of sense. Would you really want to pay 5.75% right off the bat for the opportunity to invest $20,000 in the Growth Fund of America? That’s $1,150 right off the top, and seems like an unwise way to begin an investment. Burton Malkiel and John Bogle think that paying a front end load is a bad deal and I agree.

    Even if an Edward Jones financial advisor was able to convince an investor to remain in the Growth Fund for 10 years (which spreads out the initial cost over a longer timeframe), in our hypothetical illustration, we show that the Growth Fund would still underperform the Vanguard 500 by a meaningful amount.

    We chose the Vanguard 500 on purpose – that’s the “lazy investor” option. In other words, if you just want to get exposure to the market – and you didn’t want to trouble yourself with style boxes and the like – that’s the one you’d choose. And in this example, the lazy investor would have had better results.

    Even if we find a better comparison from a style perspective – Forbes suggests using the Vanguard Growth ETF (VUG) – that too significantly outperforms the A shares of the Growth Fund over a five-year period -- according to Forbes, the ETF hasn’t been around for a ten-year comparison. Here’s a link to Forbes’ complete analysis:

    http://www.forbes.com/sites/billharris/2012/08/08/the-10-big...

    The Growth Fund is actually pricier than 1,500 other mutual funds in the US!

    Regardless of what you and I think, however, investors seem to be fleeing American Funds. It’s number one in outflows this year, with one-year net outflows of $64.7 billion. It seems clear that the future doesn’t involve expensive load funds. That seems pretty apparent to me.

    http://www.investmentnews.com/gallery/20121206/FREE/12060992...

    I’ll conclude by saying that I think it’s a great thing that Edward Jones’ advisors encourage long-term time horizons. We congratulate the firm on that. I’m just not convinced that expensive loads and fees are the best option for long-term investors.

    Best,

    John Reeves

  • Report this Comment On December 14, 2012, at 11:40 AM, kelmal100 wrote:

    I was a Jones broker and once I felt the continued pressure to produce more each year I decided to leave. During my tenure I witnessed what I felt was unethical business pratices with Jones continually pushing its sales force to sell the highest commission products to clients. I highly recommend Jones clients seek a fee only financial advisor and dump their, "aw shucks," neighborly Jones salesman.

  • Report this Comment On December 14, 2012, at 11:48 AM, suefromSault wrote:

    Yes indeed! From 1972 to 2002 my husband invested $15K with E.J. on the advice of his friends and professional colleagues (That is $450K.) In 2003 we retired and I started to do his taxes. I noticed he had roughly 45 mutual funds in investments many of which were duplicates (TONS of paperwork!). It took 3 years for us to track all of them down and reinvest them. When we did we had recovered $390K (a $60K loss over 30 years!) Our re investments netted us $660K by the time he had to start minimum IRA distributions. I shudder to think what they would have amounted to if we had left them where they were.

  • Report this Comment On December 14, 2012, at 12:40 PM, JayhawkMax wrote:

    Wow, this is eye-opening. I’m just trying to get started in investing and I had an Edward Jones advisor come to my door. It was very appealing to have her handle my IRA because for years it had been handled by some adviser in a far-off bank somewhere that was impossible to get a hold off, and the Edward Jones broker was literally down the street from me.

    I just checked my account and sure enough I have Class A shares. My question is – since I’ve already paid the fees and commissions up front, does it make sense to just stay in those shares or should I try to get into some sort of index fund (which will cost me another transaction fee)?

  • Report this Comment On December 14, 2012, at 12:48 PM, johnnyluvsbeachs wrote:

    I want to commend you for this article.

    I had a similar experience with Lincoln Financial Advisors and their push for the American Funds family.

    I left the account in the hands of a friend for 10+ years. Needless to say, the account lost money and as I decided early on to increase my personal financial acumen it became very evident that the conflicts which you describe were everywhere.

    Interestingly enough, my friend doesn't call me anymore since I liquidated a few years back.

    I agree with several of the contributing comments that an individual can do much better on their own with a desire to educate oneself and a guiding light such as The Motley Fool.

    Thank you again for maybe one of the best articles you have ever posted.

  • Report this Comment On December 14, 2012, at 1:18 PM, zrxman60 wrote:

    I don't generally take advice from Edward Jones because I know they have their favorites that they try to sell to their clients. I usually do my own research and just have them buy or sell them for me. I guess I should be going the online route and doing the $5 trades instead of paying hundreds to Edward Jones.

  • Report this Comment On December 14, 2012, at 1:25 PM, Diogeron wrote:

    Excellent piece on an important issue. Anyone interested in a more detailed discussion of this issue would do well to pick up Josh Brown's excellent book, "Backstage Wall Street." That book, more than any other, opened my eyes.

  • Report this Comment On December 14, 2012, at 1:30 PM, ch1ckster wrote:

    Let’s be straight up. If brokers and agents were only to be paid a percentage of the profits they earn for you, the picture would be a lot clearer. In the meantime, there are several bits of experience I suggest free-of-charge. 1) All broker/agent/client relationships are based on $$$$$. The people that you will deal with are not doing charity work. You’ve heard that before. You and you alone are the one person you can trust. You and you alone are responsible for you. 2) Brokers and agents are very well trained on how to produce sales. This is how they are graded; not on how well they succeed in making you money. That’s up to you. Most of what they do and say is scripted. They role-play with each other to perfect their skills. Despite how smug you may feel about your own capabilities, they can beat you. 3) Everyone hates high pressure sales. But, let me assure you that there is a reason that the practice persists. It works! Don’t engage. Just walk away. Otherwise, your odds of being seduced are there. 4) If you must make a choice of someone to deal with, be aware that excessive contact by them is a very bad sign. “Realigning your portfolio”, “Safer position”, “Better dividends”, “Better mix of investments”, etc. are all suspect lead-in phrases.5) Be realistic. You may be small potatoes. If you happen to be in the office of your advisor and are seeking to put $5k, $15k, $25k into a fund or stock and happen to witness a call or conversation where someone is making a buy in the $500k or higher range, ask yourself, “Where do I really stand in the pecking order”? Similarly, if the person you are talking to is lauding some huge deal, ask yourself the same question. 6) Be as knowledgeable as you can. In many cases, this will save you, as the person you are talking to may be just a little more informed than you are. I have heard, in all three persons, a manager remind their personnel to “Remember that the client doesn’t know as much as you”. 7) Finally, everything out there is a gamble. Even the nation’s currency and banking system is a risk. So play the game within your financial capabilities, your psychological tolerances, and your time envelope if you are a retiree.

  • Report this Comment On December 14, 2012, at 1:31 PM, zrxman60 wrote:

    My wife did well with Edward Jones..only lost about $8000 when Lehman and GM collapsed before she left Edward Jones. The company didn't lift a finger to warn her that it might happen, guess they had more preferred customers to take care of. I guess it's better to put your money in the bank at .01 percent than to lose it to incompetence...

  • Report this Comment On December 14, 2012, at 1:45 PM, MPrindle wrote:

    I had a EJ broker a while back come up to our door. He was friendly and we did setup an appointment to go over our investments.

    Let me pause here, I do my own investing through an online broker. I do my own research and have a well diversified portfolio made up of entirely of mutual funds.

    We show up for the appointment and I hand over my documents I brought with me. As we are talking he's looking through them and punching numbers into his software. When it was all said and done he was honest and said that there wasn't much he could do for my family. What we were doing was just as good or better than what he could do. He did say that he was continually amazed at the number of clients that would walk through his door that have no clue what they are doing. They barely know what a 401K or IRA is much less what is in them.

    I agree with all of the recommendations that ya'll have made. If the adviser is making money off of a fund he/she sells then that needs to be made plainly clear. Also, they should ALWAYS be working in the best interest of there clients, but that doesn't seem to be the case most of the time.

  • Report this Comment On December 14, 2012, at 2:23 PM, Regulatorproxy wrote:

    “Ultimately, we found that the firm’s very business model -- which, again, is representative of broker-dealers at large -- is structured in favor of revenue generation”

    I could not get much out of the article past this point. Could you have a capitalist write your next article?

  • Report this Comment On December 14, 2012, at 2:35 PM, OCM4me wrote:

    Let's also consider the number of veteran advisors who built a business with A share mutual funds who are now converting to the fee based Advisory Solutions platform. They had their cake and now eating it too! New advisors are already planning this transition from A shares once they have enough assets. Let's be honest here, we are talking about brokers, not advisors.

  • Report this Comment On December 14, 2012, at 2:56 PM, A2Matty wrote:

    Great Article!!! Great comments as well. I have diverging opinions on financial advisors...or whatever they want to call themselves. Many of us on here manage our own money...some more capably than others (I'm one of the others still learning). I spend a ton of time doing research on stocks, reading up on mutual funds, etc. I spend money on this site and two others for recommendations that I then pour over before I buy. I try to be disciplined and religious with my investing.

    I've had a financial planner before but did feel like I was a "small fish" to him. It wasn't comfortable.

    My wife had a guy prior to me meeting her and she felt the same way.

    We were both turned off by their recommendations, attitudes, just everything.

    We interviewed more after we were married to invest with together. We did not like any of them.

    They all seemed to just see dollar signs and not two people who wanted to be successful in our investing. I work in sales. I'm an expert salesman. These people were purely trained in sales. Product knowledge was secondary at best.

    I likely spend 15 hours a week researching and tracking investments. Lucky for me (like many on here) it's a fun hobby as well.

    Where I get off the bandwagon of picking on financial advisors is when I talk to some friends who are very middle class or maybe lower middle class. Parents who both work or have second jobs and are just a step better than paycheck to paycheck.

    They ask me for advice. If I tell them to do what I do, they just ask me to do it for them. If I offer SOME assistance in getting started, they ask me to do it for them.

    A financial planner can be a great start for these folks. Not because they tell them how to invest and where to put their money. Rather, it is because they inspire them TO INVEST. They can't afford $200 an hour to pay for advice (or they think they cant) so a standard broker can be a good start.

    While I know the investment choices they offer always end up being the higher commissioned ones, if they can help people to start putting a couple bucks away each month, its a good start.

    Kudos on the article.

  • Report this Comment On December 14, 2012, at 3:07 PM, ibuildthings wrote:

    A friend of mine took the classes required in order for him to be legally qualified to recommend mutual funds. He has lots of real background in investing fundamentals and trading trends. It surprised both of us how little the class had of investment knowhow, compared to the detailed laws and regulations. There was a little bit on suitability, where you don't sell trendy growth stocks to someone who will need money in 2 years. But not much more. So when they tell me all about the great advice they want to give me, that's what I remember.

  • Report this Comment On December 14, 2012, at 3:08 PM, Tim3rdtry wrote:

    I am stuck with EJ for my employer's Simple IRA. I believe that it is to my advantage to put as much in as allowed due to long term tax advantages (I also put max allowed in Roth IRA as allowed). I only buy SA stocks and buy enough to minimize their usurious fees as much as possible. I take no advice from the broker at all. Is there anything else I can do? Thanks.

  • Report this Comment On December 14, 2012, at 4:14 PM, GrampaRick wrote:

    A few years ago, when I asked for a quote for life insurance from an Edward Jones rep who was in my service club he wanted me to sign a form saying that they were authorized to take verbal orders for securities/stocks. Although I told him that I did not want to buy stocks and only get life insurance, he checked with his manager & there were no exceptions regarding the signing of that form. Needless to say, I obtained life insurance elsewhere.

  • Report this Comment On December 14, 2012, at 4:53 PM, wiseradvisor wrote:

    @ TMFDow

    I think you are correct 5.75% is a large amount of fee's to pay to buy into a mutual fund. What everyone is ignoring is how FEW orders are going in at the full load.

    I can't remember the last time I invested a client into a fund at the full load. There are many alternatives for smaller clients or people who don't have enough assets to hit significant discount levels ( the ultimate goal for A share purchsaes ). I use many other products untill I can at a minimum hit the 100k breakpoint ( 3.5% ) charge for MOST fund families.

    Again, if you want to use your beloved Growth fund of America example ( AGTHX ) and you looked at any long term holding period, you would see that the fund has trounced the performance of the index. If you ran a hypo since its inception in the 1970's you could have more than doubled the return of the index fund.

    Alternatively, let's not get lost on the expense ratio ( .65 roughly ) is about 1/3 of your very own Motley Fool mutual funds ( 1.45 range ). Yes, you say American funds charges a load. Let's use the 100k breakpoint ( very reall scenario, how many people go to an advisor and ONLY have 10k to their name ? ) at 3.5% commission. How many years do you need to hold that fund to have it be more cost effective than your very products you sell... ( math is my thing so I will do the numbers for you ) between the 3rd and 4th year you will "tie" each other and the FOREVER moving forward you are exponentially saving money by a lower cost alternative roughly .8x% ( depending on the fund ) cheaper per year you hold. Since EJ clients hold for a long time ( averages over 10 years ), we are actually saving them FAR more money than the Motley Food WHILE providing comprehensive advice about their ENTIRE portfolio ( taxes, estate planning, insurance analysis, retirement projections, 401k, trustee stituations for their parents, long term care, health care, disability ), something you are not doing at all. Seems like Jones is a better bet than the Motley Fool ( if mutual funds are your thing ).

    I would also say that one of the largest reasons American Funds has been the "winner" with the largest outflows is BECAUSE of Edward Jones liquidating their holdings ( which you say is a great idea ) to go into the fee based model you suggest is superior over a transaction based relationship. Edward Jones is American Funds largest client and we "hold" the largest book of their business.

    I could care less about the company specifically but one thing NOBODY has the right to knock is the long-term track record and the modest fee's American Funds has built up for their products. Top to bottom you would be hard pressed to find the results and wealth they have created for their share holders over the last 70+ years. I actually have clients who have owned ICA for 50 years ... I promise you there is NOTHING you could do or say to make them sell those holdings "that robbed" them by making them filthy wealthy many times over again.

    If you should invest into stocks vs. funds vs. ETF's ... that is for a different day. All three have pro's and con's.

  • Report this Comment On December 14, 2012, at 4:56 PM, wiseradvisor wrote:

    @ Jayhawk

    Since you have already "paid" the load for your funds ( assuming they are good quality in the first place ), it ls likely wise to stay the course. If you sell now, everything this article says is validated and you "wasted" money by purchasing the funds. If your advisor TOLD your or you TOLD him/her that you were not planning on touching this money for 15+ years, they did you a favor by selecting A shares over the C share option. This will also be a cheaper hold than any "fee" based option you come across ( ranges from .75-2.5%/yr depending on your asset size and firm selection ).

    it is hard to give you specific advice without knowing your complete financial picture.

  • Report this Comment On December 14, 2012, at 4:57 PM, wiseradvisor wrote:

    @ i build things

    You are right. You don't need to know much to be "licensed" and an advisor.

    Buyer beware. If you choose to work with an advisor, look for advanced creditials ( CFP, CFA, CIMA ) would be good places to start.

  • Report this Comment On December 14, 2012, at 5:01 PM, wiseradvisor wrote:

    @ Tim3drty

    Simple's are tricky ...

    You MAY actually benefit by sticking with this plan. One advantage of the SIMPLE plans is that your money gets "aggregated" with all of the other employee's money. So in the American Funds example they keep picking on ... if the TOTAL value of your employer's retirement plan is 1 million or more ( very common ), you actually don't have to pay any "loads" to invest into A shares.

    If you don't "like" your advisor, usually you can switch the agent or change the actually office you are working with. IF the funds are held at Edward Jones, you can move to any other office for free. If your funds are held at a fund company like Fidelity as an example, you are free to "change" your agent to anybody you would like for free with one signature.

    Explore your options with your SIMPLE before doing anything drastic.

    Also, keep in mind they have special penalties within the first 2 years and it could trigger upwards of 25% + if liquidated within the first 2 years since you started making deposits. This is a government thing, not an EJ thing.

  • Report this Comment On December 14, 2012, at 5:04 PM, wiseradvisor wrote:

    @ Grandpa Rick

    We are not actually allowed to have discretionary trading as you have indicted by this form you were asked to sign ... this either was something/somebody doing something foul OR you were not properly explained what this "form" was supposed to do for you.

    No offense, it was also possible you didn't understand ( or are not remember correctly ) what was being asked of you.

    CERTAINLY possible you had a bad advisor though. Again, could happen anywhere, this is not an EJ thing.

  • Report this Comment On December 14, 2012, at 11:50 PM, ttonka wrote:

    I am completely shocked by the one-sidedness and lack of "the rest of the story" in this article. I am a subscriber to the Fool as well as an Edward Jones advisor. I have been helping my clients, who I consider my extended family for 13 years. First of all, this article seems to single out Jones as the only firm whose advisors are paid in this manner. You are describing MOST firms that offer personal service and advice. I spent my first 6 years in the business working for Morgan Stanley as they were campaigning for their advisors to move most of their clients into "fee based" accounts, so that the firm/advisors could make maximum profits and annuitize their income stream, while transferring the investing responsibility to money managers the clients would never meet. Here's a news bulletin for those not in our industry, fees are commissions, they are two names for the same thing. If a client is paying 1% per year to get their "fiduciary advice", they will pay 10% of their account value over 10 yrs. That is a lot more money out of pocket than the advisor who utilizes American Funds, even at a full load. Your article also failed to mention that a client who invests in over 25K in most quality mutual fund family A shares, will receive discounts, on their purchases. The discounted sales charge on a 100k investment is usually 3.5%. That sounds a lot better than 10%. Your article also makes it sound as if the only product that we are "allowed" to offer is Mutual Funds. Edward Jones offers the investments you will find available at any other firm, yes it's true, ETF's, fee based accounts and institutional money mangers. Mutual funds are appropriate for some and individual stocks and etfs for others. Jones polls each advisor's clients every month to review their satisfaction with their service, personal contact and if they will refer others to us. Every recommendation that I make is what I would do for myself or family member. It makes no sense that an advisor would give bad advice and make an unhappy client just to make a quick buck, when a satisfied client will refer their friends, family and acquaintances. Most folks don't have the time or desire to learn all it takes to manage market downturns, interest rate cycles, or even their own 401(k). That's my job and I take pride in it every day.

  • Report this Comment On December 15, 2012, at 12:09 AM, WishToRetire2 wrote:

    All the IAs I know have to drag themselves and their little briefcases into their little offices every day in his wrinkled suit to coddle and cowtow to a never ending stream of unpleasant miserable whining helpless clients.

    If they were good at making money they would be wealthy sitting on a beach somewhere surrounded by cooing bikinki clad babes..

  • Report this Comment On December 15, 2012, at 1:59 PM, turbokat wrote:

    This article is very interesting as it seems slanted against Edward Jones alone. I would advise readers to please refer to your own previous article regarding this same company on Dec. 11, 2001 at the height of tech market drama.

    http://www.fool.com/news/foth/2001/foth011211.htm

    I'm sure we all want to be fair and unbiased.

  • Report this Comment On December 15, 2012, at 3:48 PM, Paulstrat wrote:

    You could probably do a whole sepatate article on American Funds and their commisions. My problem with them is that they don;t even understand how it works. I set up a company retirement plan, had it in writing from them how it would work and their response when they charged more was sorry we told you wrong. They acknowledged what they said etc etc but that had no impact whatsoever on what they actually did. By then it made no sense to change

  • Report this Comment On December 15, 2012, at 4:13 PM, JCoeur100 wrote:

    Does the SEC do anything of value, other than give a false impression that we are somehow protected from financial predators? And the new head comes from FINRA, an industry organization. What can we expect her to do that would cost the industry anything?

  • Report this Comment On December 16, 2012, at 7:45 PM, fooledoux wrote:

    I'm now 63 years. When I was in my 20's, I lost a few thousand dollars with a full service broker and an insurance company that sold whole life policies as investment properties. Wow, that turned out to be cheap tuition for that experience. I've managed my own savings/investments since. I occasionally lose some money but it feel a lost better than having someone else lose it for me. ( I retired early so I didn't do so bad on my own). Never trust anyone else with your future! Do the due diligence work and control your fate. However it comes out, you'll feel better about the result.

  • Report this Comment On December 17, 2012, at 9:02 PM, FinancialPro wrote:

    I must say, from the unbiased perspective of a professional in the investment industry who works directly with Edward Jones, mutual funds, index funds, broker dealers, Registered Investment Advisors, etc AS MY CAREER I think it's important for the readers of this article to know that it is extremely biased and misleading in certain respects.

    First of all, every financial avisor, investment advisor, etc. knows that A shares are the least expensive option for an investor over the long term. Should the investor NOT want advice, then they can buy index funds for less. However, studies done by research firms like Dal Bar, that show that individual equity investors earn on average about 4% while the S&P 500 earns more like 9%, speak much to a much bigger problem than can be explained by poor results of mutual funds or high fees. You would have to try very hard to find a US equity mutual fund that did that poorly over a 20 year period. What it means, is that the 3 or so year time horizon you mentioned indicates individual investors, with a lack of professional advice, allow their emotions (fear or greed) to control their investment decisions. In fact, most investors' time horizons are 20+ years if they are saving for retirement so there is really no reason to be moving your money every time you hear the phrase "fiscal cliff" on TV. When you allow your emotions to control your investment decisions you sell when things are going down (selling low) and you buy when things are going well (buying high). This is way more detrimental to your personal investment results than paying a max sales charge on A shares. Most Edward Jones financial advisors are very well qualified to help you avoid these kinds of mistakes.

    By the way, the lifetime annual return on Growth Fund of America is over 13%, which beats the S&P 500 (and any corresponding index fund) by somewhere in the neighborhood 2-3% per year. When compounding returns over a 20 or 30 year period, results like that could make a significant difference in your quality of life in retirement.

    Now lets compare broker dealer fees to investment advisor fees. I'll leave a client's best interest aside because all advisors should have their clients' best interests at heart and whether they do or not probably says more about their character than their business model. An index fund may have typical expenses of somewhere between .05% and .5% but investment advisors typically will tack on their fee of 1-1.25% on top of that. Most investment advisors will not work with someone that only has $10,000 so a more accurate comparison would be someone that had $100,000, which would be a common minimum investment for that type of business. The comparable class A share commission would be approximately 3.5%. That means that, assuming a $100,000 investment, you would pay about 4.25% the first year, vs about 1.25% with the investment advisor's model. That's about 3% less in year 1. Unfortunately, in years 2-infinity, you'd be paying about .5% per year more. Keep in mind the sales charge is based on the initial investment, and expense ratios are based on assets, which means that as your investments grow, so do your expenses.

    In my opinion, there is no right way or best way to do this business, and there is no right or best way to invest. I think that professional advice is important, and if you are careful about who you choose to provide your advice to you, then you are very likely to be better off than you would be on your own, regardless of how you to choose to pay for that advice.

  • Report this Comment On December 17, 2012, at 9:43 PM, wiseradvisor wrote:

    Now that is well written and 100% accurate.

  • Report this Comment On December 18, 2012, at 9:13 AM, vreason wrote:

    I'm a little confused. On one hand, it seems many want their advisor to have a full fiduciary resposibility standard, which also means liability. On the other hand, they want online trading available for their whims. What advisor/brokerage firm/RIA/etc... with any inteligence at all would assume 100% liability for a client that can buy crap online and then turn around and hold them liable for those trades?!? If you employ an advisor with full fiduciary resposibiltiy, they also will have to (required by law) review each trade and make sure its suitable BEFORE the trade is made. They have to have FULL veto power.

    I am an advisor and frankly, the number one source of new clients is---do it yourselfers. Either they run out of time or find they don't know as much as they thought, or the "decision maker" has some kind of medical issue. This leaves the non-decision maker (who is rarely involved at all) with a major chore of trying to learn WHERE everything is to pay bills or WHAT the heck the investments are. God forbid if its a death. The survivor is then left to 800 number nightmares! I have personal experience with a few that had to go to court to gain access to accounts, as the "decision maker" held title in just one name or didn't share passwords, account numbers, strategies, etc... with the other. Sometimes, lack of knowledge on things other than just fees, comes back and bites very hard. Its just that the "decision maker" is not around or in any shape to see the result. Ask yourself, "who do you want to help your spouse/partner if something would happen to you?" Or does your POA have access to your things if needed for your care?

  • Report this Comment On December 18, 2012, at 10:29 AM, TMFBane wrote:

    @FinancialPro,

    Thank you for taking the time to share your thoughts. Here are a few quick responses.

    First of all, we are aware of how A shares stack up with the other share classes. We chose to focus on them, because that’s the class that we heard a lot of Edward Jones financial advisors talking about when they spoke of recommending funds to clients. In addition, company documents on the website stated that the company receives greater compensation for that class. In an earlier comment, I quoted the company directly: “Edward Jones financial advisors receive a greater percentage of the sales charge received by the firm for A shares than for B or C shares.”

    You can look it up yourself right here:

    https://www.edwardjones.com/groups/ejw_content/@ejw/document...

    Secondly, yes, the Growth Fund of America has delivered a solid return since the inception of the fund. But it has also underperformed the S&P over the last 5-year and 1-year periods. Do you really think the fund – with its current AUM’s – will deliver the same return going forward as the figure you quote? I do not – but maybe that’s just a healthy disagreement between the two of us.

    Thirdly, you say, “Most Edward Jones financial advisors are very well qualified to help you avoid these kinds of mistakes.” I’d agree that “some” of them might be. I’m not sure about “most.” And I’d add that “quite a few” do not appear to be “very well qualified” to do this. I base that judgment after having talked with quite a few industry professionals and financial advisors. With such high turnover, there will always be quite a few inexperienced folks out in the field who probably lack the capabilities to teach temperament to investors.

    Finally, if the broker dealer model is as good as you say, why not support a uniform fiduciary standard for both broker dealers and investment advisors? How do you explain the resistance to that?

    All the best,

    John Reeves

  • Report this Comment On December 18, 2012, at 6:03 PM, wiseradvisor wrote:

    @ TMFBane ... holy smokes ... seriously !? This is journalism ?

    << We chose to focus on them, because that’s the class that we heard a lot of Edward Jones financial advisors talking about when they spoke of recommending funds to clients. >>

    Who else did you talk to besides a disgruntled employee who didn't make it longer than 2 years with the firm ? Talk to me to gain a more realistic or balanced prospective ( 10 years in, CFP, open minded to serious debate ). You quoted 3 "EX-advisors" with very limited experience with Edward Jones.

    Adam Koos who most of this article is based on has not made it longer than 5 years with a single firm in the industry. He left Jones to go to Raymond James ... any thoughts there or are they perfect ? THEN goes to LPL after not cutting it at Ray Jay for more than 2.5 years.

    As far as your article is written ... not ONE EJ advisor ( current ) is quoted or mentioned that you even talked to them. So I am not sure if what your "heard" from your quote above is all that accurate.

    << I quoted the company directly: “Edward Jones financial advisors receive a greater percentage of the sales charge received by the firm for A shares than for B or C shares.”

    You can look it up yourself right here:

    https://www.edwardjones.com/groups/ejw_content/@ejw/document.. .>>

    Is it just me or does this link not work ? I also already stated that this is NOT true and we are compensated equally across all share classes. Did Adam Koos tell you this also ? This to be fair is a rule that changed in early 2012.

    << But it has also underperformed the S&P over the last 5-year and 1-year periods. Do you really think the fund – with its current AUM’s – will deliver the same return going forward as the figure you quote >>

    Are we seriously missing the entire point that 1 or 5 year time periods don't matter and are NOT appropriate for A share purchases. Any A share SHOULD underperform a short term time window due to the nature of the fee structure. If you want to compare the C share ( or institutional R class ) for a 1 or 5 year time window, that is fair.

    Also, did the Growth Fund of America JUST become a large mutual fund in the last 5 years ? No, it has been a monster forever and done well. And as your article and comments point out has net outflows recently, so if anything it should do better moving forward ? Unless of course short term traders are forcing the portfolio manangers to sell their best idea's due to redeeming shares of their long term investments for short term needs. Then we may see it lag.

    << “Most Edward Jones financial advisors are very well qualified to help you avoid these kinds of mistakes.” I’d agree that “some” of them might be. I’m not sure about “most.” And I’d add that “quite a few” do not appear to be “very well qualified” to do this. I base that judgment after having talked with quite a few industry professionals and financial advisors. With such high turnover, there will always be quite a few inexperienced folks out in the field who probably lack the capabilities to teach temperament to investors >>

    This is just silly. A few don't "appear" to be very well qualified to "do this." What is this based off from. Do we take Series 7 exam scores ? Do we take net returns ? Do we take most designations per advisor ? Foolish measuring stick. How is this any different or compare to Adam's experience at Raymond James ? Do they "appear" to be able to "do this? "

    Last point = High turnover. What is the industry average for sales positions period ? High. What is the company average for turnover in the insurance companies ? What is the average for any brokerage firm ? I would say that more turnover ( head count, not percentage of advisors ) is going to be at Edward Jones because we actually hire more advisors and grow faster than any other firm. We also employ more advisors than almost all other firms. How many people start at Northwestern Mutual and are there a year later ? Many firms have shrank and fired many advisors over the financial downturn, not Jones, we hired. If that isn't something to be proud of for our economy and American pride, I am not sure what is.

    This reminds me of Fidelity's old advertisements of their company having the MOST 5 star funds ... well yes but they also had the most 1 star funds too ( when you have hundred + funds ... you should have the most 5 stars funds ).

    If you take Adam's current fling at LPL ( 5 years and running ... a record ) ... they should have low turnover. They ONLY hire advisors from other firms since LPL doesn't know how to train people to make it in the business on their own. They wait for you to get your scratches and bruises else where and then they offer you a big check and promises of HIGHER PAYOUTS ( isn't that what this article is about ? ) to go work for them and move your existing book of clients over. If I was Adam's client at Edward Jones, then followed him to Raymond James, then followed him to LPL, all in a 10 year time period ... not only would I have been fee'd to death to transfer multiple times, but I would question HIS ability and commitment to his company. Is his judgement that foggy that he can't seem to "sense" which company does the right thing for their clients ? I hope he chooses his investments better than his investment firms.

    Please bring some real meat to the conversation and a more balanced outlook. Base your article on facts and not "feelings" and "things you heard" from a one sided and very small sample size ( ex advisors all with very short tenure ). Both sides need to be represented here.

    I don't mean to pick on Adam specifically, but clearly he is not the end all be all advisor that you should base 80% of your article on.

    << Finally, if the broker dealer model is as good as you say, why not support a uniform fiduciary standard for both broker dealers and investment advisors? How do you explain the resistance to that? >>

    Give some details. Could be interesting and something I think a lot of us could agree upon.

  • Report this Comment On December 19, 2012, at 9:35 AM, TMFBane wrote:

    @wiseradvisor,

    Here's that link again:

    https://www.edwardjones.com/groups/ejw_content/@ejw/document...

    You should ask that the doc be updated if it is no longer current.

    Thanks again for your vigorous defense of your model. We don't agree on everything, but I admire your conviction.

    And yes, we will be writing more about these issues in the future. I think annuities might be an interesting topic in addition to the various non-financial incentives. We're also thinking of putting together a compare/contrast piece on all of the top broker dealers.

    Also, we're planning to put forward some thoughts on what a uniform financial standard might look like. I've linked to an article in the comments above that has some great thinking on this topic. With a new regime at the SEC this year, we may see movement on that front.

    More to come! We'd be delighted to speak with you about all of these topics if you'd be interested.

    Best,

    John

  • Report this Comment On December 28, 2012, at 9:30 AM, zgriner wrote:

    I would like to know how you calculated the numbers in the AGTHX vs VFIAX chart. For the Vanguard fund, I should be able to take your annualized return and get the same 10-year value. For the American Fund chart, I should be able to take the annulized return, less the 5.75% commission, and get the same 10-year value. Neither calculations work.

  • Report this Comment On December 28, 2012, at 9:09 PM, MartianX wrote:

    Waited a long time to say this - there are any number of "advisors" on this board who parrot the line about sticking with advisors cause they will help you when you are scared, implying they can improve your returns. Unfortunately, this has the implication that the advisor actually knows how to manage money in the first place, actually has a benchmark for performance, and actually cares if he or she outperforms.

    Wiseradvisor is clearly one of the more articulate, passionate, and knowledgeable folks here, but when even he - probably wiser and older than most brokers - uses that industry line to focus on "goals" vs. actual numbers i can't help but shake my head in so many ways.

    Everybody in this industry knows that "goals" is industry-code for 'for heaven's sake please don't hold us responsible for anything we do".

    as he said:

    "I do think it is obviously important to provide good performance given the allowed allotment of risk your client allows you to take. If you honestly want to have a "yardstick" and say here is my best number ... you will soon be out of business as there can only be ONE best performance record."

    Which is sublime upon reflection. For one, it passes the risk discussion back to the client (I thought that was what advisors were for), it scuttles the idea of a yardstick (really?), and it disclaims even trying to measure results cause only "one person can succeed". In truth, this is actually what customers want. They want people with good performance to do well and people with bad performance to do badly and go out of business. But yes, I agree this would be bad for any advisors - if they do a bad job, people would know.

    And if it matters, there are enough clients to go around. You can do really well performance wise and not be number 1 and do quite well.

  • Report this Comment On December 29, 2012, at 9:58 AM, wiseradvisor wrote:

    @ TMFBane

    Thanks for your response. Just a couple of quick things.

    - My defense is not on the broker dealer model. My defense is this article is biased off a small sample size and paints a tainted picture that ALL EJ advisors ( in small print, the rest of the industry too ... ) are not very smar,t money sucking mutual fund selling/churning slease balls who will harm you if you talk to them.

    - I think this article is awesome for the idea of wanting to examine the current system and trying to find a better way. I think that is noble. This could be a great topic and hopefully provide some great idea's in this type of a forum setting. I am just not crazy about the biased slam of EJ.

    @ Beatle

    I am also grateful for your kind words.

    My point about ONLY caring about performance is stemmed at this simple idea ...

    - Putnam mutual funds in the 90's were all the rave. Fact. Why was this ? Well becasue they had AMAZING performance numbers of course. Why ? Well because their model compensated their money managers based off 1 year performance numbers relative to their benchmarks. This is a flawed system that created an insentive to take EXTRA risk to try and get huge bonuses.

    The result was almost all of their mutual funds were substantially overweighted in tech stocks ( that rave then ) which created impressive results superior to the industry AND the lovely index funds .... until everything crashed. Then, they created holes that some shareholders still have not crawled out of yet

    Example 2: Wasn't Bernie Madoff's way of collecting mass amounts of money based purely off a fictional number that was created to pretend he had some magic gift of beating the benchmark or "yardstick" that was set out by the industry ?

    My only point is not to side step that performance doesn't matter. When it is the sole focus and the biggest issue ... it simply creates problems.

    So to say that we TRY ( doesn't always work, my crystal ball is broken ... ), to give the clients the best risk adjusted return possible given their goals, I think is a pretty good statement. I am not trying to "pass" off the responsibiltity to which I was hired and paid for back to the clients or give them some confusing formula/numbers so they just smile and say "uh huh."

    Mrs. Smith who is 84 and has a small portfolio who needs the income to buy milk and bread should not have the same portfolio as Mr. Bean who could care less about income and is trying to build a legacy for his great grand children.

    That is my only point.

    Cheers all for the great conversations/comments.

  • Report this Comment On January 04, 2013, at 9:52 AM, Viking2013 wrote:

    I am an Edward Jones advisor in my 7th year. Conflicts of interest are inherent in all compensation structures at all full-service firms. Commission-based, fee-based, hourly; all have conflicts within their platforms. It is part of our industry. Investors should simply do their best to determine if the advisor and firm are of high quality and ethics.

    I give plenty of valuable advice and guidance to my clients that results in no compensation. One example: I completed 40+ IRA to Roth conversions for clients who were either unemployed or with otherwise low tax liabilities during the recession (market down = conversion taxes down, and now they are participating in the recovery tax-free). My compensation: zero. I am paid the same whether they have their assets in a Traditional IRA or Roth.

    I'm all in favor of investors educating themselves and by all means be conscious of fees and costs. Some savvy investors manage their own portfolios just fine. But they need to understand asset allocation and true diversity (many people think they are diversified and are not). Finding the lowest cost is meaningless for a do-it-yourselfer if they mismanage their portfolio, moving in and out of the market, chasing performance, etc. I stand by Edward Jones as second to none in our industry at putting clients best interests first. In my 7 years with the firm, the same mantra has been preached to us since Day 1: Always do what is right for the client.

    Final thought: I was surprised by this article's chart showing VFIAX outperforming AGTHX over 10 years. American Funds are one of many mutual fund companies I use in my business. It appears to me that this window of time was cherry-picked as the only 10 year period the index fund outperformed. In fact, select any American Funds equity fund, select any random 10 year period, and the American Fund will very likely outperform the index. I haven't got a hard number, but I bet its outperformance is 95% of the time or more, sales load and all. And this is saying nothing about guiding people through the rough patches, when they need help the most.

    Sincerely,

    Loyal Edward Jones Advisor

  • Report this Comment On January 04, 2013, at 9:56 AM, TMFMorgan wrote:

    <<I haven't got a hard number, but I bet its outperformance is 95% of the time or more, sales load and all>>

    I would firmly take the other side of that bet.

  • Report this Comment On January 05, 2013, at 1:51 PM, Viking2013 wrote:

    TMFMorgan: I was wrong, outperformance over 80%. Impressive nonetheless.

    Per Morningstar numbers, you can pick any of the 11 stock funds in American Funds lineup and pick any possible 10 yr period in the last 20 yrs (over 100 possible periods) and the American Fund will beat VFIAX over 80% of the time, sales load included. Run the numbers yourself.

    I accused the authors of this article of cherry-picking because:

    1. They selected one of the few decades the index fund outperformed. 4 out of 5 investors would've fared better in the last 20 years by selecting an American Fund instead of indexing. Notably, the 10 yr period ending 2008 (financial crisis), 100% of the American Funds stock funds beat VFIAX.

    2. They assume the investor has at least $10K to invest (Admiral share class with Vanguard) but no more than $25K (American Funds first discount). So the 80% outperformance would have only increased if people invested more $.

    3. Perhaps most importantly, they assume an advisor adds zero value with regard to asset allocation and navigating market volatility.

    A few more comments about this article, which I think is unfairly criticizing Edward Jones:

    Our firm's revenue sharing payments are not only legal and disclosed, it is better than offering proprietary mutual funds. Why? Because we can change partners anytime we feel they are not best serving our clients. Example: Putnam and Goldman Sachs used to be preferred partners, but they are no longer.

    We have no loyalty to a partner firm if they don't best serve our clients. Who at Vanguard will act in your best interest against Vanguard? Nobody. Will they ever fire themselves? Of course not. A case could be made that no-load, no-advice companies have a more conflicting structure than ours.

    Edward Jones advisors will be compensated one way or another, and to align with client preferences we offer both commission and fee-based account options. Despite every fee structure having inherent conflicts, we do our best to put our clients interests first. This article is not fair to the many great advisors at Jones, and the many great firms we partner with.

    Sincerely,

    Loyal Edward Jones Advisor

  • Report this Comment On January 26, 2013, at 9:29 AM, vilnius83 wrote:

    Questions: Interested in learning stock market. Have been investing with online broker last two years and probably having beginners luck, it's hard to go wrong lately. Would like to become trader or someday a analyst. Is EJ good way to learn about trading and getting license? As EJ FA do i have to "be a tool to bring assets" or i could build solid portfolios with stocks, index funds and mutual funds. I understand it's commission based so I will not make a lot of money but first year is partly salary based. I like to sell, but hate to sell things people don't need.

  • Report this Comment On January 26, 2013, at 10:40 AM, Indadv4life wrote:

    Some of these posts from "EJ" advisors have made me laugh. I have intimate knowledge of this firm, and I think Motley has missed the smokin' gun in this article to prove thier point. In a nutshell, their point can be made by one question to the firm: In 2010, after you rolled out your advisory platform in 09, what Percent of new assets in that program came from "transferred accounts"? In other words, what percent of new money going into that fee based platform came from clients who already paid an A share charge? The percent and number of dollars is staggering!

    So let me get this straight....the firm that preaches buy quality and stay invested for the long term. Basically launches a fee based platform, and since i know the answer to my first question, 70% or so of new assets in the first 18 months were from clients that already paid the A share commission based on the "buy and hold" philosophy are now being told and pushed into a product that is "better", the fee based product. See what happened here, the EJ Advisor got paid the up front commission years ago, and now is getting paid AGAIN, for moving it to fee based. To the tune of 1.35% a year. That is a fact, ask Jim Weddel for those statistics.

    Second, they have what is called a "focus list", or a list of the preferred funds that the article refers to. The problem is its not at all un bias. One example, 2008, when really every investment struggled, including almost all bonds. A lot of funds with very good track records never really recovered. And supposedly once one of these funds dissapoints for an extended period of time it's removed. Unless of course you're an American Fund. Prime example, Bond Fund of America. Many bond funds on the focus list were removed due to less then ideal performance in the core bond category. However, the worst performer, Bond Fund of America (-14% in 2008, terrible) was not, also a 2 star fund. Several bond funds in the same category with better track records were removed. Again, Bond Fund of America was not. Hmm I wonder if that has something to do with the 35 million in Profit sharing a year.

    Lastly, every single advisor that goes through training is taught to sell American Funds. In fact they are taught to sell a Mutual Fund, using The ICA Brochure....Investment Company of America (AIVSX), who's whopping 5 yr return is .88. "Well, your using a very short time period". Look anybody could make money over a 20 year period. Show me how to make money the last 5 years. Hence the reason American Funds are hemmoraging assets!! Yet, every advisor in this firm for the most parts biggest holding is American Funds. There is no objectivity, and as you can see from many of the posts, they will defend American Funds to the bitter end. Now go to any independent advisor, meaning firms like LPL, Raymond James, Commonwealth and I guarantee you won't find, or in a very small percentage advisors who's top holdings are American Funds. Walk into 90% of EJ's advisors office, and I guarantee thier top holding is American Funds. How is that objective advice??? Does it have to do with the fact they are trained on American Funds? How can one fund family be the right answer for all trainees?

    Things have changed a little bit recently, mainly because American Funds performance has slipped, and because of the advisory program. However, in a nut shell, a lot of the points in this article are accurate, plus the ones I mention. I have an advisor, so I am actually pro "commission" based advise. However, EJ's is flawed top down, and are essentially walking American Fund advisors.

  • Report this Comment On January 28, 2013, at 9:37 AM, dglenn43 wrote:

    The real problem pointed out is not Edward Jones' model, but the myriad of names. If I buy a car from a car salesman, I know he/she has his/her best interest at heart. If he tells me this is the best car, I understand that I must do the research to tell if it is in fact the best car for me. If I buy a house, I know who the real estate broker is getting paid by -- not me. They are sales people and I understand. But the article consistently used Financial Adviser to designate a broker, yet says that an Investment Adviser has the fiduciary responsibility. Simply change what they are called. If the investment pays them, they are a broker or sales person. If the customer pays them, they are an Adviser. It even works for dual certified people. She could say, "I am the broker for American Funds and an Adviser for Vanguard."

  • Report this Comment On February 10, 2013, at 5:40 PM, lauzca wrote:

    FYI... I am an advisor that has been with the firm for a year. I can say that the best interest of the client is always at the forefront of the companies mind. For example,

    1. We are not allowed to sell annuities to people under 55 and not allowed to put more than 35% of their net worth into it.

    2. We don't get paid on stock trades of highly aggressive a speculative companies that trade under $4.

    With regards to the load vs no load. It is simply a way to pay for services. However, I haven't seen exchanging of mutual funds talked about. The article mentioned that people only hold as load mutual fund for 3.3 years on average, however, in most cases that MF is exchanged for another and thus no sales charge to exchange. The load is a one time charge. You don't pay it again if you get out of one mutual fund and go to another as long as it is in the same fund family. And at EJ you will get za call from compliance if you sell out of one fund company and move into another to charge them.

    This article doesn't talk about breakpoints enough. Very few people end up paying the full 5.75% because of breakpoints.

    This article also doesn't mention the fee based services that we have. Every client I have gets the option between a fee based service or commission based. Every EJ client can choose.

    I think to really understand the company and its philosophy you have to work for the company.

  • Report this Comment On February 23, 2013, at 5:10 PM, Retirednhappy wrote:

    Have you ever heard the saying "A fool and his money are soon pardoned?"

    I'm an educated investor and former engineer and I have an Edward Jones financial advisor that is extremely knowledgeable, discloses all fees and consistently meets with my wife and I to mark sure were on track and properly allocated to ensure the longevity of our nest egg.

    I'm retired and I want to enjoy my retirement with my wife. I like some tips from this site but I'm certainly not going to manage my assets myself using cheap index funds to save a few basis points. Does anybody realize what your investing in and why? Also who is going to meet with you face to face twice a year and explain everything to you and the way you should be positioned in the current market environment which is not sustainable for stock prices.

    You have to evaluate the Advisor and not the company as a whole. Why do you think Vanguard is always advertising? Because their trying to get a lot of fools who think they are smart enough to do things on their own. In this global world as we have now I'm thankful my Edward Jones Advisor saved our skin in the 2008 financial crises. My golf buddy that was using a financial newsletter and vanguard funds was down 42% and I was down 16% that's where I know and see a lot of value by looking at the bottom line and how my guy has consistently delivered.

    Best Regards

  • Report this Comment On March 21, 2013, at 6:57 PM, adamlkfdjegsetoe wrote:

    Thanks for any other great article. Where else may anyone get that kind of info in such a perfect method of writing? I have a presentation subsequent week, and I’m at the search for such info.

  • Report this Comment On March 23, 2013, at 11:55 AM, hoganhh wrote:

    The fun thing about Jones is, they are so deceptively unethical about how they run their business, that nobody ever seems to catch on.

    The above comment hit it on the head. The advisory program is often sold improperly, the firm is mostly made up of people who have never set foot in a finance class, let alone another brokerage firm, to even know that what they are doing is borderline illegal.

    Within a few weeks of joining the firm, I was told to find every survey you can to help improve the firms reputation. (JDPower, registered rep, etc..) Boy, do they want the company to be looked at as doing no wrong, even if it means "helping the numbers" a bit/a lot.

    In the same breathe, after being there a few years, they switched from fighting a platform they didn't understand, to embracing it. They were touting the new advisory program as the best in the industry, the greatest ever. (failed to mention it was created by many former reps from Merrill, AGEdwards, whom are years ahead of them in terms of advice) Advisory at Edward Jones means you pay nothing up front, can get into no load, and load waived load mutual funds, and ETF's. It would be nice to no, what percentage of those people, 2 years earlier, paid for A shares with American, Lord Abbett, Invesco, or any other of their preferred fund families, up front.

    So, clients, ask your Edward Jones broker what fees you are paying on an advisory account. If they answer 1.35%, or a flat percentage, they are lying to you. Most reps do not also either know, understand, or care to mention, that the program also includes the mutual fund, and ETF annual expense fees, on top of the 1.35. The fund choices they allow into the "program" are also highly suspect, and not because of any due diligence. It has more political over tones.

    I would ask the younger broker, who has been with the firm for a year this question. Just because a company does not allow the capability of something into the firm, how does this make it completely wrong for the client? It just means that the company does not trust it's own advisers to participate in those types of offerings, since it cannot oversee the one person offices it has generated, and has more salesman, than actual advisers.

    My biggest complaint with the firm, would be it's own practices with advisory. (the old two year rule of sending people from A shares, into advisory, even putting in a to-do for the admin to call the client and schedule a review, to the day) and it's overall lack of knowledge. (and gleefully so, at regional meetings, it was more a matter of how little you knew in comparison to your peers, not how much.) I was at Jones for 7 years and left after hearing too much of the kool-aid. Been in the industry 20 years.

    One final note, notice how Edward Jones only covers large cap stocks? They say it is because of the focus of the firm. I believe, more accurately, it has to do with the actual holdings of many of the preferred families, specifically American Funds. I have 2 very close friends, whom were analysts at Edward Jones, so these are their thoughts not mine. But it makes sense, rate buy rated stock , heavily invested in Growth Fund of America, the world of Jones goes round and round. I hope investors get the point, they can find much better objective advice elsewhere.

  • Report this Comment On April 23, 2013, at 10:13 PM, DEK1964 wrote:

    I'm completely dumbfounded by the polarization of so many who have commented on this article. I am a former dually-registered rep/IAR who left the broker-dealer world because I got sick and tired of the inherent conflicts of interest and inappropriate acts of several of my coworkers. ALL of them knew full well what they were doing, too. Because they were not held to anything higher than a suitability standard, they took full advantage of the leeway they had.

    Eventually, I left to start my own RIA, and I am so happy that I did. For all of you who have implied in your posts that using low-cost ETFs or index funds is essentially a do-it-yourself affair, you are seriously misinformed. The fact is, low cost ETFs and/or index funds should be one of the first things a true fiduciary advisor (primarily those non-dual registered IARs) should discuss with an investor client. The academic research is profound, and there is no reason in the word that I cannot construct a portfolio from ETFs or index funds that has as good or better performance at significantly lower costs, risk, and volatility than actively managed funds. I'm shocked by the number of posts here that don't seem to understand that very simple concept, yet there is such conviction in the posts that imply they absolutely must work with their Jones advisor and they must be invested in actively managed funds. One gentleman actually stated that his Jones advisor was so great because he attained 6-figure gains with his American Funds investments. Well, in order to accomplish that feat, he must have (1) contributed 6 figures or more in contributions, and/or (2) has held this investment for an AWFUL long time! My response to that, though, is: How much more do you think you'd have had if your advisor had constructed an equivalent portfolio that was 80-100 bps less costly?! You probably don't want to really know. Just make sure you're sitting down when you run the numbers!

    Say what you will, the research is too clear and too damning: this business model IS NOT IN THE CLIENT"S BEST INTEREST, and it will most likely go the way of the dodo bird eventually.

  • Report this Comment On April 24, 2013, at 4:05 PM, toolnomore wrote:

    I joined this firm in 2007 and with with them for 5+ years and made my numbers before I went Independent because I couldn't stomach St. Louis and the BOA's I had to hire (mostly high-school drop-outs with very limited intellectual capital, who, by the way, are privy to client's accounts/assets and personal information which always made me extremely uncomfortable as an FA).

    During one of their foolish pow-wow's in St. Louis (PDP) I asked a Visiting Vet for some "actionable" ideas to help our clients during the market crash in 2008. He became visibly angry with me in class, and later called my Regional Leader and Mentor, saying that I wasn't a team player.

    The idea of having autonomy with your own office is even more foolish than the idea that their training program is top-notch. St. Louis calls all the shots; even the Regional Leader is impotent when it comes to any serious decision making.

    Once, my Segment Leader said "You never know when St. Louis is going to throw down the gauntlet!". This from a vet with the company who recently made Partnership, and he was cowering like a little girl.

    If you're a good advisor, are a free-thinking intelligent individual, you will be black-listed with this firm who rewards only asset gathering drones and turns good financial advisors into nursing babies, dependent on Weddle to tell them their every move.

    This is a rear-view mirror thinking company basing their entire business model on Ted Jones Sr. in the 1920's and who have their GP's interests at "heart".

    Buyers -- and Sellers -- beware.

  • Report this Comment On May 09, 2013, at 1:09 PM, BicycleMike wrote:

    There are worse out there. Namely the likes of Waddell & Reed.

  • Report this Comment On June 06, 2013, at 8:27 AM, RedHoller wrote:

    As a former EDJ advisor, I can say that your article is extremely accurate. They really dont care how many new advisors dont make it at Jones, because they have it setup so EDJ keeps the assets, the clients and threatens the advisor about attempting to bring the clients with them to a new firm.

    There are plenty of fine , ethical advisors at jones who do their best to do what is best for the client. Others may offer something else to make sure they qualify for that free trip which is part of their compensation.

    EDJ claims to have the best training in the business. I don't agree. they teach new advisors how to prospect for clients andgather information that can be turned into sales. They teach new Advisors nothing about the products. You are left to learn that on your own. Your advised to learn on fund family , usually American Funds, and just use that until you eventually have time to learn other fund families. Your number of new households, accounts and especially new AUM ( Assets Under Management) are tracked daily. If you dont get and stay above "meeting" expectations", you are history. You get fired over the phone and threatened, lets say reminded, that you cant take clients with you. The call literally takes seconds. We've decided to seperate you from employment, effective immediately. You will get a package from Human Resources. Real quality company. By the way, There are some 120 General Partners and even more Limited Partners who make very nice returns on their Partnerships. I wouldn't advise working for them.

  • Report this Comment On July 01, 2013, at 1:41 PM, calmpaddler wrote:

    I've been an EJ customer for seven years and I am very pleased with the service and returns on our investments. I do think that our returns MAY have been better utilizing Vanguard funds, but with our EJ financial advisor I have a feeling of confidence that he is genuinely investing for our benefit and not for his pocket book. I trust him much more that past advisors I've worked with, and if something were to happen to me I have total confidence that he would advise my wife to her benefit. This confidence and trust is worth whatever he may make from our accounts.

  • Report this Comment On July 23, 2013, at 3:53 AM, expensetracker wrote:

    yes no doubt about that.I would definitely take the other side. yomaney.com

  • Report this Comment On August 26, 2013, at 5:37 PM, pistachio88 wrote:

    I worked for Edward Jones for several years. As an aspiring financial advisor you should apply at EJ as a last resort. As a client, you should first consider Vanguard. If you aren't sure, consider indexed or balanced funds. If you are not comfortable, don't have time or whatever, then you should go with an advisor. Ask lots of questions. Expect the advisor to spend time with you. Bring someone along. Expect to understand what you own and why you own it. If you really don't understand (annuities for example) don't move forward. Trust your gut! EJ prides themselves on "their" reputation. In reality, this is the reputation the ADVISOR has built with the client. I love the part of the letter they sent to my clients after they fired me for being below expectations (after a brief illness - 100% commission so no vacay or sick leave, just offered to take a month off without pay) which read, "Be assured that the level of service you have come to expect at Edward Jones will continue". "The relationship we have with you is built on a foundation of clear, open and frank communication". Really? EJ provided this??? No, I provided this and more!! The firm provided no customer service to the client, no communication (unless you count mailing the monthly statement as communication). I DID ALL THIS, and much at my personal expense. Postage and long distance to name a few, was deducted right out of my pathetic paycheck. Of course, it's pathetic and expected, I am a "business owner". Further, "Your accounts will remain at our firm" ... as we try to find some other hard working sucker with good work ethic and character whom we can suck off of as they gain community trust and gather assets on the firms behalf! There is seriously little support or training and the firm places little emphasis on the relationship clients have with the advisor. Not the client, but the advisor relationship is disposable. Like the previous poster said, they will call you one morning at the end of the month and end the relationship with a very short phone call. Of course your health insurance will end then too. I thought this was my own business? They will fire an advisor without first trying to help out when the advisor doesn't generate the level of commissions the firm expects. Seriously, there is no employee paid to mentor and guide new advisors. This is voluntarily done by existing advisors, usually in your region. The so called "secret weapon". EJ hires squeaky clean individuals with good reputations in the community or people with any random sales experience. The internal recruiters aim to hire retired military, teachers, accountants, females or experienced sales professionals. But more often hire door to door meat salesman, used care salesman and Target associates (no offense Target). Education or industry experience truly is irrelevant. What matters is will people trust you. They are betting that with miniscule training this person will know more than the "regular joe" client and most importantly, will trust them. That's it. EJ's reputation is really the reputation individual advisors have built with their clients and people in their community, it is solely derived from the hard work of other people. The firm is nothing like the advisors they hire. They are as cut-throat as any Wall Street firm. It might take the hard work and churn of several hard working advisors until they can get the branch assets to the level they want but they don't worry about that. These advisors, regardless of what EJ professes the cost of hire/train/fire to be, are way less expensive to hire and churn than the benefit the firm receives from the face to face marketing job these new advisors do to enhance the reputation and assets under care of the firm. If it wasn't to the firms benefit they would surely change their model. If they cared about the client they would work to help the advisor and not rely on competing EJ advisors to "mentor" new hires. These veteran advisors benefit from failed advisors. It really is a pyramid scheme. Not that you wont get quality investments, but if your advisor is not making a buck off you with every call or "review", don't expect them to be there long. It's a battle between the non-profitable relationship building activities that benefit the firm and need to be exponentially profitable. As for the clients who trusted you (for good reason), they will smear your FINRA record and taint your reputation like you just walked out on them as EJ is there to hold the clients hand. Mind you, this will likely take place in your hometown since that is where they advise you to set up shop. Ironically, EJ creates the situation they are now sympathizing and comforting the poor, displace client about. And the cycle continues. Again, This firm is nothing like the advisors they hire. To be successful, you will work your butt off for them, carrying lots of the expenses as they mooch off your good reputation. Besides postage, long distance, advertising (of course they get your marketing efforts for free), the advisor directly PAYS FOR every pen, pencil, eraser, post it, staple, stapler, toilet paper, hand soap, cleaning supplies and maid/cleaning service and any other supply you can think of. Unless you are a barracuda (like most retired teachers and accountants), they will suck the life out of you for little pay and tremendous strain on your time and family. Then one day you're just gone. Who does that? is what they want the clients to think. They encourage a lot of activity from the advisors that helps to build trusting relationships, they are good at this, but keep in mind if your advisor is doing anything with/for you that you are not paying a commission for, you can expect to lose that advisor. Overtime, with the EJ business model, and escalating monthly expectation, it is difficult to put the clients interests ahead of the advisors, or more specifically, the firms.

  • Report this Comment On March 23, 2014, at 6:29 PM, Mccall6182 wrote:

    I'm a new investor an looking to put money away as I can. A Edward jones associate approached me an wants me to invest with there company. An I need advice an direction as I begin this walk in my life.

  • Report this Comment On April 19, 2014, at 8:13 AM, sue12345 wrote:

    At the age of 58, I inherited a sizeable estate from my parents. Because they used Edward Jones, I continued to use them. Recently, I lost my job. I thought that, ordinarily, this would be a catastrophe, but I was told by my financial consultant that I could make 4 to 6 percent on the estate, which would give me something reasonable to live on. (My medical problems eat up 3,000 a month.)

    My broker did not follow through on her promises. She projected an income stream of less than 4 percent. I felt she was very lazy about turning on the income. She turned income on where it was convenient. I had no idea she was transitioning into retirement after having suffered two heart attacks. I wish I had been told. Now my portfolio got turned over to her husband.

    I was unable to communicate my needs to her husband. He sold bond funds that provided me with interest, put some of my portfolio into income-generating funds, some in income and growth, and some in limited partnerships. The front office person told me I was going to get 6% income. However, so far, the actuals seem about half that. I tried to get my consultant to answer questions about my income, but he seems either extremely evasive or lacking in knowledge. I only need a few minutes of his time to once and for all, explain what I am actually getting in interest and dividends.

    The front office person is defensive when I try to discuss my needs with her. She has consistently canceled appointments with my financial consultant.

    Is it too much to ask that I be reassured I am getting close to the income the front office person said I was getting? I need Edward Jones to be honest with me, and I don't want the "gate keeper" to explain my income.

    If anyone has any ideas let me know. I am not a good do-it-yourselfer. I have been interviewing other Edward Jones' consultants. I've limited my interviews to the regional brokers, in hopes that they would know more or be more helpful than my current broker.

    I am extremely frustrated that I evidently cannot make more than $40,000 off of an estate worth 1.4 million. Something is wrong with this picture. Here's the deal:

    I need 5 to 6 percent from the estate.

    I would like to have it evenly distributed from month-to-month.

    I don't want to be in a high-risk portfolio.

    I need to have my questions answered.

    As I am looking for work, I don't see this as being that critical a year from now.

    What can I do about this situation? Would some kind of fiduciary advisor be the answer? I would be willing to pay up-front fees.

  • Report this Comment On April 23, 2014, at 2:01 AM, socrates7431 wrote:

    Every Financial Advisor who takes his career seriously is an asset gather, that's just part of the business. WE could say the same for all other firms out there and also say the same thing for all those investors doing it on their own. So the criticism is lacking, and some what baseless.

    As far as the article is concerned, I'm not that impressed with what was said, for two reasons. 1. There appears to be an underlying motive to show something about EJ that is seriously flawed. 2. The article lacks a lot of other information that paints a more accurate picture of Edward Jones.

    As for my experience with Edward Jones over the last twelve years with the same Advisor have been stellar and completely awesome. He's worth every dime that I have paid him and then some. My returns are stellar and my annualized returns over that period of time is 14%. That's after all of the loads and fees that are charged!!!!!!!!

    So many complain about American Funds and their fees and such, but guess what every mutual funds is going to take some of your money and that is a just a hard simple fact of investing. No-load funds, still take your money in lesser amounts and nonetheless they take it.

    It would be nice to see articles written about Merrill Lynch and all of the publicly own firms and all of their evils that they have committed be written too by the same author. So then more people can see a true comparison between firms.

    As for Edward Jones, it all in the person you working with, and your ability to judge that person on their merits with your investments. I fyou don't like it, then you picked the wrong person to work with. If you don't like the fees and such, then don't do business with EJ.

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