Poor Edward Jones
- Joshua M Brown
- December 7th, 2012
Edward Jones is taking a beating today in the financial blogosphere.
I don’t know from what perspective it looks worse – the brokers or the customers?
First there’s this at WealthManagement.com, a trade publication that’s normally been pretty friendly to the down-home regional brokerage:
Edward (don’t call us “Ed”) Jones is under a bit of fire from its financial advisors. Edward Jones is currently circulating a new employment contract. And it declares (as the firm always has) the client is ours. Oh, and we’ll sue you should you leave. Rick Rummage, a “career consultant” at the Rummage Group, says, “I can’t believe anybody would sign this employment agreement.” (Calls to Edward Jones not returned as of yet.) “It was written by Nazi lawyers to scare brokers,” says Rummage.
…and then there’s this massive dissection of the retail brokerage business model from the standpoint of the customers. I left the business for exactly the reasons detailed here:
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.
I have two pieces of advice for the young kids in college as well as the individual investors who read me, and if you’re a regular then you’ve heard them before: Don’t work with a broker and don’t become a broker. Find someone better situated to serve your needs and find a better way to earn a living.
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The Reformed Broker is a blog about financial markets and the economy. Joshua Brown is a New York City-based investment advisor for high net worth individuals, charitable foundations, retirement plans and corporations... More.