Edward Jones Broker Count, and Profits, Surge
Edward Jones’s population explosion continued in the second quarter.
While many of its competitors have been retrenching, Jones said in a regulatory filing last week that its broker count rose by 10% to 16,904 as of June 29 from 12 months earlier.
The St. Louis-based company, which derives about 70% of its revenue from selling mutual funds and insurance products through offices staffed primarily by a single broker and a branch administrator, ended its second quarter with 13,838 branches, up by 689 from a year earlier.
Although Jones has retreated from its goal of attaining 20,000 brokers by the year 2020, it continues to expand through training programs (often aimed at second-career individuals) and through a new program to hire experienced brokers. In the first seven months of 2018, Jones hired 850 brokers, 139 of whom have come from competitors, said John Boul, a company spokesman.
About 20 of the experienced brokers previously worked at large firms, primarily Merrill Lynch and Wells Fargo Advisors, he said.
While boasting the largest salesforce and branch chain in the retail brokerage industry—Merrill ended its second quarter with 14,820 brokers, Morgan Stanley with 15,632, Wells with almost 14,200 and LPL Financial with 16,049 independent brokers—Jones’ model of working with neophytes creates relatively high turnover while its branch proliferation has sparked complaints from some Jones brokers of market cannibalization.
Broker attrition at Jones crept up to an annualized 7.4% of the company’s advisor force in the second quarter from 7% in last year’s quarter, and was 7.3% for the first six months of the year, according to parent company Jones Financial’s 10-Q filing. That contrasts with attrition of less than 3% at Merrill Lynch officials at the wirehouse have said.
Jones, one of the last remaining partnerships in the securities industry, said its second-quarter revenue jumped 11% to $2.08 billion, driven by a big boost in fee-based advisory accounts.
The company’s profit, before allocation to its partners, jumped 6.6% in the quarter to $240 million. More than 75% of the profit, or $181 million, was allocated to the firm’s 438 general partners, according to the filing.
Client money in advisory programs rose 28% to $343 billion from a year ago, largely reflecting conversion of commission accounts to the fee-based programs. Revenue from fees climbed 20% to $1.67 billion.
Revenue from traditional commission and principal transactions, on the other hand, fell 21% to $340 million in the second quarter as customers shifted money to lower-margin fixed-income products, invested fewer commission-account dollars in mutual funds and received more “breakpoint” discounts on fund purchases, Jones said in its 10-Q regulatory filing.
Jones’ reduced menu of unit investment products also has “negatively impacted” commission revenue in the first two quarters of 2018, the filing said.
The Financial Industry Regulatory Authority has flagged UIT sales abuses as an industry-wide priority.
Edward Jones’ overall operating expenses climbed 11% in the second quarter to $1.8 billion, primarily because of higher compensation due to the growth of its brokerage force and an increase in commissionable revenue, the company said in its regulatory filing.
Jones derived 14% of its total revenue in the second quarter and in the first half of 2018 from a single mutual fund complex, it said. The company did not identify the fund complex but Jones is a well-known distributor of Capital Group’s American Funds, which last year contributed 17% of its first-half revenue, and in years past has fueled as much as one-fifth of its revenue.
The gradual decline in American Funds sales reflects the firm’s expansion of its fund-based proprietary advisory programs as well as “an increased client preference for passive funds,” Dave Levenson, Jones’ general partner in charge of product distribution, said in an e-mail when asked whether the firm has deliberately been diversifying away from American Funds.
“As our fee-based business has grown, we’ve seen greater balance/distribution across fund families, including growth in more passive solutions,” he wrote. “We have a terrific relationship with American Funds and hold them in the highest regard.”
Four Edward Jones customers sued the firm and some of its partners in March in a putative class-action lawsuit in California that alleged the firm has been shifting clients inappropriately to fee-based programs from commission accounts. Jones has denied the allegations and intends to “vigorously defend this lawsuit,” last week’s regulatory filing said.