Edward Jones Restores Pay Raises as Q2 Net Income Inches Up
Edward Jones, the biggest retail brokerage firm as measured by its more than 19,000 advisors in more than 15,000 offices, has resumed paying merit and promotional raises to its branch administrators and home-office staff, a company spokesman confirmed.
The St. Louis-based company eliminated raises to employees in March as part of a series of cost-control measures imposed to offset revenue declines it expected from the pandemic. Most of those measures, including bans on overtime pay and travel and a freeze on hiring trainees, remain in effect.
“I suspect that while wealth management firms were hit for a few months during the stock market swoon, much of that revenue hit has been replaced now that the market is back to pre-COVID levels, particularly at firms that have successfully transitioned most of their assets to fee-based revenue structures,” said Andy Tasnady, a retail brokerage industry compensation consultant.
Fee revenue in asset-based accounts at Jones rose 3% from last year’s second quarter to $1.7 billion. Together with account and activity fee, it represented 81% of Jones’ $2.33 billion of second-quarter 2020 net revenue, according to the filing.
“As conditions continue to evolve and we navigate this pandemic, so, too, do our firm decisions,” spokesman Alex Reed wrote in an e-mail. “Edward Jones has decided to lift the merit and promotional pay freeze it put in place earlier this year, and retroactive pay adjustments will be made where appropriate.”
The company’s 10-Q filing warned that Jones continues to keep a tight rein on discretionary spending because of the “spread and rapid evolution of Covid-19” that creates significant uncertainty about future business operations and financial results.
“Controlling costs could help reduce the impact that the potential decrease in Partnership revenue could have on future profitability,” the 10-Q said.
The Federal Reserve’s cut in the federal funds to near zero to stimulate the economy reduced Jones’ net interest and dividend revenue by 74% in the second quarter and 47% in the first six months of the year, the company’s filing said.
In addition to curbing travel and hiring, Jones has put a “pause on certain strategic firm initiatives and real estate projects,” the filing said. The firm’s second-quarter 2020 operating expenses of $2.04 billion were essentially flat with $2.03 billion in 2019, reflecting higher compensation and benefits expense partially offset by the cost controls.
Jones, which has allowed many of its brokers to return to their largely two-person offices, has not experienced “any significant disruptions in providing services to clients” as a result of the pandemic but is having “ongoing conversations with third-party providers to ensure the viability” of business operations, the filing said. The spokesman declined to elaborate.
While it has curbed training of new advisors, many of whom historically enter the business as a second career, Jones continues to recruit licensed brokers. It added 134 during the second quarter, and a net 987 in the previous 12 months, to bring its total broker count to 19,161, according to the filing.
Jones, which is fighting a purported class-action lawsuit alleging that it failed to pay overtime to financial advisor trainees, had 16,632 branch office administrators as of June 26, down 50 from 12 months earlier.
Jones’ controls on overtime pay and merit increases have not affected many of its brokers, whose variable pay is tied to the fees and commissions they produce. In recognition of the effect of the coronavirus economy on their production and to offset attrition, Jones in May offered advisors zero-interest loans.
Attrition of advisors in the second quarter fell to 5% of the total workforce from 7.6% in the first quarter and from 8.8% in the second quarter of 2019, according to the 10-Q filing. Reed declined to comment on the number of brokers who may have applied for financial assistance.
Total compensation and benefits costs for advisors and personnel supporting them rose 2% from the year-earlier second quarter to $1.65 billion. In a sign of its curb on overtime and other expenses, operating expenses per average advisor—excluding compensation and subadvisor fees—fell 8% to $38,753 from $42,166 one year earlier.
At least one senior partner at Jones is likely to benefit from the resumption of promotion-based raises.
Jones has named Lisa Dolan, its head of finance, as its chief operating officer, with responsibility for operations, service, firm analytics, strategic enablement and planning and workplace services, the company said in a regulatory filing on Monday. Dolan, 54, also joined Jones’ executive committee, which is headed by general partner Penny Pennington.
Dolan joined Jones in 2005 after 17 years as a practicing CPA with KPMG. She is Jones’ first COO, according to Reed, the company spokesman.