Virus Relief: Edward Jones offers cash advances to brokers


May 12, 2020

Edward Jones & Co. is offering an interest-free cash advance to financial advisers struggling to generate fees and commissions from clients broke by the coronavirus economy.

The unusual offer is made to brokers whose earnings at the end of this month have fallen below 80% of their adjusted six-month average, Edward Jones spokesman Alex Reed said.

“We know the coming months could bring challenges for some of our financial advisers, due to the variable nature of their compensation,” he wrote in an email. “So we plan to provide support options, allowing them to continue to focus on what matters most, serving customers and caring for their families.”

The St. Louis-based firm announced the advance against production to brokers on April 27 as the hits to jobs and investment portfolios caused by the virus-crippled economy became apparent.

Reed wouldn’t comment on the number of brokers who should be eligible for cash advances, but said they will receive additional details and terms based on specific circumstances. Brokers may be responsible for paying so-called imputed interest that the Internal Revenue Service calculates to collect taxes on instruments such as zero-coupon bonds sold below face value, he said.

Edward Jones is the largest U.S. brokerage firm, measured by its approximately 19,000 brokers, but it works largely with single-advisor agents who sell mutual funds and other packaged products to middle-class investors. .

In a quarterly regulatory filing on Friday, the partnership that controls Edward Jones warned that its force of largely in-house trained brokers could be particularly hit by economic uncertainties emanating from the pandemic.

“A potential decline in asset-based fees and trading revenue resulting from market uncertainty in response to COVID-19 could reduce commissions, bonuses, travel benefits and branch profitability for financial advisors,” indicates the folder. “[T]The Partnership anticipates that these potentially negative impacts on financial advisor compensation and benefits could result in increased financial advisor attrition.

The “temporary financial relief” offered by Jones is intended to ameliorate declining advisor earnings “while potentially mitigating increased attrition rates,” filing 10-Q says.

Edward Jones has attempted in recent years to broaden its pool of recruits to include experienced brokers from competing firms, but its core strategy remains in-house training salespeople in cold-calling techniques, relying heavily on candidates starting a second career. Its attrition rate, which in the first quarter of this year fell to 7.6% of its brokerage strength from 9.6% the previous year, is higher than most of its competitors.

To retain interns, Edward Jones is combining incentives such as the novel coronavirus advance with deterrents such as requiring internally trained brokers who leave within three years to reimburse him $75,000 for the costs of its 17-week training program.

In another effort to improve retention, the company aggressively sued departing brokers for soliciting former clients. (He is not a signatory to the Broker Recruitment Protocol, which allows advisors to bring basic client contact information with them when they join another firm.)

Jones Financial Cos. warned in its 10-Q filing on Friday that its net income will likely decline as the year progresses due to lower fees and interest income due to the pandemic economy, while the new support package could increase its costs.

The firm telegraphed its profitability concerns earlier this month by telling administrators who work alongside brokers at its more than 15,000 branches that it was freezing their wages and suspending overtime pay for a year as part of of a major cost reduction campaign.

Jones had 19,027 advisors in the United States and Canada as of March 27, up 6% from 17,894 at the end of the first quarter of 2019.

No other regional or national brokerage firm is known to have adopted company-wide advances for crisis-stricken advisers, although Morgan Stanley Wealth Management and UBS have delayed higher grid thresholds that determine broker payouts, Wells Fargo Advisors and RBC Wealth Management US changed payout penalty plans for small accounts, and Merrill Lynch dropped plans to revise the team’s payout qualifications mid-year.

—Jed Horowitz contributed to this story.


Comments are closed.