Edward Jones continues to stay at the top of the customer and financial advisor satisfaction charts. But with Wachovia's plans to consolidate its brokerage business in Edward Jones' hometown of St. Louis, the broker-dealer is facing more pressure than ever to differentiate itself.
Q. What's your latest number of financial advisors?There's great news for our firm. We started this year with 10,288 financial advisors in our U.S., Canadian and U.K. operations.
In 2006, we ended the year up 550. It was a decent year for us. It was not as much growth as we had hoped, but it was a good restart to our growth engine.
In 2007, through the end of September, we have a net increase of 631 financial advisors, already surpassing what we did in all of 2006. We've grown from 10,288 to 10,919. We should end the year comfortably in excess of 11,000, with 11,100-11,200 advisors.
Q. How about attrition?We're running at about 10.9 percent advisor attrition. We are not satisfied with that and are constantly trying to improve that. But it's down from over 11 percent last year and higher the year before last.
We've always grown organically. We don't buy brokers or try and steal them from other firms. We will occasionally hire people from other firms. In general, we hire people who have done very well in other professions such as accountants, teachers and engineers.
You are going to have higher attrition with your brand new people, and we have a significant part of our organization that is relatively new. Adding everything together … 10.9 percent [attrition] is pretty good.
Q. How is Edward Jones planning to grow?Other firms have grown traditionally by consolidation, acquisitions or mergers. Wachovia's been very good at it, acquiring firms like Wheat First and Interstate/Johnson Lane. Obviously, the acquisition just voted on by A.G. Edwards is another one.
Edward Jones is a private firm; we're not public. We have no ownership outside of the men and women who have worked or retired from our firm. That gives us a strategic advantage. We have a very strong culture and set of values that we are very protective of.
When you merge or acquire, you're going to get some dilution to your culture with a little bit of theirs and a little bit of ours. And you end up being something in the middle. We're not willing to do that.
We have a strategically advantageous business model. We have a strong culture that starts with the fact that we're a partnership and are able to make long-term decisions. We don't have that 90-day reporting cycle that requires us to report ever-increasing earnings and dividends to our shareholders. It isn't a part of our management or decision-making process.
We can grow organically, because we are patient. We view our training not as an expense, but as an investment in the productive asset of the firm – the financial advisor. We have a proven ability to train advisors and grow the business.
I was the 200th broker at the firm back in 1977. Think about that, from 277 to 10,900 today. That's 13 percent a year. It's the way we've chosen to grow and it's proven that we can grow very effectively. It works for us.
Q. What's your view on Wachovia making St. Louis its headquarters?I'm glad that Wachovia is going to locate its brokerage division in St. Louis. It preserves some of the jobs, though they have begun announcing layoffs. But that is better than if the whole operation had been shipped off to Richmond.
This is an opportunity specifically for Edward Jones to pick up some clients and some resources perhaps from the [former A.G. Edwards] head office. We have hired some of the A.G. Edwards producers, but not by offering the front money as some other firms are doing.
Q. What is the firm doing with respect to technology?We are in the technology business; it facilitates everything that we do. We are in the process of investing $250 million into our communications system. We have just successfully transitioned from the old satellite-based information system to what we call our global branch network with a terrestrial, T1 line. It's much faster and more reliable so that we can put out additional functionality to our branches.
Q. How about new products? We have been and continue to be primarily transaction-based in our business model. We have traditionally avoided the wrap-account business and will continue to avoid this business with its fees in lieu of commission.
But, after having looked at what the rest of the industry has done in the past few years, what we will be coming out with in the first half of 2008 is a mutual fund based fee-advisory account. It will be an advisory account, so advisors will have to have Series 7 as well as Series 63 and 66.
This will be an account with an annual fee, and for the fee there will be an enhanced level of performance reporting. You'll have an account that is periodically and regularly rebalanced, depending on the portfolio, with at least annual reviews required. And it will be very attractively designed and priced. It's time for us to offer this to our clients, and it will be a growing part of the business.
Q. How about your incomes, sales and profit sharing in '07?We've just completed the second trimester at the end of August, and it was the second-most profitable trimester in the history of the firm. We share a significant amount, about 40 percent of our operating income, as variable compensation, either profit sharing or bonuses, primarily with brokers but also with home office and branch staff.
The more profitable we are and the greater results that we have, the greater that variable compensation piece is. It's been a very good year.
