Edward Jones: Advisor Attrition Could Increase as Virus Cuts Productivity

The parent of Edward Jones & Co. warned that its profitability for the rest of the year is likely to be reduced as assets under care and interest income decline due to the effects of the coronavirus economy.

The warnings, outlined in Jones Financial Co.’s 10-Q filing on May 8, echo the uncertainties expressed by dozens of others financial companies in the wake of the pandemic that has shut down much of the economy. But the last large partnership-controlled brokerage firm hinted that its franchise of almost 19,000 brokers serving middle-class customers from single-advisor offices could be particularly vulnerable to the damage.

Jones relies heavily on training and hiring advisors without industry experience, many of whom are starting second careers, and their compensation is dependent on quickly gathering client assets.

“Potentially lower asset-based fees and trade revenue resulting from the market uncertainty in response to COVID-19 could reduce commissions, bonuses, travel benefits and branch profitability for financial advisors,” the filing said. “[T]he Partnership anticipates that these potentially negative impacts to financial advisor compensation and benefits may result in increased financial advisor attrition.”

Jones’ brokerage force was up 6% as of the end of the first quarter to 18,863—continuing the St. Louis-based company’s profile as the biggest broker-dealer by sales force—and its attrition rate improved to 7.6% of its force from 9.6% who dropped out in the first quarter of 2019.

Like most of its competitors, Jones also reported that its first-quarter profit was bulked by surging markets in January and February and fees based largely on customers’ beginning-of-quarter assets. Its net income rose 26% to $303 million as brokers added $18 billion of net new assets and revenue jumped 14% from the year-earlier quarter to $2.49 billion.

But financial results reflecting the March market collapse and a subdued base of quarterly assets “will likely be lower as the year progresses,” the filing said.

Jones’ net revenue is “heavily weighted toward asset-based fees,” it said, while falling interest rates are eroding profit on margin accounts and forcing the firm to waive fees on money-market funds to ensure that fund investors plowing into cash equivalents don’t experience a negative return.

The work-at-home restrictions in place through much of the U.S. and Canada also “may limit financial advisors’ ability to obtain new clients and maintain existing client relationships through face-to-face client interactions,” the company said.

Jones has already wielded its expense ax, freezing wages for branch office associates who work with individual brokers and suspending home-office hiring.

Other broker-dealers have issued warnings about their own particular vulnerabilities. Raymond James Financial and Stifel Financial, for example, said travel restrictions are having a deleterious effect on recruiting programs oriented strongly to their home-office visits.

Charles Schwab & Co. said in its 10-Q filing on Friday that its service to self-directed clients and independent advisors has been affected.

“Certain of our client service response and processing times have increased as a result of very high levels of client engagement, our employees working remotely, and the temporary loss of services from some of our outsourced service providers,” Schwab wrote.