Virus Relief: Edward Jones Offers Cash Advances to Brokers
Edward Jones & Co. is offering a zero-interest cash advance to financial advisors struggling to generate fees and commissions from customers whipsawed by the coronavirus economy.
“We know that the coming months may bring challenges for some of our financial advisors, due to the variable nature of their compensation,” he wrote in an email. “So we plan to offer support options—allowing them to continue to focus on what matters most, serving clients and taking care of their families.”
The St. Louis-based firm announced the advance against production to brokers on April 27, as the blows to employment and investment portfolios caused by the virus-stilled economy had become apparent.
Reed would not comment on how many brokers are expected to qualify for the 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 biggest U.S. brokerage firm as measured by its approximately 19,000 brokers, but they work largely out of single-advisor officers selling 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 internally trained brokers may be particularly hard hit by the economic uncertainties emanating from the pandemic.
“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.”
The “temporary financial assistance” Jones is offering aims to ameliorate advisors’ falling income “while also potentially mitigating heightened attrition rates,” the 10-Q filing said.
Edward Jones in recent years has tried to broaden its pool of recruits to experienced brokers from rival firms, but its mainstay strategy remains training salespeople internally on cold-calling techniques, with a heavy reliance on candidates starting second-careers. Its attrition rate, which in this year’s first quarter fell to 7.6% of its brokerage force from 9.6% in the year-earlier period, is higher than most of its competitors.
To retain trainees, Edward Jones combines incentives such as the new coronavirus advance with deterrents such as requiring internally trained brokers who leave within three years to reimburse it $75,000 for the costs of its 17-week training program.
In another effort to improve retention, the firm has aggressively sued departing brokers for soliciting former clients. (It is not a signatory to the Protocol for Broker Recruiting, which allows advisors to bring rudimentary client contact information with them when joining another firm.)
Jones Financial Cos. warned in its 10-Q filing on Friday that its net income will likely decrease as the year progresses due to falling fees and interest income as a result of the pandemic economy while the new support program may raise its costs.
The firm telegraphed its concerns about profitability earlier this month by telling administrators who work alongside brokers in its 15,000-plus branches that it was freezing their wages and suspending overtime pay for one year as part of a broad cost-cutting campaign.
Jones had 19,027 advisors in the U.S. 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 advisors buffeted by the crisis, although Morgan Stanley Wealth Management and UBS have delayed higher grid thresholds that determine broker payout, Wells Fargo Advisors and RBC Wealth Management U.S. have modified payout penalty plans for small accounts and Merrill Lynch has dropped plans to review team payout qualifications at mid-year.
—Jed Horowitz contributed to this story.