Edward Jones saga

THE SERIES BEGINS AFTER THESE BRIEF COMMERCIAL MESSAGES:

FINRA launches probe of Edward Jones in response to our reporting.
http://kronstantinople.blogspot.com/2013/04/regulator-follows-up-on-our-edward.html#more

After five months of deep probing, FINRA sent me an email with this conclusion: "Based on our assessment of the information (you provided), FINRA has closed its investigation of this matter." No explanation or elaboration whatsoever was provided. There was no dispute with our serious allegations. 

Net revenue for Jones Financial Cos., the brokerage’s closely held parent, rose to a record $5.03 billion last year and has climbed 42 percent since 2009, outpacing Merrill Lynch’s 10 percent growth in the period, regulatory filings show.
http://www.bloomberg.com/news/2013-05-14/brokers-go-gray-as-youth-unsustainable-without-cold-calls.html


This series is being repackaged by the fine folks at the Motley Fool for re-release on the Fool's main page, and/or in another publication, in order to reach a wider audience. The Motley Fool originally syndicated these articles in late summer 2012.

Chapter One: The heartwarming launch of a unique company
Chapter Two: Death of a Salesman, as reality sets in
Chapter Three: Some clients say firm is a liar and a thief
Chapter Four: Weddle's Glittering Edwardian plans for the future
Chapter Five: My family's messy divorce from the two-faced Monster



Keeping Up with the Joneses: 
Edward is there to help

Edward Jones harkens back to the golden days of yesteryear.

There is a charming, cozy enclave of the American psyche in which places such as Lake Wobegon, Mayberry and the Smuckers' family home repose. It's that halcyon world where Father Knows Best, and  a man's word is his bond. 
    It is this realm in which financial services firm Edward Jones has chosen to position itself, and it has been brilliant in cultivating its "neighbors helping neighbors"  persona. Unlike the industry as a whole -- which has a sleek, metropolitan, high-rise, high-tech, high-roller image -- Edward Jones has thousands of modest storefront offices throughout the heartland. In each, there is one advisor, who is humbly, compassionately at your service.
    But the birthday card he sends you -- and the pumpkin pie at Thanksgiving, and the new Norman Rockwell calendar every January --  are all part of the firm's scrupulously crafted  "Our Town" facade. Everything from the advisor's regular, "just checking in"  phone call every few weeks ("Is your cat feeling better?")  to his investment advice, is ruthlessly stage-managed by a vast, extremely profitable, expansionistic headquarters.
    Some of the firm's financial advisors refer to it as a cult -- they call it "Jonestown" -- and hundreds quit every year, because they "can't drink the green Kool Aid any longer."

It's so tasty, and it makes it easier to swallow the ambivalence!
     "Drinking the Kool Aid" refers to the 1978 mass suicide at Jonestown, Guyana, in which 913 followers of James Jones committed suicide by following his order to drink the cyanide-laced beverage. The term has come to mean blindly accepting a philosophy or plan of action, ignoring moral or practical considerations. In online forums, Edward Jones financial advisors use this phrase all the time.
    When they "drink the Kool Aid" -- many employees say -- they are swallowing their pride, their ethics and their grip on reality. They are allowing the Edward Jones mythology -- that they are principled entrepreneurs who serve their townsfolk with honor and expertise -- to colonize their minds. They live in the parallel universe of Jonestown during the work day, and when they leave and re-enter the real world, their pants are magically full of money. Hay caramba!
    That Kool Aid is some powerful stuff.  
   
IT'S A WONDERFUL PORTFOLIO
    Edward Jones has  perfected an incredibly astute "It's a Wonderful Life" image, as a place where regular folks can achieve financial security, complete with their own personal Jimmy Stewart to look out for their best interests. This isn't Wall Street -- it's Main Street -- and Edward Jones is the trusted, reassuring shepherd for the "Mom and Pop" investor.
Like Jimmy Stewart, your Edward Jones advisor will never let you down.
     It's a cynical but incredibly effective fabrication. 
     It's almost as if the firm had a split personality: The big, mean money machine at its sparkling St. Louis headquarters -- with its rigid rules, its totalitarian, "cloak-and-dagger" scrutiny of its employees' every move, and its single-minded, thoughtfully conceived blueprints for conquest -- versus the "howdy, neighbor" ambiance it cultivates among the fruited plains and amber waves of grain. Oh what a beautiful mornin' -- everything's going our way!
Gleaming, showy headquarters building in St. Louis belies the folksy image the firm prefers.
      Edward Jones has a "close-knit culture, fiercely loyal advisor force and stick-to-your-knitting investment philosophy," according to a February, 2012, article at WealthManagement.com.
    To some advisors, all that "knitting" is intolerable, and they are anything but loyal. Their sarcastic rants are all over the Internet. The "Mothership" as they refer to headquarters, is The Empire, and not in a good way.  
The "Mothership" isn't as maternal as some would prefer.

THE GRACIOUS GESTURE THAT STARTED IT ALL
    Edward Jones was founded in 1922 by Edward D. Jones, Sr., in St. Louis, Mo.  Legend has it that he was just a kindly man who aspired to help the tenderhearted families in town with their finances.
    It was his son, Edward D. “Ted” Jones Jr., who in 1955 "put forth a visionary new strategy of how investments should be delivered," according to the firm's web site. 
    Thus was born the cute-as-a-button Johnny Appleseed paradigm, by which the firm began planting its little sapling-offices across the nation. Its savvy goal was to entice into the market those who might otherwise be too bashful and intimidated to become "investors." 
    "We're 'next-door' advisors,” a longtime employee explains. “We're an office that anybody can walk into." 

Edward Jones' strip-mall offices are "nonthreatening," the Harvard Business Review says.


   By 1989, the branch network had grown to more than 1,000 offices, and today there are nearly 12,000 appealing green-themed storefronts whose advisors service some 7 million clients in the country's towns and suburbs.
     "Jones has promoted its clean reputation, which has helped propel its extraordinary growth," the Wall Street Journal says. But there's some dirt in there too, and the firm hasn't been able to sweep all of it under the carpet, despite the ardent efforts of an amiable, fresh-faced leader.
     In August 2012,  Managing Partner and CEO Jim Weddle, who looks like a cross between Pat Sajak and Mad magazine's Alfred E. Neuman, was named No. 1 on the St. Louis Business Journal’s list of "100 Highest-Paid Executives." Weddle, who started from scratch when he joined Edward Jones in 1976 as its 200th advisor, was paid  $9.8 million in 2011 ($1.8 million more than Sajak!). Four other EDJ executives round out the five most highly paid in St. Louis. Their humongous "haul" comes straight out of the "Mom and Pop" investors' pockets.
    I wonder how Jimmy Stewart would feel about that. 
    And imagine how he'd shudder if he knew that the company he created so lovingly has paid more than $210 million in fines and class-action settlements for deception and for "blatant" conflicts of interest "that put the company's welfare above that of its clients" (more about this in Part Three).
    So much for the clean image. Poor old Edward Jones must be rolling over in his grave. 

KUMBAYA: MAKING SALES BY HOLDING HANDS
    With its reassuring promise of gentle, personal stewardship for their hard-won nest eggs, Edward Jones particularly appeals to the elderly, the naive and the striving-but-worried middle class. 
Take care of it, sir. It's everything we've got.
     "We're hand-holders," one EJ advisor wrote in an online forum. "Once (our clients) start seeing us as faithful friends, it's easy sailing from there. They give you free rein with their money."
    EJ advisors' laid-back, face-to-face and peer-to-peer approach lulls clients into becoming fuel for the Edward Jones dynamo, which surreptitiously charges much higher fees than do the fancy-pants investment firms downtown. Who would have guessed that this homespun little outpost is part of a a multibillion-dollar operation? The clients who find out are enraged and crestfallen, but most of them never do. We did, but it took six years for us to catch on.
  
ONCE UPON A TIME, A STORYBOOK SCENARIO WAS BORN
    In the beginning, the founder's son, Edward Jr., had a novel, quite delightful, idea. Get out there and find clean-cut, solid guys who weren't feeling all that gratified in their jobs at the dealership, or as an assistant manager at a low-end department store, or as a high-school biology teacher, and train them to help their friends and neighbors with their money matters. These advisors would craft carefully balanced portfolios, specially tailored to each client's assets, his hopes for the future and his tolerance for risk. Gratitude and loyalty would ensue.
Get that money from under the mattress, Aunt Bee, and march it right over to Edward Jones.
     Edward Jones advisors would be personable, confidence-inspiring men who would be able to cultivate warm relationships with "babe in the woods" investors -- fine, middle-class people (according to Reuters) who were uncomfortable making investment decisions (according to the Harvard Business Review) "without the help of a trusted advisor." Jones uses a "psychographic" rather than a demographic method to target its clients, the Review adds.
    If you were to put your faith in Edward Jones, you wouldn't have to deal with some intimidating, hotshot investment banker, coolly juggling hundreds of millions of dollars in his ultra-mod, uptown skyscraper office. Your man at Edward Jones might take you out for a cup of coffee, but there would be no slick men in grey flannel suits or two-martini lunches to contend with. There would be no parking terraces or elevators. You could walk over there in your overalls or your sweats and be greeted with open arms, figuratively speaking. 
Come in for a visit with your advisor  -- no need to get dressed up..
    Your "Happy Days" Edward Jones advisor would be the very same guy who'd wave at  you in the grocery store, give you a warm nod at church, coach your son or grandson's soccer team and be the first to pitch in when the Chamber of Commerce said, "We need some beautification around here." It would be reassuring to have such a upstanding guy nearby, managing your life savings. If one of his clients had to go to a nursing home after suffering a stroke, he'd be right there, with an anguished face and a box of assorted chocolates.
    The Edward Jones advisor's role would be far broader than that of a conventional broker. He would become a valued family friend and confidant, and a civic leader. He would be, to quote a Kinks' song, "a well-respected man about town, doing the best things so conservatively." 
   But the "Jolly Green Giant," as some advisors regard the firm, really isn't interested in "helping the common man" as a whole. A "prospect" must meet four criteria, according to several advisors in a lively discussion online. They say the bosses insist that only people who have a specified net worth/financial goal can be accepted as clients. Those prospects must also reveal a willingness to "take advice" and "be educated," a process that provokes lots of sneers and sarcasm on the site ("Why don't they just come out and say it: We have to be the boss, or forget it? We have to select guys we can monetize," one elaborates). Finally, a prospect must appear willing to provide referrals, the advisors say. 
    "A client has to meet ALL FOUR criteria," a veteran FA asserts. "If I  did not have a good feel for them, we didn't do business with them. In my decade-plus experience, I would say 10 percent of the population had the potential for the appropriate mix of assets, right investment personality and willingness to give referrals. So the typical FA is fighting with the entire investment community (banks, brokerages, independents, insurance companies, etc.) over that small group."
    "They make us turn away plenty of folks, and it's starting to seem hopeless to me," a frustrated "newbie" remarks.  
The town's financial advisor would be so dear, Betty Crocker would bake him some cookies!

THE TRAINING
     Edward Jones looks for "mid-level career-changers," according to its web site, who "have a burning desire" to unleash their entreprenurial energies and improve their lots in life. It screens thousands of applicants each year, and hires hundreds, according to Reuters. Only about half will ever build a profitable business, the article adds.
    Those who apply have poignantly high hopes: They yearn for a position of professional and civic respectability. There are others, of course (maybe most -- who knows?) whose primary motivation is to make an absolute killing in the investment arena. 
    (In their online forums, they're constantly comparing the size of their monthly grosses. That's men for you! Gross is right!)
    The average Edward Jones recruit is 35 to 37 years old, and has about 10 to 12 years in the workforce. Their job experience is extremely varied, but Jones prefers to hire those who have a background in commission-only sales. Few have been involved in the world of finance, and most do not have a college degree. The average EJ advisor is currently in his mid-50s and has 863 accounts worth about $44 million
    (The typical client is 54 years old, makes $61,525 a year and has $106,415 invested through Jones.)
    Training for prospective advisors is both intensive and cursory, but Edward Jones sets its value at $100,000.  The firm was recently recognized for its "innovative and successful learning and development programs and practices" by Training magazine, which has ranked EJ's overall program quite high for years.
     Prospects are warned that this job "is not for everyone," and it requires concerted effort and discipline. Great rewards will follow. 
   "I am scarred (sic) to death and siked (sic) out of my mind at this opportunity to begin such a great career," one of them writes on a message board.
    Trainees express their hope and excitement at the fulfilling life that will soon open up before them like a spectacular dawn.
Their plunge into Edward Jones is a leap of faith and longing.
     . But many current advisors claim that most new hires quit within 18 months.
   The "newbies" describe the "utter hell" of the training program, but say what comes after that is even worse: 12 hour days, six days a week, for at least three years, just to make ends meet.
    After they are initially hired, they remain at home and take a full-time, two-month online course to prepare them for the General Securities Registered Representative Examination (Series 7) and a Uniform Combined State Law Examination (Series 66) in order to become licensed to sell securities. State and federal laws require that all financial advisors pass these exams, and Edward Jones has a stellar 90 percent pass rate. Trainees are paid a stipend during this period.
     Those who succeed then spend five days at a training center in either Tempe or St. Louis, where they "participate in a highly interactive program" utilizing small group training led by Academic Training Leaders (ATLs). 
    "This class will help you develop a better understanding of the securities business, the firm, clients and their needs, and key investments," recruitment materials explain. "In addition, we will introduce you to key prospecting and sales presentation skills you will refine later in the training program." 
   Graduates of this training are not universally impressed, to say the least. "The firm's Academic Training Leaders and Developmental Leaders -- most of whom have never been financial advisors, or even had sales jobs (a lot of them are former teachers) -- gave impractical advice and training," one advisor observes..
    Trainees spend the next five weeks working in their home towns  to develop a clientele by prospecting from door to door, practicing telephone cold-calling and learning from a full-fledged advisor how to make effective client presentations in which, as one of them puts it, "CLOSING THE DEAL IS EVERYTHING  Do what you've gotta do!!!" 

"Stand up straight, smile, and extend your hand."
KNOCK KNOCK
    Fuller Brush dropped the door-to-door sales model 20 years ago, and even the Avon Ladies do virtually everything online these days, except for those in Third World countries. Pretty much across the board, door-knocking is not regarded as an acceptable sales approach anymore. Even the Girl Scouts are encouraged to liquidate their cookie inventory some other way.
    But Edward Jones famously sends out its newly trained, freshly scrubbed "Boy Scouts"  to pound the pavement in their home towns, ringing one doorbell after another, and selling themselves to the neighborhoods they have chosen (based upon "promising demographics")  to "serve" as financial advisors. Their daunting assignment is to develop a "stable" of clients in this bruisingly time-consuming and uncomfortable way.
Honor and duty are what EJ advisors are all about!
     It's lonely out there. The stress is reminiscent of "Hell Week" in Japan, when nerve-wracked students study for tests that are critical to their future success. 
    But one week is not enough hell for Jones trainees, who must keep their morale up and their heads held high for close to a month. They are required to make 25 contacts per day while earning what many of them refer to as "a starvation wage." They must then call each contact "at least every two weeks and ask for an order," Edward Jones training literature says.
    "Making 25 quality contacts does not mean knocking on 25 doors," the manual continues. "A quality contact is a conversation during which a prospect’s needs are assessed, his or her interest piqued, a product explained or an appointment set. It takes an average of seven separate contacts before a potential client becomes an actual client. Would you find such a process frustrating or challenging? Your answer will tell you whether you should consider looking elsewhere for a career better suited to yourself."
    Wouldn't YOU find such a process frustrating and challenging? And gut-churning and spirit-killing?
    You have to give Edward Jones credit for warning its recruits upfront about the stresses they will face.
    If you can just get through that part, advisors are told, word of mouth will help you develop a healthy-size clientele over time. Eventually (and maybe quite soon), the money will be fabulous, but in the meantime you need to get that ass in gear and endure the school of hard knocks -- door-knocking, that is. 
    You'd better have "True Grit," or pack it up and leave, pronto. 

DON'T BUY INTO THAT 'POOR GUY' SENTIMENT 
    In "How to Handle a Door-to-Door Salesman," a former door-knocker says these guys "are trained to sell, but you're not trained to resist. They want you to feel sorry for them. Don't! And DON'T let them in."    
One does tend to feel sorry for them.
    In online forums, both investors and EJ advisors express their distaste for the door-knocking approach. 
    "People literally slam the door in your face," one former EJ advisor recalls. "Sometimes you can see them peeking out from behind the drapes until you leave. Two people called the cops on me."
     "Even the nice ones let you know one way or another that they wouldn't buy anything from a door-to-door salesman," another says. "It just turns them off."
     "I never felt so low in my life," a now-successful EJ financial advisor admits. "I just barged through it and kept my eyes on the prize, and I'm glad I did."
    The message boards also include comments from those whose doorbells were rung, and who object to these uninvited, unwanted interlopers. Many of them have opened the door several times over the years to find Edward Jones reps standing there, hoping to solicit their business. They're sick of it.
    "Don't they have any class?" one Midwestern woman writes. "Don't they have any dignity? It's pathetic."
    Another person writes. "I have a lot of very, very, very old, financially well off neighbors who might be slipping a bit mentally as the result of their many years here on Earth having caught up to them. Why the hell is a 'respected' investment company knocking on doors trying to drum up business?"
"I'm here to help you and your neighbors secure a comfortable future."
     In some of their Internet chat rooms, the Jones trainees describe the dread bordering on panic, the exhaustion, the feeling of futility, the constant rejection, and the embarrassment of peddling themselves in this fashion. One advisor says it was "as demeaning as panhandling." 

WET, WRINKLED, RED-FACED
    They even have message boards on how to cope with the blistering heat -- how to avoid becoming florid and drenched in sweat and how to prevent getting your paper handouts wet and sticky as you attempt to get invited inside for "a little visit about your wealth potential."
     What makes the door-to-door initiation rite seem all the more demeaning -- almost like a form of corporate hazing -- is that these FAs are not  kids who just graduated from a paper route; they are middle-aged men who are seeking an exciting new opportunity to "have  unlimited earning potential along with the freedom associated with running a business." 
Find those poor fools who are just sitting on their money.
     The door-knocking phase seems designed to determine how much crap they can handle and how willing they are to follow orders -- even orders they find quite aversive.  In that sense, it appears to be a tactic to weed out those who are too strong-willed or proud to fit in at Edward Jones. However, the numbers of those who are fired or quit in the months and early years that follow suggest that it is not entirely effective in that regard.
    Some of the trainees, who seem to have the salesman's gene embedded in them, actually find door-to-door cold-calling to be enjoyable. 
Financial Advisor Ayad Saad
    Ayad Saad of Melburne, Florida, explains: "I found that there are thousands and thousands of investors who had not heard from their broker in a long time. I was like their lifesaver. I came to them and offered my services. This was unheard of. Those folks were welcoming me, offering me something to drink, showing me their financial statements --  and we had just met a few moments ago. When you introduce yourself as a new financial advisor opening an office in a community, it is incredible to see the trust that takes place because Edward Jones has this history and unique culture. People open up and share their financial statements with you and ask you for help. That is how I built my business, and I still do that today."

    An advisor identified as Ronnie Lobbs explains how how he gets "a rush" from cold-calling:  "I bullshit about their dog, kids, and their favorite fishing trip. Softens the blow. 'Ya know I have helped quite a few people in this neighborhood prepare and adjust their portfolios to take the most advantage of the upward trend the market'...Stay in their face until they KNOW you.  Call you by your first name and consider you a 'friend' of sorts. When they start joking with you, or enjoying your company, then it's all over. They'll eat out of your hand."
    It is chilling to peek into their world, as they trade tips on "how to move in for the kill." 

THE HIGHWAY TO HEAVENLY SUCCESS 
    The Horatio Alger storyline seems to be at the very core of Edward Jones' allure. Those who choose to work for the firm seek to ascend the famous Ladder of Success, ultimately becoming an esteemed counselor, and building a multimillion-dollar portfolio.  
You can make it if you try, try again!
    They are energized by the prospect of joining what is arguably one of the most dynamic enterprises in the country, having their own tidy neighborhood offices, and being prominent in the civic life of their communities. 
    The door-to-door experience is essentially a "trial by fire" phase of their boot camp. 
    Little do they know that it really doesn't get much easier, but at least -- in a few weeks -- they'll be able to sit down in air-conditioned comfort while they wheedle prospective clients and peddle their wares.



Chapter Two: Death of a Salesman

You finally made it, dude. Now get busy and start hauling in the money.

   So here you are. In your Edward Jones office, with everything in place for you to become rich, dynamic, authoritative, adored, prominent, respected and proud. 
    "It's quiet in here, man! I guess I'll call the wife and let her know I got here safe. I came early, so I could get the feel of the place and take some deep breaths and collect myself. I can't just wait for things to happen, though. I've got to MAKE them happen. I'll run out for some coffee, and then I'll really buckle down."
    Maybe you really will be able to buckle down. Or you might just buckle, when reality sets in.

     It doesn't take long before you feel yourself deflating, some current and former advisors say.
     "Pretty soon you realize that you will not be an advisor in any sense of the word," one currrent FA warns those considering a job with Jones. "You are a salesman. You are a clerk. You are an order-taker. You get your marching orders from the Mothership in St. Louis. They tell you what to sell. It's all totally cookie-cutter, all formula. You basically have no freedom to use your knowledge. You're a drone."
    "This is what it is all about at Edward Jones -- MAKE THE DAMN SALE OR HIT THE ROAD!" one advisor complains online. "So, you have a bunch of folks out there who start their Edward Jones career DESPERATE TO MAKE A SALE. It is a brutal process."
    Many new advisors say that during the first months -- or even years -- of their new job, they used up their savings, maxed out their credit cards and depleted the 401-k accounts from their previous jobs to get by, despite the stipend from corporate.
    "Just PROSPECT constantly and it all works out. DO AS THEY SAY: sell sell sell," a still-hopeful advisor encourages.

LIKE STARBUCKS, WITHOUT THE YUMMY AROMA 
     "Jones gave me a start, and I kinda miss the place," a former employee says. "But it was deceptive. Basically you are a Starbucks manager. The FAs sell EJ's limited product lines and a one-size-fits-all investment philosophy. There are many products you cannot offer. Sophistication level is low....Read the prewritten letters you are allowed to send out, never anything in your own words. While you have the EJ brand working for you, the tradeoff is the FA's importance and individuality is minimized."
"Just give me the money, and I'll take care of everything automatically."
     "Why not have a robot do this job, or a vending machine?" a plaintive new advisor writes in an online forum.
    "You are a soldier and you wear a green uniform. You can't have a blog or any other form of personal expression," a former FA says. "(There's) a weird, almost cult-like atmosphere. You have to act like many statements which are made over and over by leadership are true, even when they are sometimes patently and obviously false. For some reason, management seems to have created a culture of lies. It's like a pyramid or Ponzi scheme."

    Another Jones employee describes his job thusly: 
    "'Hello, this is the Latest Clone to call you from this Edward Jones office right here in Middletown.... (And I have to do this) 40-50 times a day, hoping against hope that somebody buys something and then realizing that a 10k bond sale doesn't amount to crap toward my gross production requirements.  Drinking vast amounts of green Kool Aid. Shoehorning clients into cookie-cutter American Funds portfolios and then two years later churning them into (the newer fee-based model)." 

LOOKING STUPID AND FEELING EMBARRASSED
    Several advisors admit that they have been repeatedly embarrassed in lacking the knowledge or authority to answer basic client questions. "I couldn't even tell them what the fees were," one admits. "It was like a hush-hush subject."
Hush!
    "Like, there's no way to tell a client his internal rate of return or to calculate the risk level of his portfolio, and there's no tool to rebalance assets," another one explains. "Clients would walk in and say 'Mike, you're great, really, but how I am doing this year?' and I couldn't show them." He left to work for Raymond James.  
    Another advisor was startled to learn, when a client came in to close out his IRA, that Edward Jones had raised its closeout fee from $95 to $135.  
    "There shouldn't be a fee to give this courtesy to a client," the advisor said. "Plus, why didn't the big bosses even let us know so we'd be prepared?" 
   Annual "maintenance" fees have nearly doubled, "and there's no maintenance involved," he said.
 

FEELING CLUELESS AND CONFLICTED
     "You WILL be forced to push products you don't personally like and do things that aren't in the best interest of your clients in order to succeed," another FA says in a remark that is typical of many colleagues.
It's OK -- she doesn't really need all that money.
     "There is a fundamental shift in the firm to move it away from the 'just run it legally, ethically, and profitably and we'll leave you alone' approach that I and many others signed up for," another says.
   "When  you rely on commissions for your income and profitability, you start justifying selling a bond Unit Investment Trust instead of an individual bond because you make more on a UIT," admits an ambivalent advisor. 
    But there are other moral compromises. Although there are hundreds of mutual funds on the market, Edward Jones advisors are required, in almost every instance, to sell from among only seven fund families that are characterized as "preferred."  They are preferred because they make particularly lucrative kickbacks -- hundreds of millions of dollars a year --  to Edward Jones (with commensurate bonuses to the advisor, if he sells enough of them), and they are preferred irrespective of the client's welfare.

A DEAL THAT HAD IMMENSE APPEAL
    For years, Edward Jones had internally designated certain fund families as "recommended," but in the late 1980s "it approached those families and sought to obtain revenue-sharing deals with them, a strategy that led to the preferred list," according to the Los Angeles Times.
    The preferred families are American Funds; Federated Investors Inc.; Goldman Sachs Group Inc.; Hartford Financial Services Group Inc.; Lord Abbett & Co.; Putnam Investments, a unit of Marsh & McLennan Cos.; and Van Kampen Investments Inc., owned by Morgan Stanley.
    Other investment firms also receive commissions from mutual-fund companies -- a practice that is not widely known to investors. The nation's 50 largest mutual-fund groups quietly dole out $1.5 billion annually in revenue-sharing payments to brokers, according to an estimate by Financial Research Corp. But Edward Jones' secret and exclusive relationship with its seven preferred funds is so egregious, and so cavalier toward its customers' well-being, that it was fined tens of millions of dollars by the SEC and sued by the attorney general of California for massive fraud (more detail in part three of this series).

'LOAD' FUNDS ARE UNNECESSARILY HEAVY
    Former Edward Jones advisors repeatedly respond online to questions from investors by recommending that they buy no-load index funds from Vanguard or Fidelity, where they will pay no up-front fees, no commissions, no back-end funds and no annual overhead. And when they reinvest your dividends, there is no charge. Edward Jones charges to invest, to reinvest and to sell.
    Several advisors express both dismay and contempt when they realize that in order to keep their jobs, their loyalty must be to the firm, not the client. They recommend what they are told by their bosses to recommend.
Some see fiduciary duties as a tightrope act.



LOSING HEART, AND SELF-RESPECT
   "It has only been very recent that EDJ allowed reps to be called financial advisors," a current Jones employee remarks. "That is because they aren't really FAs.  They are investment representatives, and that was a strategic legal issue. As an IR, you are operating under a buyer-beware situation.  Putting yourself out as a financial advisor creates the potential to be seen as a fiduciary, whose loyalty is to the client, and that is something EDJ is scared of.  So don't worry about giving good or bad advice. As an FA, you really are an IR in the company's cataract-covered eyes." 
    Several articles about how to choose an investment advisor emphasize that you should ask directly about the person's fiduciary duty as well as his credentials. An authoritatively written post on the well-moderated Epinions site states: "In this time, more than any in the past, it is important that investors retain professionals who act exclusively in the client's best interests -- technically called "fiduciaries." At Edward Jones, the leadership is actively and fervently denying clients and advisors the opportunity to experience the full ramifications of a fiduciary advisor. 

PAINT-BY-NUMBERS FOR THOSE WHO CRAVED CREATIVITY
    Advisors who were captivated by Edward Jones literature, which indicated that they would be offering "a consultative, individualized approach" to clients and "carefully personalized investment recommendations" are deflated when they realize that nothing is individualized or personalized -- it's all based on explicit portfolio packages designed by and handed down from headquarters.
Advisors say they just sell Jones' cookie-cutter portfolios.
    "No thinking required," is one advisor's assessment."No deviation permitted."
     "I am not into sales...I didn't get it that this was a sales job," a crestfallen ex-advisor confides. "Being a so-called broker at Edward Jones is heavy into cold-calling which isn't my thing." 
    "Money is much slower than they say, with only the top two percent making higher pay," a current advisor says. "The isolation is hard on my will to stay with this company."
     It gets monotonous fast, another advisor adds. "Make a large number of calls per day, repeating the same information time after time." He added that his former job as a groundskeeper for an office park was more stimulating. 
     "Jones was sold to me as 'owning your own business.' It is not, and I felt misled," one advisor who soon quit recalls. "I grew REALLY sick of the Prozac-infused, group-hug, smile-through-clenched-teeth corporate culture."
     Some people like it that way. "You can just show up, sell, and the rest is taken care of for you," one of them remarks.

DO YOU WANT LIES WITH THAT?
    But the rigid standardization can be stifling. One former advisor compares it to working for a McDonald's franchise. The thousands of Edward Jones offices around the country are nearly identical --  from the paint to the furniture to the decorations. Place a call to any one of those offices, and the lady who answers will use precisely the same phrases. Your spiel is canned. Your demeanor is programmed.
    "You are a faceless worker bee in a great big hive -- I couldn't stand it," a former FA says.
Just do your job, little guys. Headquarters will do the thinking.
    One woman, who was a financial advisor with Edward Jones for 11 years, agrees: "Jones wants to control everything -- even what the temperature of my office was (they actually had some company come in and have the temperature controlled by a computer). They dictated who I meet with in my office, when I could get a replacement copier, (my staff wasted hours with a bum printer), and home office was really stupid, taking months to get me an outdoor sign, etc. They fined me $1,000 for having an unapproved meeting in my office. I will also tell you that Jones is a marketing company, not an investment firm."

GIVE THEM CREDIT FOR BEING UNCOMFORTABLE
    Many advisors were particularly disturbed by the order from headquarters to start pushing the company's new credit card.
    "One guy actually says when he opens a new account, 'Your Edward Jones account comes with a credit card' and when he's filling out the app, he gets the maiden name, etc., so he doesn't even have to sell it."
    "Pushing credit cards was a problem for me also, but to make the matter worse, I then found out that Jones sells (financial services company) MBIA or whoever the current card issuer is, my client information. They then solicited my clients and I was out of the loop," another advisor says.
    Some surveys, such as those by J.D. Power & Associates and Fortune magazine, regularly rank "job satisfaction" at Edward Jones as being at or near the top, a fact that certainly can't be dismissed. Others, such as Glassdoor.com, don't even include Jones in the top 50 companies to work for. 

THE GRIND CAN REALLY BECOME GRATING
    Many of those who find the work itself to be unsatisfying and/or extremely stressful conclude that the financial rewards make it worthwhile. All they have to do is keep their noses to the grindstone, and they will become very comfortable, except for their noses.  Others -- maybe most others -- truly flourish within the parameters set by headquarters, and are able to fashion a rewarding career for themselves.
Grinding your nose may help, but haven't we invented better ways yet? 
     There is great variation among experiences of financial advisors, depending in part on their temperament and ability to enjoy the "game" of making a sales pitch and "closing the deal." 
    It is priceless, according to one bullish advisor, "already being established in the community in which you're opening your business, having wealthy friends and relatives, and having pre-established relationships with good referral centers (local CPAs, attorneys, church members, etc.) are all huge benefits when going into this business."
    That could certainly make all the difference. One advisor noted that most of the FAs he knows did readily build their businesses through existing relationships, but those who -- like him -- have to do all that cold calling become "nauseous with dread every flippin' day. I'm like 'I really can't get through this'."

AND HE DOES MEAN HORRIBLE!
    "Horrible, Horrible, Horrible, Horrible, Horrible. Don't work here, you are just a statistic until you are grossing at least a half million a year," a former FA writes. "And if you don't make it, they'll keep kicking you for months after you're gone."
    His advice to senior management: "Treat your employees and ex-employees better or they'll go on internet boards and let everyone know just how bad you are." 
    He was certainly correct about that. 
    Edward Jones has made a modest effort to address the difficulties of getting established by creating the "GoodKnight" program, in "which veteran brokers with more households than they can handle are encouraged to bring in young talent to mentor. That way, the veteran can focus his attention on fewer customers, and a younger broker can get started under the guidance of an experienced pro."
GoodKnights in shining armor help 'newbies.'
 I'M OUTTA HERE -- THIS IS BULLSHIT!
    There is a messy heap of disillusionment and anger, and hundreds of Jones' financial advisors quit every year. The "outflow from Jones to the independents in 2012 has been staggering," one of them says. 
    "There are a lot of bloody bodies in those turnover numbers," a contributor to WealthManagement.com says. "You lose all your personal savings, plus wasting several years of the prime of your career. This is a real risk to new FAs. I can see where people may end up with some hard feelings."
    This is very unsettling to clients, whose assets wind up under the control of someone they've never met or agreed to do business with. The whole Jones premise is based on your personal relationship with the advisor. And then, he disappears without notice.
    "You go in there, and it's some totally new guy! Some kid! And he's got all your money. It's just not a class act -- it's half-assed," a former client says. 
    Don' worry -- he may quit before long, too.
    Some quit because they feel ethically compromised by the way they are required to do business. Some didn't expect to be salesmen in this job, and they can't stand it. Some resent the constant pressure from home office to meet ever-more-challenging benchmarks. Others become so successful  that they leave to work for a firm that permits a wider range of investment options and allows them to put their expertise to better use. 
   "I've literally seen dozens of new brokers fail, and their reasons for leaving are as varied as their backgrounds," a frequent contributor to one of the online forums says. 

EJ ADVISORS JUMP SHIP FOR CLEANER, MORE OPEN WATERS
    An employee clearinghouse for the investment industry says he has more EJ advisors in his pool of people who want to jump ship than those from any other firm. Those who do leave, and go to work for LPL, Raymond James, Price-Waterhouse, etc., are ecstatic about their new responsibilities, their freedom to provide honest counsel and the collegial work environment.
    "I was the very first Jones rep to move over to LPL in our city nine years ago," one of them writes. "Today there's over 30 ex-Jones guys over at LPL just inside our city limits. How many LPL reps left to join Jones?  Zero." (LPL Financial is the largest organization of independent financial advisors in the U.S.)
     "Free at last!" a fellow "quitter" exclaims. "It's the best move I ever made."
    "Love my new job as a true financial planner, no incentive for me to sell anything except what's appropriate and good for clients," another says.   
   

CREATING DELIGHTED CUSTOMERS: IGNORANCE IS BLISS     Despite Edward Jones "strong commitment to clients through our 'Delighting Customers' program," many advisors are totally contemptuous of the firm's single-minded emphasis on quick and easy profits at the expense of clients' welfare. 
   "Delighting customers? You've got to be kidding me," a former Jones advisor writes. "All we offer them is expensive sales load funds with high management fees. From where I’m standing, any cost for active management is too high a cost."
    There is also resentment over what some advisors see as the hypocrisy of home office, which "has a big smiley face like we're all one big family, but they'll throw you off the train without a second thought if you don't meet that quota every month." Some sources claim that hundreds of advisors are fired every year, on top of the hundreds who quit.
    "Hey anyone at Jones, do you guys still get SPIF's (sales performance incentive funds) for selling low-rated high-yield bonds the last few days of the pay cycle?" a former EJ advisor asks, in a question that reflects  one of many conflicts of interest that the firm's employees enumerate.
    They also say Jones pays lip service to the health and overall well-being of its advisors, while making it almost impossible for them to have a decent family life (60-hour weeks) and providing very poor, high-deductible health plans. "Most of the guys are unhealthy mid-50s males so costs are very expensive," one writes.
    A number of the advisors describe a Big Brother atmosphere. 
    "You realize they're scrutinizing your every move," one writes. "They can observe you keystroke by keystroke. It's like North Korea! It weirded me out."
    But most apparently get used to it, and some even find the "support" from headquarters to be comforting. "They keep you on course, and that helps you out in the long run," one explains.

THEY'RE 'PREFERRED' BECAUSE THEY'RE SO VERY PREFERABLE
    The Wall Street Journal interviewed 18 current and former Edward Jones financial advisors, who readily acknowledge that they sell nothing but the seven "preferred funds."
    One young man says simply, "I was afraid not to."
    Others admitted buckling under the tremendous pressure to meet quotas on the sale of the "Big 7," and many quit because they couldn't tolerate the guilt of pushing overpriced products onto unsuspecting clients.
    But advisors have an overwhelming interest in sticking with the program and getting everyone, regardless of need or risk tolerance, into those seven funds. 

THE INSIDERS CALL IT 'PAY TO PLAY' 
     Only the revenue-sharing payments for selling the "preferred funds" are credited to the advisor's profit-and-loss statement, the Journal reports. "Those statements are a significant factor in determining the size of brokers' bonuses, generally awarded three times a year, according to former brokers. The bonuses can add up to $80,000 or $90,000 for a good producer, and often average about a third of total compensation."
    For those who can stomach the agony and the ecstasy of a high-stakes sales job in which monthly quotas are a perpetual thundercloud on the horizon, (which means advisors have to become good at "closing," after patiently stalking their "prey") -- and who don't mind intense oversight, and who can comply with a rigid blueprint (filled with benchmarks, points, balancing and segment levels) (a blueprint that restricts what they can sell, and what they can say and won't let them put anything in writing), and who can live with the added pressure to be active in the community -- Edward Jones can provide an excellent career. 
    The money is great, advisors say, if you can become a good pitchman with a reassuring bedside, or desk-side,  manner. The bonuses provide a delicious, juicy carrot to keep you on course. 
    And then there are the legendary "incentive" trips, which lend yet another "agony and ecstasy" dimension to the job.

FABULOUS GETAWAYS FOR THOSE WHO STAY
    There are two opportunities for Edward Jones financial advisors to qualify for all-expenses-paid vacations each year. The two can be combined into one “Super Trip.” 
    The extravagance and luxury and exoticism of these travels is positively mind-blowing to many of the advisors, who never made enough in their previous jobs to go anywhere except maybe Yellowstone National Park.
    The agony aspect is that the advisor must meet a sales quota to qualify, and the online forums are filled with remarks -- some guilt-ridden, some sarcastic -- about what they had to do to meet those quotas.
Free vacations are a major morale-builder for Edward Jones advisors.
     "I had to sell my clients ... stuff which I wasn't too sure were appropriate for some of them in order to qualify," one confesses.
   "These contests have presented me with situations where I've really had to do some soul-searching," another writes. "(They) can really create a dangerous conflict-of-interest situation."

INVENTIVE 'CHEATS' TO GET INTO THOSE SUITES
    "When I worked at EDJ, one of the other financial advisors would tell clients to write a check to themselves to take out margin, then pay it off the same day by mailing him back a check...just so he could win a trip," one post reads. Another refers to "some very creative (and possibly criminal)" devices Jones advisors use to qualify for a trip.
    Advisors and their wives have been whisked to New York for Christmas (with a $700 shopping allowance), to the Daytona 500 and on Caribbean cruises. They've had glorious adventures and deluxe accommodations in Maui, Italy, Beijing, Malaysia, Paris, Berlin and Argentina. They flocked on a ski trip to Breckenridge, Colorado, went on an African wildlife tour, and took their families to Orlando.
The giraffes were totally cute, and the African natives wore such creative outfits!
    "If you happen to see a very large group of happy families at Disney World it might be a group of Edward Jones reps, their spouses and their kids on a firm-sponsored trip," says an article in WealthManagement.com.
    One advisor says the Hyatt Regency in Beijing is the most beautiful place he's ever been. The splendor was overwhelming.
    "Without Edward Jones, I would never have had this wonderful experience," he writes.
    Managing Partner Jim  Weddle says typically 45 percent to 50 percent of all FAs qualify for each trip.  The travel rewards program cost the firm $75 million in 2009, he told the media.
     "Every one of our FAs is in their own office -- that is a tremendous sense of independence, but also accountability --  so every once in a while we want to get folks together to share ideas to reinforce the culture and sense of camaraderie. You don't want that independence to become isolation." 

CAN'T WE AT LEAST HAVE ETHICAL VACATIONS?
   An undated Wall Street Journal investigation of Edward Jones reports that it is actually the "preferred fund" companies that pay for these trips. 
    This apparent inconsistency is probably just an issue of semantics. The fund companies pay for the trips either directly or indirectly, given the hundreds of millions they give Jones in kickbacks -- which ultimately means, of course, that it is the clients who were sold those preferred funds who pay for the lavish adventures.
    A number of Jones advisors gripe online about having to sit through mutual-fund sales pitches each morning while they're on these vacations before they are let loose to go exploring, and some describe "sneaking out" of the excruciating sessions. 
    Others are so furious about the fact that the trips are taxable that they refuse to participate anymore.
    "My hit on the paycheck was $800 per month for the next 3 months," one of them gripes. "Thereafter I referred to them as 'disincentive' trips. You take a week off, lose the production, you pipeline is down, and they charge you for the trip on your paycheck for the next 3 months. What a rip off."

A GOLD STAR ON EVERY FOREHEAD
     Hey: don't be so down on The Green Giant. Unlike perhaps most workplaces in America, Edward Jones does not have its advisors working in obscurity, wondering if they're valued.  
    While many EJ advisors spew bile and snide assaults on their employer, many are positively "giddy," according to a 2009 profile on the site WealthManagement.com. 
    "Hard-scrabble optimism and small-town simplicity defines a lot of the firm's reps," says the article, which sounds like an Edward Jones press release. "Wall Street big shots may make fun of them --  saying they're not terribly sophisticated, their clients tend to be down-market, and they don't really produce much revenue --  but they're an awfully happy bunch."
    The firm's biggest "secret weapon," the article says, is its ownership structure, which has enabled 32 percent of its financial advisors to become limited partners. They must first meet branch profitability criteria and amass a record of high-visibility community involvement, which generates priceless media coverage -- free advertising -- for the firm. On top of a roughly 40 percent payout and the profit-sharing dividend, Edward Jones advisors get paid a bonus three times a year, according to a calculation that includes the FA's branch office revenue and the firm's gross revenue. 
    (Not all of the firms profits go into profit-sharing. Branding rights for the Edward Jones Dome -- home to the St. Louis Rams -- cost $32.7 million for 12 years.   
All those little "Mom and Pop" investors helped Edward Jones loom large.
    Although Time magazine recently dubbed it one of the nation's top 10 "sucky stadiums," which is in need of $124 million in renovations just 17 years after it was built, Edward Jones will pay the Rams an additional $42.3 million to retain its naming rights over the next 11 years. Then there is the majestic Edward Jones Auditorium, which hosts concerts ranging from classical to hip-hop.
    I doubt that any company dispenses more awards and bonuses and perks than Edward Jones. If you look carefully at how the gold stars are parceled out, they begins to seem like doggie treats, but the "everybody is above average" premise appears to be an effective way to keep most of the natives happy.
    Edward Jones sends out dozens of press releases every day to hometown papers across the heartland (as well as to major business publications). Smaller papers (and even such high-toned sites as the Huffington Post and Salon) slavishly reprint these self-serving handouts that perpetuate the image of Edward Jones as constantly innovating, expanding, being recognized for its excellence and forging ahead in its quest to provide solid, conservative financial advice to the Good Folks of America.
    The articles that go into the hundreds of little "Gazettes" and "Star Registers" amid the cornfields, prairies and quaint towns where Edward Jones thrives announce an endless deluge of awards and achievements by local EJ advisors. The residents of these burgs must surely get the impression that their advisor is one of the best in the country.
    In just the past couple of months, nearly 800 newspapers received press releases announcing that their very own local Edward Jones advisor had received the company's prestigious Century Award. That's enough to last for a lot of centuries. Hundreds more (as their communities were informed) were humbled to get the Spirit of Partnership Award, or the Jack Phelan Award ( for exceptional achievement in building client relationships), or the Client Service Excellence award. Hundreds of Ted Jones Entrepreneurial Awards and  Jim McKenzie Awards were announced over the next couple of weeks, as well as the extra-special Eagle Award (well over 1,000 of those are handed out every year, but they are still highly prized). The firm's "coveted" Ted Jones Prospecting Award was thrown out there in June to more than 500 advisors, as was the Edward Jones Sr. Founders Award. Now. the nation's local papers are being flooded with announcements about the 738 recipients of the TNT Client Development Award and the many hundreds of the (also) "coveted" Frank Finnegan Award. Wow -- these are some great people! 
    But, there's more: The firm has recently honored 1,429 advisors with its Ed Armstrong Award for exceptional achievement in building client relationships. And "only" 1,121 advisors got the thrill of receiving the Field Trainer Award. Soon, a big bunch of very special advisors will attend the two-day Drucker Conference at the home office.
    Each of the thousands of press releases the firm sends out -- almost always printed verbatim in local newspapers -- includes a glowing description of Edward Jones: its commitment to principles, civic responsibility and the creation and management of wealth. Each "news story" generated by the EJ media relations machine is also a very effective free advertisement for the firm.
   Every advisor's personal, educational and civic achievements become fodder for the firm's publicity honchos. Advisors are coached in how to transform a media inquiry into a corporate coup. 
     One advisor, who was featured in the "Meet Your Neighbor" column of the Ann Arbor paper, said: "I just love giving back to my community. That's the reason I took the Edward Jones job. Every aspect of the firm’s business, from the types of investment options offered to the location of branch offices, is designed to cater to individual investors in the communities in which they live and work. It also involved going to different community events, being a lot more involved in things that went on in the community."
    No wonder they call it "drinking the Kool Aid." He must have swallowed the whole pitcher that day!
   Hundreds more press releases were published about  local advisors who received an invitation to Edward Jones’ annual Managing Partner’s 3-day Conference in Phoenix, and then even more hundreds of newspapers carried stories about their local advisor attending an invitation-only training opportunity at Edward Jones’ headquarters in St. Louis.
    At the firm's summer retreat, a Maryland advisor was presented with the TNT Client Development Award, The Ted Jones Prospecting Award, The Eagle Award and The Spirit of Partnership Award, according to The Advocate of Elderburg and Sykesville. 
    It never ends, as if there is a whole department at headquarters thinking up new awards. These recognitions boost FA morale -- like the tens of thousands of military medals that are passed out every year -- but they also secure free, extremely valuable advertising for Jones and its employees. 
    Edward Jones savvily keeps itself in everybody's newspaper in other ways as well. There are the regular coffee clubs, "an informal gathering through which Edward Jones financial advisors provide an update on the stock market and the economy in a relaxed environment."  
    Advisors  host free educational seminars with such titles as “A Woman's Guide to Money Matters” at places with names like "Byrd's Cookie Bar & Grill." Edward Jones golf tournaments are eagerly awaited and well-publicized. If you were to attend the free college savings presentation at 6 p.m. Aug. 16 at Hasta La Pasta Italian Grill, you'd get a free dinner along with the sales pitch. Good Golly, Miss Molly: Why would you not go??
    Ribbon-cuttings and festive "open houses" are always a big deal, and folks are invited to join "their" local advisor for refreshments and "casual conversation." 
    In one particularly "meaty" coup on August 18, an Edward Jones branch office paid $21,000 for a 1,300-pound steer at the Missouri State Fair in the annual "Sale of Champions" benefit auction. The payoff? Priceless. Now, perhaps they'll slaughter the poor animal and have a barbeque to raise money for destitute orphans. 
    In September, EDJ hosted a three-day bike ride, called "The Tour de Ted," in honor of Edward Jones, Jr. The tour, which stretched from Colorado Springs to St. Louis, was devoted to raising funds for cancer research -- and gaining spectacular publicity for the firm. 
    When advisors engage in such civic gestures as giving money to the public library fund, or sponsoring a paper-shredding to raise money for a sick child, or serving as a drop-off site for donations of "gently used clothing for the disadvantaged," newspapers print the press releases verbatim, including the obligatory description of Edward Jones itself: "The firm’s advisors work directly with millions of clients to understand their personal goals -- from college savings to retirement -- and create long-term investment strategies that emphasize a well-balanced portfolio and a buy-and-hold strategy. Edward Jones embraces the importance of building long-term, face-to-face relationships with clients, helping them to understand and make sense of the investment options available today." 
    In June of this year, the firm selected 52 of its advisors to comprise the Grassroots Task Force and travel to Washington, D.C., to "to lobby on behalf of individual investors."
    "This is the 28th year for this effort -- making it one of the longest-running nationwide grassroots outreach efforts to Congress in existence," Jones stated.
    The characterization of "grassroots" is highly disingenuous, of course. Edward Jones was lobbying on behalf of itself, pushing for policies that would increase its business.
    In one particularly egregious manipulation of the media, Jennifer Prosek, an "image consultant" to Edward Jones, submitted an article to the Toronto Globe and Mail a few weeks ago.
    She gushingly burnished the company's image by simply making stuff up.
    "It’s not unusual to hear a story of an Edward Jones broker helping an elderly client move to a new home or babysitting for a client family," she writes. (It may not be unusual to hear this story, but it would be very unusual if it actually happened.) 
    She didn't identify herself as a highly compensated flack for Edward Jones. In the world of journalism, this is regarded as "whoring," and the newspaper was incredibly negligent in not vetting her before publishing her article.
    It's Prosek's job to help embellish the EJ "storyline," and her golden fantasies dovetail beautifully with the firm's own public relations efforts. 
    It's Edward Jones' "authentic caring for customers" that enables the firm to "own" the demographic of meat-and-potatoes America, Prosek writes.
    But a lot of people -- both clients and employees -- think the only "authentic caring" the firm has is for itself. 


Chapter Three: Edward Jones is a Liar 
and a Thief, Some Clients Allege

The Accolade, by William Blair Leighton
Edward Jones even has a GoodKnight program.
    Edward Jones has won pretty much every award in the industry, and it has won them repeatedly.
     It may be the highest rated, but it also seems to be the most hated: Numerous Web investment forums and customer message boards contain outpourings of scathing comments by devastated clients who feel they have been betrayed and even robbed by the company. They go on and on. They can't be dismissed. There are so many common threads among these hundreds of stories that it is impossible not to believe that they are, at the very least, reasonably accurate.
   
         
    Edward Jones has repeatedly been cited as the best for customer satisfaction in the category of "full-service brokerage," best for employee satisfaction and best for portfolio performance. It has won six awards and recognitions so far this year, including a No. 5 ranking on Fortune magazine's "100 Best Companies to Work For" list. In June, SmartMoney named it the No. 1 full-service brokerage firm. Its training program, which costs up to two-thirds less than what many other investment firms spend, is superior, according to Training Magazine (despite the claims of many EDJ employees, who say they are appallingly unprepared to merit the title "financial advisor").
    The firm's designation by J.D. Power and Associates as "Highest in Investor Satisfaction with Full Service Brokerage Firms" -- which Jones pays a licensing fee to use in its promotional materials -- has been the centerpiece of Edward Jones' advertising campaigns for years and has had an immeasurable impact on the firm's credibility (although it's kind of funny that J.D. Power itself is only ranked 12th on Honomichl's Top 50 list of US profit-making market-research firms in 2011, which is lower than one might have expected. Who's on First?). 
    But how many of the "satisfied customers" interviewed by J.D. Power were aware of EDJ's confiscatory fee system?
    Many of those who have submitted truly hateful ratings and comments to online investing sites were themselves "satisfied Edward Jones customers" for years. Then, one way or another, they discovered what was really happening with their money, and their howls of anger, panic and humiliation are truly heart-wrenching.
 
IT'S KIND OF REFRESHING
    Meanwhile, back in the Fantasyland of headquarters, Edward Jones projects a "Little Engine That Could" determination. If investing were a video game, the perky, clean-scrubbed Jones avatar would look mighty disappointed (but not pissed off -- he's too nice) when Gordon Gekko made his "greed is good" remark.
    "What's good," the  EddieJ. character might retort, is "helping the decent, hard-working people of America realize their dreams!" 
    Edward Jones is intriguing not just for its deceptively benevolent image but also for the dynamic way in which it is run from its gleaming headquarters in St. Louis. 

    More than any other enterprise to which I've been exposed -- public or private, profit or nonprofit --  Edward Jones is working constantly, not just to get bigger, but also to be pragmatic and creative in getting better, or at least more profitable. While its public face has largely remained the same for years, everything else is in perpetual flux. To monitor the firm's inner workings is to get a palpable sense of extraordinary, freewheeling teamwork. You sense brainstorming. You sense pride and psychological astuteness. You sense real joy, poured over a double scoop of megalomania. 
    To many investors, it doesn't taste as good as it sounds.

CUSTOMERS PUT THEIR MOUTHS WHERE THEIR MONEY IS
     In numerous online forums, Edward Jones' former clients describe being appalled and shocked by what they have experienced. These were ordinary, trusting people who found it easier to turn their money over to someone who was right there, a neighborhood fixture,  offering them a soda and asking about their golf swing, than to an "upscale, uptown" brokerage. They let their guards down. They assumed that their heart-of-gold advisor, with his earnest warmth and personability, would give them the best bang for their hard-earned bucks. 
The advisor with the heart of gold may have bought it with your money.
     But for many former clients, who howl and sob year after year in online forums, nothing could be further from the truth. Edward Jones -- that Boy Wonder of the investment world -- can be a bit of a Bad Boy as well. He hurts people.
     The most persistent complaints are that Edward Jones charges exorbitant fees – most of them hidden -- without the informed consent of its clients; that its so-called “advisors” are mere clerks, who lack both the expertise and the authority to do any bona fide “advising”; that some advisors are unreliable, unresponsive or untrustworthy; that clients have lost thousands of dollars due to the firm’s flawed investment philosophy; that fee-generating trading and "churning" are done without the client's consent; that clients' buy-and-sell orders are handled haphazardly; that monthly statements are deliberately vague, incomplete and confusing.
 
    Former clients also contend that whatever gains are realized on investments can be entirely eaten up by the firm’s fees and commissions; that the firm relentlessly pushes its clients into a handful of managed, load funds that reward it with generous kickbacks; that the turnover among advisors is extremely alarming, leaving clients’ funds in the hands of one new and unknown person after another; that advisors are readily available if the client wants to invest some money but that they are consistently unreachable, by phone or email, to answer questions or to liquidate funds; that advisors are evasive when asked for clarification about clients’ accounts; that clients who want to move some of their Jones accounts elsewhere, or liquidate all of them, are ignored -- sometimes for months -- and that outrageous fees are imposed for moving money out of the firm; and that even home office is unresponsive to customer complaints. And that's just for starters!  
Go ahead and yell. I can do whatever I want
BLISSFUL IGNORANCE
    For many investors, it was years before they realized that Jones charges "outrageous and deceptive fees." Clients had been unaware of the fees, because they are never discussed and do not appear on monthly statements. So there is massive anger and betrayal expressed by people who discovered too late how much they were losing in these hidden charges. 
    Many of them say several thousands of dollars were taken from them without their knowledge.
    It was only because I thoroughly scoured the vast Edward Jones web site that I came across its "buyer beware" entries. It is obvious that many FAs ignore it and many if not most clients are unaware of it. It is clear to me that it is deliberately buried:    
    "Your financial advisor should explain all commissions, sales charges, markups and fees when he or she recommends an investment to you....Before investing in mutual funds, it is important that you understand the sales charges, expenses and management fees that you will be charged, as well as the breakpoint discounts to which you may be entitled.  Most mutual funds carry a direct or indirect sales charge that you pay either at the time the shares are purchased (a front-end charge) or sold (a deferred sales charge). The sales charge is sometimes called a concession. The fund distributor may retain a portion of the concession. Edward Jones receives the portion of the concession not retained by the distributor."
    (It's true that it's sometimes called a concession. More generally, it's called a kickback.)
     In a J.D. Power survey in 2011, the vast majority of investors said they did not completely understand the fee structure at their brokerages. The number at Edward Jones is undoubtedly higher
    At Edward Jones, buying a bond can cost more than $1,000 in fees; at Vanguard, among others, there is no charge. 
    Buying a stock can cost hundreds of dollars in commissions (compared with $8.95 at a place like Schwab and many others). The web site Marketocracy notes that Edward Jones stock selection for the past five years has been from somewhat above to somewhat below average -- certainly no rationale for EDJ's much higher prices.
    An IRA at Jones carries an undisclosed annual fee of $45 to $90. At Schwab and other firms, there is no fee.
     EDJ's  high costs are legendary among other brokerages, but its "satisfied" clients seem largely unaware of the buy fees, sell fees, annual program fees, 12b-1 fees, management fees, transaction fees, reinvestment fees, transfer fees, closeout fees, IRA maintenance fees, activity fees, and probably a bunch of others that we haven't yet excavated. 
    "They take money out of your account for every little thing they do, and they don't tell you a thing about it," a branch office manager writes.
    (Jones is worried that the 12b-1 fee will be abolished, according to current employees. According to one of them, it is an annual marketing or distribution fee on a mutual fund that was originally intended to benefit the investor. "Ha!" he says. "With mutual fund assets passing the $10 trillion mark and growing steadily, critics of this fee, which today is mainly used to reward intermediaries for selling a fund's shares, are seriously questioning the justification for using it.") 
Jones doesn't say no hidden fees - it just doesn't mention fees at all.
     The anguished online comments of former Edward Jones clients, which have been mirroring the same experiences year after year, are heartbreaking and enraging. 

THE FEAT GOES ON: JONES KEEPS RAKING IT IN
    "We lost $93,000.00 of our retirement money, and no one accepts responsibility. We asked at every statement to move the money into a safer environment, and the advisor says we're fine. We're not fine." 
    A Philadelphia client wrote earlier this year, "The service fees are much higher than other brokerages as far as I can see. I was paying to sell the losers that the EJ broker talked me into, and another fee to buy something else. And these were not tiny trades, either. I could never understand how the commissions varied. I figure I paid about $9,000 in fees for their Advisory program in just two and a half years."
    "Their upfront loads and commission fees hit me so hard that I was negative-red for almost a year," one of them comments.
     "'Personalized Service' is the argument Edward Jones makes for its mind-boggling fee structure," one furious former client writes. "What personalized service really means is that the advisor gives you the same basic advice all his clients get, and you pay a fortune in fees for products that you can get elsewhere at a fraction of the cost." 

'CRAZY FEES' KNOCK CLIENTS TO THEIR KNEES
     "It is the total lack of disclosure that really turned me off on these guys. They are apparently embarrassed by their crazy fees," another former client charges. "Edward Jones' statements, website, etc, don't show commissions paid! This is partially why I bumbled along with these guys for several years before coming to my senses.  No commissions shown on my contributions, my dividend reinvestments, anything."
    "Firms such as Jones like their consumers to be dumber than stumps when it comes to investing," another adds.
Even a dumb stump deserves care and respect.
     In April 2012, a customer wrote this: "Edward Jones builds up this myth that they're your friendly, neighborhood, face-to-face, stop-in-for-coffee guy... calling Edward Jones reps a 'financial advisor' is like calling a used car salesman an 'automotive advisor.' Say you roll over a $100,000 401k to Edward Jones. They'll 'advise' you into putting that money into funds with a 5.75 percent load. What that means is that the day after your accounts transfer, you suddenly have only $94,250. The missing $5,750 goes to the mutual fund company, which then gives a portion of it back to Edward Jones...as a kickback.  Finally, you get charged an annual 'management fee'...on your assets. And then there are the annual IRA charges and all the various trading fees as well." 
     "The reason I'm very curious about thoughts on Edward Jones is that I used them on an $11,000 investment which is now worth $9500 after fees and commissions," an EJ client wrote to the Motley Fool site.
    "I recently helped an elderly family member get out of an EJ Advisory Solutions portfolio, and we estimated he was paying well over 2 percent when everything was included," a post on a retirement-advice web site says. "He was invested in nearly 20 mutual funds with varying loads and expense ratios. Scandalous! I wouldn't consider investing with these people for a second."

A STEALING MACHINE ENSCONCED IN TASTEFUL GREEN
    Bustling investor sites such as Morningstar and Bogleheads.org are filled with incredulous, furious remarks about Edward Jones products, tactics and especially about its "hidden fees."
    "Behind this beautiful local green office with quality furniture and subdued lighting is an organization that has perfected how to legitimately steal from their customers," one ex-client comments.
It's tasteful, relaxing,sober, and reassuring. How terribly deceptive!
     "I can't believe they are still getting away with this," another investor adds. "You search everywhere, and there's no fee info whatsoever."
     There are many accounts not only of poor advice and exploitation but also of petty, defensive behavior on the part of Jones advisors.
    "We were very disappointed with Edward Jones, so we had RBC transfer and close out the accounts we had at Edward Jones. We were informed by RBC that Edward Jones was being very unprofessional about this process.They (EJ) dragged things out beyond what it normally takes, and then told us to get our son's account out of there as well."

RUSSIAN ROULETTE, ANYONE?
    "Edward Jones is a terrible place to put your money..... The account never grows much. I put $5,000 in some mutual funds way over 10 years ago. It is now worth $3400...I was told to invest long-term...Wouldn't you consider 10 years long term? I am still working on getting my principal back. Investing at EDWARD JONES IS WORSE THAN GOING TO A CASINO!!!!!
 Well, it's not really WORSE than going to a casino -- or is it?
    "Finally tired of being ignored, we transferred all of our investments out. Now comes the worst part. They have to sell them to move them, with a 5.75 percent minimum commission on everything. This was thousands of dollars."
     "They put your money in THEIR name! Once you are in, you are trapped, as leaving will cost you BIG.
"
    "Tried an investment with Edward Jones.  He promised me a net profit but I ended up losing $5,343 in 6 months. I recieved a letter stating all losses were due to stock decrease from moderate options I have chosen. Now when I try to call this advisor, I get a voicemail stating that his voicemail is full. I am now out of $5,300 in money I needed for retirement. I have no idea what to do. The people at the toll-free number have no idea. They just say my account is cancelled unless I pay more for options."

SOME EJ CLIENTS SAY EVERYTHING WENT TO HELL
   "(Getting involved with Edward Jones) was the beginning of a journey to the ninth circle of hell that will never end until my dying day," a man from North Carolina writes. "The details of how this all came about can fill a book. It has everything from ethically questionable actions to felonious financial fraud." 
The ninth circle of hell looks pretty damned damnable.
       A number of clients say that after experiencing significant losses in their portfolios, they asked their FAs to put their money in very safe financial instruments. They FAs agreed to do so but didn't follow through. The clients pressed him repeatedly, they say, and watched helplessly as they continued to lose money in the accounts they asked to have closed. 
     Several also say they became so upset with their losses, and with the cold unresponsiveness of their FA, that they asked to close all accounts and to have their funds returned to them. They describe a nightmare scenario in which they are simply ignored. Some claim to have contacted the Compliance Department at Edward Jones headquarters to have the matter resolved "and they were just as rude."

THE TAXMAN COMETH, AND EJ MAKETH IT WORSE
    "Shortly after transferring a large portfolio of stocks, bonds, CDs, mutual funds and money market from Merrill Lynch to Edward Jones, my FA sold most of it without my informed consent. He didn't answer my question about capital gains. On April 9, I found that I owed $54,000 in taxes, thanks to this."
Gee, thanks -- the advisor bought unauthorized shares in British Petroleum.
    "My FA purchased for one of my accounts 400 shares of BP without discussion or authorization on May 27, 2010. When I complained, I was stalled off by their compliance department....I decided that I needed to close the account. I’ve emailed them, written them, talked to them on the phone for three weeks now and can’t get my money."
    "In the 4 years I have been at Edward Jones, they have made more money off me than I have off my own money, at least 30k that I can find -- probably more," a woman wrote in June of this year. "I have been steered into bad investments. Their fees and upfront commissions can be as high as 20 percent, then there is the 5.75 percent charge for every reinvestment, trade, sell, along with all the fees they will never tell you about or have to provide by law."

LOYAL CUSTOMERS DISSOLVE INTO DISILLUSION
    "My wife and I were customers for many years with Edward Jones," another client wrote recently. "Over this time several events occurred that made dealing with the company untenable. First there was the non-disclosure of the kickback  by the American Funds to the local agents. The galling aspect of this was that we never received any kind of apology for this unethical behavior. Similar situation occurred with the Putnam Mutual Funds. Again, no apology.  Last year, they sold some of our mutual funds to pay annual fees to themselves without our knowledge. It has always been difficult to get true costs from our FA.  I saw him pushing deals that benefited him not me."
    "What really ticked me off is that they charged me $40 + $95 to close my Roth IRA! This after 5 years of uninterrupted losses and no service!" another client declares.
     "I was never allowed to have a list of fees they charge, and they have the don't ask because we won't tell policy," yet another disgruntled former client says.
   
EJ IS #1 AGAIN -- IN BETTER BUSINESS COMPLAINTS
    Complaints submitted to the Better Business Bureau against Edward Jone's home office reflect similar frustrations and feelings of enraged helplessness. In the Investment Services sector of the BBB, there have been more complaints lodged against Edward Jones than any other firm. In fact, with the exception of one other firm, Edward Jones is the only one among 85 such firms that has generated any complaints at all in the past 36 months.
     One woman told the BBB that her advisor's office manger refused to provide her with information about her personal account, and that she was informed her IRA account had been "transferred," but no one knew where. Her repeated phone calls were rudely handled, she claims, and the office refused to provide her with anything in writing. "Meanwhile, I still don't know where my retirement account is," she reported. 
Edward Jones is not a member.
    Another client wrote that his account had been billed  a $427 commission on a stock trade that didn't go through, and his FA refused to credit his account. "What is taking so long? I have been trying to get a answer to this problem for six months. Edward Jones customer satisfaction sucks big time. They won't even return phone calls. This broker stole my money and then quit his job."
     "I opened a SEP IRA account Dec 22, 2009 with a $10,000 investment," a former client wrote the BBB. "Within a week, my account was worth approximately $9200 or $800 loss in value. When I brought this up, I was told by my agent that there were other fees. When I asked where these were described, they were found in very fine print in the back of a very large folder of information...I decided to transfer the items in my EJ account to another firm. Much to my displeasure, another $134.94 fee was charged by EJ for the transfer. Banks don't charge this much for transferring money between countries!! It did not stop there. Another fee was sent by EJ of $95.00 for termination and distribution fees."

FAIR-HAIRED BOY TURNS OUT TO BE A REAL DELINQUENT
    On Dec. 22, 2004, the Securities and Exchange Commission censured Edward Jones for failing to disclose hundreds of millions of dollars in kickbacks that it received from a select group of mutual fund families that the firm aggressively marketed to its customers.
An exquisitely symbiotic partnership with "preferred funds."
     As part of the settlement, Edward Jones was required to  pay $75 million in disgorgement and civil penalties.
    In 2006, Jones paid $127.5 million to settle several class-action suits filed for the same reasons.
    In 2008, the firm  agreed to pay $7.5 million in fines and fees to settle a suit filed in 2004 by then-California Attorney General Bill Lockyer.
    "Edward Jones broke the law, and broke faith with the working families of California who placed their trust in the company's investment recommendations," Lockyer said.  
    Three separate class-action lawsuits --  consolidated from an original nine --  sought hundreds of millions for investors who weren't properly advised about revenue-sharing payments.
  
IT WAS A 'CON' IN EVERY SENSE OF THE WORD 
    Edward Jones provided its seven "preferred funds" with certain benefits not otherwise available to non-preferred families including, among other things, exclusive shelf space for the sale and marketing of their funds and exclusive access to Edward Jones’ investment representatives and customer base. 
    "The deception is that the broker seems to give objective advice," says Tamar Frankel, a law professor at Boston University who specializes in mutual-fund regulation. "In fact, he is paid more for pushing only certain funds." 
    Edward Jones is one of the nation's largest sellers of mutual funds.
The Jones machine is fueled by pricey mutual funds.
     This case revealed a massive and ongoing betrayal by Edward Jones of its millions of clients. It documented how the firm routinely placed its profitability over the well-being of those who trusted it to provide objective financial advice. 
    This resulted in "a lopsided fee structure that gave the brokerage firm more compensation for selling poorly performing funds than for selling stellar performers," according to CNN. 

 'SORRY' SEEMS TO BE THE HARDEST WORD
    Edward Jones has never apologized, or even admitted that it violated federal securities laws and knowingly made false statements to clients, despite the sweeping cases against it. 
    Jones has selling agreements with about 100 mutual funds, but virtually all  of its fund sales came from the seven "Preferred Mutual Fund Families" according to Boston financial consultants Cerulli Associates. 
    Our "boy next door" turned out to be greedy, ruthless and deceptive, even though he was still next door.
"Man, do I have a deal for you!"
    EJ's financial advisors pushed the funds relentlessly, and were rewarded with bonuses and other inducements. In the first nine months of 2003, the company's "take" from these illicitly marketed products was $335.6 million in hidden "asset fees," on top of commissions and other fees.    
    The SEC introduced into evidence several internal emails by Edward Jones financial advisors who questioned the ethics of this practice (although the SEC also cited a system-wide policy of destroying emails).
    In an undated Wall Street Journal report, the authors had asked, "Why does Edward Jones push mediocre funds?" Now they had their answer.

BUSINESS AS USUAL. HEY -- THAT'S THE BEST KIND 
   Nothing has really changed since then, according to many EJ financial advisors. The firm recently launched a nationwide "holiday" that it titled "Save for Education Day" in which, as usual, the "preferred funds" were single-mindedly promoted. Throughout their widely-publicized sales event, Edward Jones associates were dressed in attire from their favorite colleges.  
    The "preferred funds" still constitute more than 90 percent of Edward Jones' mutual fund sales, but now -- somewhere on its huge web site  -- the firm discloses that it still receives fees for selling these preferred  funds and that these fund groups have special access to its advisors. It shouldn't even be characterized as a disclosure. It's hard to find even if you know what you're looking for. It says:
    Virtually all of Edward Jones’ transactions relating to mutual funds, 529 plans, insurance products and retirement plans involve product partners that pay revenue sharing to Edward Jones. We want you to understand that Edward Jones’ receipt of revenue sharing payments creates a potential conflict of interest in the form of an additional financial incentive and financial benefit to the firm, its financial advisors and equity owners in connection with the sale of products from these product partners. Edward Jones grants preferred product partners greater access to certain information about its business practices. In addition, these product partners have frequent interactions with our financial advisors to provide training, marketing support and educational presentations.
    Even so, Edward Jones' "core principle" is: "We've built our entire business around meeting your needs."
    Very funny!

     Edward Jones continues to rake in tens of millions annually in kickbacks from its seven preferred funds (more than $150 million in 2011). 
    This is exactly what law professor Tamar Frankel predicted in 2004: "The question is whether brokerage houses will truly provide disclosure in a way that will let investors make wise decisions, or just bury them with 'a wink' in fund literature and Web sites," she said.

SARCASM AND DISDAIN ON THE FRONT LINES
    One Edward Jones financial advisor's online comments reflect a common disregard for the disclosure requirements that followed the SEC debacle.
    "And I am totally sure all the new disclosure requirements are being followed to the letter.  I remember when they sent us the memo saying we had to read this lengthy disclosure to clients.  Something along the lines of 'I may be recommending these investments so I can win a trip, I may get a bonus, everything I am telling you is hinging upon a conflict of interest.'  Does anyone have  copy of that fun ful- page disclosure the EDJ folks are supposed to be reading to the client before opening an account? Does anybody actually read it?"
    In my experience, and in the experience of several Edward Jones clients I know, these disclosures are not being made or even being referred to by financial advisors. My parents were never informed of the SEC order against the firm. They never got any refunds. Worst of all, they were unknowingly steered into the very same "preferred funds" that fork over the big kickbacks, even after lawsuits regarding the violations were successful.


Chapter Four: A New Edwardian Era Means 
Grandiose Plans for the Future

   Maybe CEO Jim Weddle is feeling a royal flush.
King Edward VIII didn't care a whit for the Joneses of the world.
      It is hard to assess whether Managing Partner Jim Weddle's grandiose fantasies for the future of Edward Jones are inspired or deranged. His imperialistic visions have made the natives -- his financial advisors, out there in the jungle -- restless. They say headquarters, remotely ensconced in its glassy urban high-rise -- has no concept of the dynamic in which they struggle to earn a living. Many advisors claim that pretty much every new directive, policy and operational model sent out to the boondocks by central office clearly shows how out of touch management is with the nuts and bolts of its far-flung organization.
   
A jigger in your Kool Aid will restore your fealty.
    What's ironic about Weddle's planned expansion and renovation of his beloved "Jonestown" is that it would, every step of the way, make the firm more and more indistinguishable from its competitors. Pretty much everything that has made Edward Jones unique would be lost. 
     It is the "kumbaya" culture of solidarity and happily shared purpose that advisors say prevents them from speaking their minds about the dubious pronouncements from on high. Oh, and there's always that little fear they keep mentioning about being "thrown off the train," or "getting chewed up and spit out."
    "The egos of the leadership regarding the big changes to come have created a toxic environment at Edward Jones," according to a particularly thoughtful and detailed assessment at Epinions.com.
    It's a good thing that the advisors  are able to vent so freely -- and fervently -- in online forums. Lord knows what might happen if the "Gang Green" -- as they call themselves -- didn't have these outlets for their bile. Maybe "going postal" would be renamed "going all Jonesey."
    Weddle's timeline for major changes at Edward Jones is buttressed by the firm's solid financial base, which provides plenty of room for experimentation.

A RICH COMPANY CAN AFFORD TO PLAY AROUND
    Edward Jones' profits nearly doubled  -- to $392.8 million -- in 2010, and they increased almost as much in 2011. Its first-quarter profits alone were up 53.7 percent. Net revenues were $4.58 billion for the year.
    On August 11, EDJ  reported a 12 percent increase in profit in its second quarter ended June 29 to $139 million, as the company "benefited from continued investment of client dollars into its Advisory programs, which increased fee revenue," the firm reported.
   

    Edward Jones claims, ad nauseam, that it encourages conservative, "buy and hold," long-term investing and discourages frequent trading, "which can increase fees and commissions."
    But its dazzling profitability is based entirely on the fees and commissions generated by trading, and many of its investment picks are, according to its own advisors, "junk." (One must acknowledge that this contradicts what several analysts have said. They regard EDJ's cautious, well-researched investment advice as among the best in the business, in spite of its conflicts of interest.)
     The St. Louis Post-Dispatch and the St. Louis Business Journal agree that it is buy and sell transactions for its customers, and fee revenues, that flood the firm's coffers.
    Fees for other services and administrative work unrelated to trading are becoming an ever-more important, often hidden, source of revenue, and consumers who pay attention are confused.  


'GREEN MACHINE' FIRES UP TO INCREASE RANKS DRAMATICALLY
    The most widely publicized aspect of Weddle's grand plan is his intention to enlarge his advisor force from the current 12,000 to 20,000 by the year 2020. 
    In 2009, he told the Wall Street Journal he would be adding 5,000 new advisors by 2012. The firm's recruiting efforts the past three years have been ineffective, though, and the number of advisors has remained flat. 
      Despite the ubiquity of Edward Jones storefronts, Weddle believes the U.S. market is not yet "saturated."  He projects that his expanded legion of advisors -- which he is still confident will materialize -- will be overseeing $1 trillion in client assets (up from  $634 billion at the end of March 2012). 
     Many of Weddle's employees think Edward Jones has gone well beyond the "saturation" point already. There are 100 EDJ offices in St. Louis alone. Advisors liken the pervasiveness of their offices, and their "franchise" mode of operation, to Starbucks and McDonald's. They are not the entrepreneurs they had dreamed of becoming, based upon EDJ's recruitment promises.
     "I drive past five other Jones offices on my way to my office every morning.  It's only a four-mile commute," one advisor says.
    "Along Manchester Road, I counted eight one-man Jones offices in a two-mile stretch. If you do a two-mile radius around my office (near Kirkwood) there are 15 Jones offices," another laments.
   Remarks such as these have flooded the message boards for several years. 
    Weddle's expansionary dreams persist nevertheless. For example, he  is planning to add more than 236 branches in the greater Seattle area over the next five to 10 years, according to company spokesman John Boul. The firm announced earlier this year that it will open 70 new offices in western Massachusetts.
    Jones advisors feel betrayed by this. With each new storefront, their potential client base becomes smaller, even as their mandatory quotas rise.
 
A GROWING MARKET FOR FINANCIAL ADVISORS
    According to the U.S. Bureau of Labor Statistics website, "jobs for personal financial advisors are projected to grow by 30 percent over the 2008–18 period, which is much faster than the average for all occupations. Growing numbers of advisors will be needed to assist the millions of workers expected to retire in the next 10 years." 
Expanding the army of cheerful, compliant advisors.
       Despite those data, and the firm's appealing -- and even inspirational -- outreach efforts, Jones has fallen short of its yearly hiring goals for most of the past decade, according to Reuters business writer Joseph A. Giannone. 
     Of 12,500 people who  applied to be a Jones financial advisor in 2011, only 2,000 were hired, or around 16 percent, according to a 2012 WealthManagement.com article. Typically, about 82 percent of those get through the first few weeks, become licensed to sell investments and get on the payroll, according to Bill Campbell, a partner at the firm. Twenty-three percent quit in the first four months on the job, says Kevin Alm, head of training. Two years later, only about 42 percent of the 16 percent of applicants who were hired are still with the firm. By year three, only 37 percent of the original new hires remain with the firm. Considering that EDJ reportedly spends about $100,000 to train each recruit, it looks like a pretty bad investment -- a 63 percent loss! And yet, people give them money to invest -- pretty ironic.
    Edward Jones' success rate sounds positively dismal, but it is nearly twice as good as the industry average, according to Training Magazine. 
    Given the unemployment rate -- which includes millions of educated, experienced people -- it seems paradoxical that Jones is struggling to meet its recruiting targets. 

THOUSANDS HAVE JUMPED SHIP -- THE 'MOTHERSHIP'
    Former advisors report another hurdle in Weddle's expansionistic dreams: a substantial exodus by those who feel constrained, overburdened or morally compromised by the company's policies. 
    In November of last year, EDJ advisors in the WealthManagement.com forum discussed the apparent loss of between 1,500 and 2,000 FAs in one year alone.  
Head for the hills, to escape the Green Giant!
     "I'm guessing 85 percent of the turnover is in the 0-5 year range," one of them said.
    "I've seen TONS of FA's in my region leave," another EDJ advisor wrote in 2012. "A lot have obviously failed out, but I have seen more FA's leave to go indy (independent). A guy on the leadership team told me there is a lot of pressure at corporate right now. They are struggling to figure out what direction to take the firm. They have come out with a lot of new recruiting tools and incentives, new-hire pay rules, lots of stuff. But I don't think any of it is enough to get them over the hump. The bottom line seems to be that newbies are struggling to bring in new assets. The ONLY saving grace right now is that everyone seems to be converting to Advisory Solutions, so that is driving up revenue on existing assets. Things are getting strange around here."
    Advisors are being pressed to "deepen existing client relationships" by calling each of their customers every three weeks with a list of investment suggestions. Before they do so, they are instructed to retrieve the client's personal information on their computers, so they can ask personalized questions about clients'  wives, kids, hobbies, health, etc., before getting down to business. They also pointedly seek referrals during these "warm interactions."

ENTICING THE TROOPS ONTO ANOTHER BATTLEFIELD
    In a move that might be regarded as pure genius or as cynical and exploitative, EDJ has aggressively (and "excitedly") launched the "FORCES" program, to recruit returning military veterans into its ranks. America loves and trusts its noble servicemen! Let's flip that good will into some profit, people!
A new army of bold, assertive financial advisors?
    In a poll commissioned by Edward Jones, 75 percent of respondents said they would like to have a former soldier as a financial advisor, citing factors such as integrity and discipline. Moreover, they saw it as a way to "express gratitude" for the veteran's service.
    Jones' plan is a big PR coup, given all the publicity about the unemployment rate among "our finest." But it's a real economic coup for EJ as well: Thanks to the G.I. Bill, veterans can receive a monthly income while they are being trained by Edward Jones. (Jones has a euphemistic way of phrasing this: "Our training and compensation program dovetails with GI benefits.")
    For each vet, tens of thousands of tax dollars will be disbursed that would otherwise have been paid by Edward Jones for its costly training. What a deal! 
    There is a menacing aspect to this inspired idea: Any vet who joins the Apprenticeship/On-The-Job Training Program under the G.I. Bill forfeits his right to receive a college education.
    And the likelihood, as we've demonstrated, is that the veteran will not complete the training and develop a sustainable business. He loses big-time, just as if he'd blown his GI benefits on a sleazy trade school.

BYE-BYE TO THE CUTE LITTLE NEIGHBORHOOD OFFICE
    Weddle's blueprint for the future encompasses far more than increasing his army of financial advisors. The firm's signature little "sole proprietor" storefronts are expected to fade over time, as Jones establishes offices that house multiple advisors. 
Will another "small business" go out of business?
    In a 2008 Harvard Business Review article, the Jones model was contrasted favorably with Merrill Lynch, which has an average of 15 brokers per office. The Jones ambiance was described as "personable...convenient....and casual." The downside is overhead expenses and isolation. The Jones Boys can get pretty lonesome. Some camaraderie and trash-can basketball might do them some good.
     It appears that a substantial upgrade of the Jones work force may be on the horizon as well. Just a couple of years ago an EDJ "image consultant" wrote: "The company does not hire top MBAs or 'stars' from other banks; it hires smart, average, eager folks and trains them. At Jones, the system is the star." 
   But in the first few months of this year alone, Jones hired 164 "star" brokers away from competitors, Weddle said. 

AN INVASION OF COOLNESS 
    The firm's famous "regular guy" advisors -- recruited in mid-career from unsatisfying jobs that generally had nothing to do with finance -- are expected to go softly into retirement as Weddle shifts gears and goes after a new breed of young, well-educated people, who will bring greater polish and sophistication to the Jones brand.  
Jones may target young professionals, rather than the "howdy, folks!" type.
     If you majored in finance, that's great! If you have an MBA, get over here, babe! 
    Ironically, these savvy recruits are expected to get more training than their unschooled "Salt of the Earth" predecessors did. 
     Weddle and his inner circle have rolled out a new FA Talent Acquisition organization, new recruitment strategies and additional "hiring screens."  The firm is refreshingly, and pragmatically, committed to diversity, and has impressive programs to increase the number of women and African-Americans in its ranks.
Emily Pitts is Edward Jones’ Principal of Diversity and Inclusion.
      "We have increased the size of our FA Career Development Program, which targets top graduates from BA and MA programs and provides them with up to a year of specialized training to prepare them to enter our FA Training program and eventually become financial advisors," Weddle tells AdvisorOne.
    In other words, the minor-league firm is going pro.
    Isn't Edward Jones beginning to sound like a lot less like the "self" it so proudly and painstakingly contrived, and more like all the other investment firms?

NEW INSTRUMENTS FOR YOUR MONEY TO PLAY
    The firm's famously limited ("simplified") investment options are being blown wide open, and are expected before long to include financial instruments that Jones has explicitly shunned in the past -- expanding not just beyond its historical  focus on mutual funds and into an array of investments, insurance, banking services and loans -- but also into more exotic and higher-risk products, in order to get more business from each account. 
    "We'll still take the buy-and-hold folks," a soon-to-retire advisor says. "But they want us to go after the speculators, too. Why not? It's big money." 
It's not nice to exclude speculators. They're such fun people!
      All of this redesign and recalibration at Edward Jones can be regarded either as revolutionary change or as giving up and joining the crowd.
    Jones is adopting a number of trademarked "models" that will reportedly take the guesswork out of creating portfolios. That begs the question: What is the advisor's role?  Many current advisors believe their knowledge is useless, since home office dictates everything they do. Think how the new young hotshots, with their increased level of education and training, will feel about everything being prepackaged.
     EDJ  has begun an evolution away from a commission-based system toward one that is fee-based, which has proven to be highly profitable. 

FEE-FI-FO-FUM: I SMELL AN EXORBITANT ONE
    The firm has been insinuating its clients' portfolios into the "more robust" (?) Advisory Solutions model since 2008. Some advisors have complained about being required to "churn" their accounts into the Advisory format, which poses ethical and practical dilemmas for them. Others say it was about time that the firm adopted the Advisory system, years after other firms moved to fee-based platforms. They report that 2011 was the first year in which fee revenue outpaced commissions. 
    "As a fee-based program, the advisor won't be tempted to switch you in and out of funds to increase his commissions," an analyst with Morningstar explains (while inadvertently explaining a lot about how Jones has been operating all these years).
Advisory Solutions cloaks itself in rousing descriptive language.
      The design of model investment "platforms," such as Advisory Solutions, seems to be sweeping the financial services industry. Even though EDJ was relatively late in signing on, it was named Advisory Solutions Firm of the Year in May by the Money Management Institute. At that time, it had shifted $75 billion in assets into the Advisory format.

THOUSANDS OF DOLLARS A YEAR FOR 'DYNAMIC' SCRUTINY
     Advisory Solutions at least discloses its fees -- some of them, anyway -- which is a stunning step forward for Edward Jones. The model imposes a $5,000 annual program fee (for accounts up to $500,000), plus administrative fees and "internal expenses." There is also an Administrative-UMA Fee of $1,500 as well as SMA Manager Fees. And don't forget to read the prospectus for each product in your portfolio, to discover what their "charges and expenses" are.
     (One nice old retiree was devastated to learn that his Advisory Solutions program had cost him $9,000 in one year.) (Like most people, he probably hadn't read the deluge of boilerplate materials that had engulfed him after he signed up.)
The pricey hexagonical logic of Advisory Solutions.
     "The Administrative-UMA Fee also covers security trading activity and overlay management for UMA Models," the Edward Jones site explains confusingly. Although this package is for those "who prefer to work closely with their financial advisor to implement and refine their long-term financial strategy" it obliges them to "leave the daily investment decisions to a team of financial professionals dedicated to the program."
    Under this arrangement, your money is subject to "Dynamic Threshold Rebalancing," which is designed to exclude your EMOTIONS from consideration in buying and selling decisions. (I, for one, respect my emotions.)
    "You just wait outside and let us take care of this counter-intuitive chore," EDJ seems to be saying. Its decisions are based on "our Research department’s continual, rigorous analysis and review process," the Jones web site explains, so you can just calm down and let the experts do a job on you.
Dynamic Threshold Rebalancing. Get it?
        It is surprising that Jones would abandon its fundamental model of investment simplicity and caution, which is distinctively appealing and still resonates with a wide swath of its longtime target market: Mom-and-Pop investors.
    But Weddle has his eye on trillions of dollars from 79 million Baby Boomers heading into retirement. He estimates that about half of them fit the "psychographic" of Edward Jones: "conservative, long-term investors who want to work with a trusted advisor."
    As Weddle sculpts his empire into something more modern, he seems to be assuming that the next wave of investors is perhaps too cool for EDJ's current quaintness. Stop that "howdy!" bit, and dump the Norman Rockwell!
    I think that's too bad. And I am a Baby Boomer.

GRUMBLE IN THE JUNGLE  

     The proposed and current changes in how EDJ does business have caused uneasiness among the rank and file.
    According to a 17-year veteran of the firm, "disturbing things are happening at Jones." He refers to the imposition of additional "segments" to the sales-quota system and to rumors that Jones "plans to begin paying people starting in year three on a wirehouse-like grid. There are also rumors that the firm is going to outsource its research function to save money and lower 'perceived' conflicts of interest," the advisor says.
    "For those of you that work at Jones, you know that they have tools to essentially create model portfolios for you. Last year they rolled out a system that will create and buy non-advisory models for you (A-shares, stocks, etc). The word is that at some point, this will become mandatory for new money, and that the only non-model assets that will be allowed in client accounts going forward will be legacy assets and exception assets (such as transfer assets with embedded gains)," he writes.
    In spite of the continually increasing use of "prefab" portfolios, EDJ claims on its website that it is dedicated to "developing and reviewing investment guidelines specifically for each individual investor.
    They don't. They fill in the blanks and press "submit."



TWEETS FROM THE SUITE
     Edward Jones, which has been notoriously averse to technology (its advisors were still begging for email in 2006) (and they still typically don't give their email addresses to clients) (and headquarters reportedly monitors and then destroys company emails)  is finally diving into social media, according to SMARTMONEY.  It is posting videos about investing strategy on its YouTube channel (nothing seems to have gone viral yet) and is even trying to get itself out there on Twitter every day. It recently tweeted "Kudos to financial advisor Don Logan for always answering his phone!" and "Olympic coaches approach training their athletes in different ways -- learn how we approach your financial needs!" and "Calling all Women: Declare Your Financial Independence!" and "Think running 26.2 miles is a lot? Try 146. Thru Death Valley. This Edward Jones partner did. Find out why!" and "Edward Jones has a very personal feel that's almost like family. And we're very proud of that!"
    In many ways, it is almost like family. And the more you learn about the firm, the gladder you are that Edward Jones isn't your daddy. 


Chapter Five: Our messy divorce 
from a 2-faced monster
   
   My parents were in their mid-80s when a door-to-door salesman, obviously suffering in the midsummer heat, asked if he could come in to introduce himself and describe his "new little business," which was right down the street. He represented the most highly regarded financial services firm in the country, he said. My father didn't even consider turning him away. "The poor fellow was burning up out there," he said. "The least I could do was to give him a Pepsi."
    Daddy, Daddy, Daddy. You were always such a gentleman. It wasn't until a couple of years after you died that we realized what a mistake your hospitality had been.

   
Reuben Kronstadt pix
Sometimes, kindness backfires, Daddy.
     My father had always enjoyed handling financial matters on his own, placing orders with discount brokerages such as Schwab, Vanguard, and T. Rowe Price. He was a thoughtful, conservative investor, who really did his homework. His astuteness had ensured that he and my mother would never become a "burden," and that they would enjoy a comfortable retirement.
    But the thought of having an amiable advisor so near to home was appealing, especially since my Dad's friends had all died, and he missed having some male companionship now and then.

AS AFFABLE AND MODEST AS A FULLER BRUSH MAN
He was the nicest guy you'd ever hope to meet.
    The financial advisor  from Edward Jones inspired confidence. He was patient, humble and congenial, and he was interested in my Dad's life as well as his money. He said he was certain he could put my parents in financial instruments that would generate superior returns. He worked with a large team of world-class analysts, he added, who sent daily dispatches from the home office, in St. Louis.
    After a conversation about grandkids, the exasperation of learning how to use a computer, and their most vivid memories of boyhood, my Dad said he'd consider moving some funds into the Jones rep's fledgling operation.
    A few warm, chatty calls and visits later, about half of my parents' savings were with Edward Jones. Before long, Edward Jones had taken possession of all my parents' assets, which were in the form of an irrevocable trust.
    The advisor had "bagged" my parents exactly as he was trained to do, right down to the thoughtful personal questions that took the whole "sales-pitch" vibe out of the conversation. He had been taught that it takes about seven interactions before a cold-call is transformed into a fully invested client, and that was just about right.
    My Dad was in the beginning stages of dementia at that time, but he was still able to buy and sell stocks quite competently (he just didn't remember 20 minutes later that he had done so). He didn't realize, though, that stock trades through Edward Jones cost hundreds of dollars each, instead of the $10 or so that he had been paying. The advisor had never mentioned fees, and none appeared on the monthly statements. 

MILD-MANNERED, GOOD-NATURED, AT YOUR SERVICE
    I think my father assumed, as my mother and I did, that Edward Jones would be a discount place, since the advisor and his office were so unpretentious, so welcoming to ordinary folks. Stop in for a visit, neighbors! Let's just chat about sports or whatever!
Not a fancy-pants place! And you could get a pedicure and teriyaki chicken at the same time.
    The uptown brokers seemed pretty high falutin' by comparison.
     My Dad didn't realize that on top of the exorbitant trading fees Edward Jones was charging, there were load fees, reinvestment fees, back-end fees, account maintenance fees, 12b-1 fees, annual fees, transfer fees, transaction fees, liquidation fees, and more. 
    We would not be aware of any of this until I began doing research for this series of articles in May, six years after my parents entrusted their entire estate to Edward Jones.
    Even though Edward Jones had just been fined and censured by the Securities and Exchange Commission for steering clients into its seven "preferred funds" -- which rewarded it with hundreds of millions in kickbacks -- this issue was never discussed with my parents, and a large portion of their funds was in fact invested in these funds (which were, and still are, paying the kickbacks).
    When my Dad's dementia progressed, and he became erratic and somewhat obsessive, my mother and I took him to the Edward Jones  office to meet with the advisor. We agreed that no more stock purchases were to be made on my parents' behalf. My Dad was still intact enough intellectually to understand that he had become incompetent in this regard.
My parents didn't want to party with their money; they wanted to protect it.
    We told the advisor that our number one priority, from now on, would be to protect the funds my parents had amassed through a lifetime of unwavering thrift. No more speculation -- just very conservative, fixed-income investments. Simplify the portfolio, and eliminate risk, we told the advisor.
    It was at this meeting when I met the advisor for the first time. Never before had I taken part in my parents' finances at all.

HE WAS SMART ENOUGH TO BE UNEASY
    The advisor was a very gracious person -- a tall, good-looking man in his mid- to late 50s. He was gentle and responsive, but he had a seriousness that seemed almost painful. I got the impression that he was somewhat uncomfortable in his role. I felt compassion for him from the start.
    I asked him if he was a Certified Financial Planner -- something I've repeatedly read that an investor should ask at the outset. 
    His response was the same one I would hear many times during the next few years, whenever I asked about anything that made him uneasy: "That's a good question."
     After he said that, he acknowledged that no, he was not a CFP -- he had been trained by Edward Jones. (Later that day, I perused the Edward Jones web site and learned that the "training" lasted five days.) 
    I asked what he had done in his 30-plus working years before becoming a financial advisor. He said he was an assistant retail manager. I wondered if he was really qualified to handle millions of dollars -- the life savings of dozens -- maybe hundreds -- of trusting clients.
    "Edward Jones has the best research team in the business," he said. "They provide constant support."
"Constant support" to dictate financial advisors' every move.
     Actually, it's not so much support -- it's marching orders.
     But it would be a long time before I found that out. 
     (In fact, the advisor was so persistent about my becoming a client that I finally gave him a small portion of my savings -- small enough that I wouldn't be devastated if he lost it all. "Just let me show you what I can do for you," he had said. "I know you'll be pleased." He told me he'd like to meet with my friends and other family members about their investment needs as well. He was following orders from headquarters that require advisors to generate new leads from existing clients.)
    My parents and I left the office that day feeling confident that we had made ourselves clear about transforming the portfolio into one in which preservation of the assets -- not speculation or high returns -- was the priority. The advisor had expressed what seemed to be deep sympathy for my father's mental decline, and had acted almost ministerial in responding to our grief, as if he were on the verge of taking our hands and reciting a prayer.
    Regarding the financial aspects of the dialogue, though, he had been somewhat vague (his explanations left us numb and dizzy) (and why was he vague, anyway? our directions needed no interpretation), but he was such an empathetic and respectful person, we probably shouldn't worry, right?

SEEDS OF DOUBT BEGIN TO TAKE ROOT
    When my father died a couple of years later, in March, 2010, my mother automatically became trustee. She and I met with our  Edward Jones advisor to formalize that transition and to reiterate her  existing position: that she wanted to "simplify the estate and eliminate risk."
    Month after month following that meeting, my mother showed me her EDJ account statements and asked, "Do you think we're doing OK?" When my father was alive, she never looked at any of this stuff. She felt vulnerable and incompetent when it came to investing.
    Each month, for two years, I glanced at the front page, which provided the current account value, the value a month ago and the value a year ago. I wasn't sure, but they seemed fine to me. There were ups and downs, but the overall trajectory seemed to be in the right direction.
    I was as vulnerable and incompetent my mother. I am not interested in the crazy, corrupt, irrational, roller-coaster ride of finance. The stock market offends me; it seems like a gaudy, rigged casino.  I don't want to worry or even think about my money. I put it into CDs and forget about it. 
Have fun tearing your hair out. Get rich if you can.  I'm not interested.
     I never looked beyond the cover page of my mother's account summary -- and I'm not the only one, which became clear to me when I later read the online comments of other Edward Jones clients. They had also merely glanced at their balances year after year, and concluded that everything was fine.
    But my mother eventually did dig deeper. At 93, she is still beautiful, smart and incredibly conscientious about every aspect of her life. Even though she was painfully aware of her naivete regarding investments, the statement's details -- or lack thereof -- made her feel wary. She had questions about what it all meant, and she went into the EDJ office a few blocks away several times to get answers. 
    The advisor's explanations left her as confused as before. She told me she had asked him to put his answers in writing, so she could bring them home and absorb them better, but he had said Edward Jones doesn't allow its advisors to put anything in writing. I told her I was sure that wasn't true, and that she must have misunderstood him.

SHE WASN'T 'DUMB' -- THE STATEMENT WAS
    At that point, she asked me to look at the entire statement, not just the "account summary" page, and explain it to her. 
    "I must be dumb," she said. 
WHAT???? Are you kidding me?
     When I looked through the whole thing, it was clear that the statement was "dumb," not she. I was shocked to see that she was invested in 18 mutual funds, among numerous other financial instruments, such as unit investment trusts, limited partnerships, and "other securities," none of which we understood.
    Her advisor had not simplified the portfolio, as he had been ordered to do five years ago. He had not eliminated or even reduced risk, as far as I could tell.
    When and how did this happen? She had been trying to get him to tell her how much all these "buys" had cost, and why she had so many different investments, and what other fees had been charged to her account without her knowledge, but he had repeatedly evaded the question.
    That was when we first began to suspect that the advisor was putting his interests, and those of Edward Jones, above hers -- which I've since learned is the firm's modus operandi. Since he had always behaved in such a benevolent and caring fashion, the betrayal was all the more hurtful to both of us. 
    There was nothing to be gained by his having purchased so many funds, except that each came with a "load" fee, a commission kickback and an annual fee -- a big win for Edward Jones. It was simply outrageous, which I confirmed by calling three Certified Financial Planners during my research for this article. They agreed that three or four no-load, index mutual funds would have been more than enough, and would have saved her many thousands of dollars. 

A CORPORATE APPETITE THAT IS VORACIOUS
    But there's no such thing as "enough" at Edward Jones. Every sale brings in more money for the company, both now and for every year the fund is held.  
MORE!!!! Me is not full in the tummy!
    When I researched the funds in which my mother's money had been placed, I realized that they were all among the notorious "seven preferred fund families," which provide the biggest kickbacks to Edward Jones and generate better performance scores for advisors -- the ones that had been the focus of the SEC investigation that had cost the firm millions of dollars in fines. 
    Through my research, I also discovered that many of the funds the advisor picked for my mother were heavily invested in the stock market and imposed pricey management fees. One had a 30 percent annual turnover of holdings (lots of fees); another, mostly in stocks, reflected an annual "churning" of its holdings of 24-32 percent (more fees). One was heavily into mortgages at a time that seemed very inauspicious. One had a small profit, which I later learned was wiped out entirely by EDJ fees.
    One of the Jones' picks lost 1.38 percent last year and has had only a 2.33 average gain over five years. It includes stocks (37 percent) in its portfolio. Only 52 percent of the portfolio is in bonds, 91 percent of which are “below investment grade.” 
    What the hell was going on?
    As far as I could tell, only one of the 18 funds met her criteria.
    We had never been informed that these funds had been purchased, much less that they were "managed," incurring additional expenses, and carried a substantial "load" -- ranging from several hundred to more than a thousand dollars, which came straight out of the account (but didn't show up on the monthly statements). 
     
THEY IGNORE THEIR OWN RULES
    If you are willing to wade through all the boilerplate legalese on the EDJ website, you'll find that:
    "Your financial advisor should explain all commissions, sales charges, markups and fees when he or she recommends an investment to you.... it is important that you understand the sales charges, expenses and management fees that you will be charged."
    Nothing of the sort was ever discussed with us. In fact, I don't remember anything ever being "recommended" to us, except for a state municipal bond. The rest of the lengthy list of investments just tiptoed their way onto the statement.
    No one should be treated this way. Particularly not a 93-year-old widow. And particularly not my mother, you creeps.
    It wasn't until much later, when I was doing research for this series of articles, that I educated myself about "load" funds. I learned that my father had always invested in "no load" index funds (no cost to purchase), which are plentiful and highly regarded. I also learned that inexpensive "index" funds, which are tied to the Dow, generally perform as well as the much more costly "managed" funds that Edward Jones, for its own benefit, had put my mother's money into.

SENSIBLE QUESTIONS, INSENSITIVE SILENCE
    My mother had other very sensible questions about the extensive "financial instruments" the advisor had purchased. The statement didn't disclose, for example, when an investment had been purchased, how much in total had been invested, how much the value had risen or fallen, what the annualized rate of return had been, or how much money in fees and commissions had been withdrawn from her account.
     She had never even been informed what the overall rate of return on her portfolio had been. 
    I submitted her questions to the advisor in an email and asked for a written response. When I asked about my mother's overall rate of return, he refused to answer. When I asked whether the "account totals" on her monthly statement reflected the value before or after fees and commissions, he refused to answer. When I asked how much she had paid in fees and commissions since my father died, he refused to answer.
    I asked him if there had been a fee when he transferred money to her checking account each year at Christmastime for gift-giving. He refused to answer. There was also a long list of dividends on each monthly statement, which had been reinvested by the advisor. I asked if there had been charges for these numerous transactions each month. He refused to answer. 

PAYING TO LOSE WHAT YOU, UM, EARNED?
     I have since learned -- thanks to the many Internet forums about Edward Jones -- that the reinvestment fee is so high that it often exceeds the amount that is being reinvested. So she was paying a fee to reinvest funds on which she had already paid a fee to invest.
    The advisor declined to provide written answers. He was insistent that instead we "get together and visit."
    We refused. We had "visited" with him several times, and we always left in a sort of daze, having absorbed very little of what he had said.  
We always felt confused and befuddled after our meetings.
    I agreed with my mother: We needed answers to our direct questions in writing. These were simple, straightfoward questions about how the account was managed, what the numbers meant, how well she was actually doing, and how much she was paying for Edward Jones' "stewardship."
    The advisor responded in an email that he is not permitted to answer questions or provide information in writing: "Edward Jones only allows me to use approved printed reports, prospectuses and flyers to answer inquiries."  
    When my mother had told me he wasn't permitted to put anything in writing, I assumed there had been a miscommunication. It sounded too absurd to be true. 

THEN THINGS BECAME DOWNRIGHT SINISTER
     It was chilling, it was creepy, to realize that everything my mother owned was in the hands of such a bizarre institution. The advisor was deeply distressed by the position he was in. He seemed guilty, helpless, conflicted, embarrassed and humiliated. I actually felt sorry for him, but really: Too bad, sir. We have our own interests to look after here.
    I believe that my mother has probably earned a decent return on her money at Edward Jones -- as have I -- but I can't tell for sure. Nevertheless, she is entitled to know at what cost her return has been realized, and why her investment criteria were ignored.
    It is pathetic that Edward Jones doesn't trust its advisors to correspond with their own clients. I later learned, in forums for current and former Edward Jones financial advisors, that pretty much everything they say is scripted, and heaven forbid if they stray from the "playbook." 
    "They will kick you out onto the curb before the afternoon is over," one of them wrote.
    Headquarters did allow our advisor to send me some of the "approved printed reports" he referred to. They were very informative. Why hadn't they been provided in the first place? 
    The answer was obvious: They raised even more troubling questions.
      To me, the most shocking aspect of the "performance data" document was that 27 mutual funds -- all expensive, managed load funds from Jones' "preferred" group -- had been bought and/or bought and sold in the past two years, since my father had died. As I noted earlier, there were currently 18 of these funds in her portfolio. There were also five unit investment trusts and limited partnerships, which she hadn't authorized and didn't understand.  

A LOVELY, FRAGILE LADY, LOADED UP WITH CRAP
     A conservative, cost-conscious elderly widow does not need 18 mutual funds. There is no need to "diversify" the kind of mutual funds we had ordered -- safe, stable, solid fixed-income funds -- since they are diversified by nature.
    There is no other possible explanation than this:  My mother's portfolio was designed not for her benefit but for the intensive generation of commissions, load fees and transaction fees and bonus fees for our advisor and for Edward Jones.  
      The bar chart on another document provided by headquarters seemed to indicate an investment strategy that blithely ignored my parents' emphatic criteria. The "portfolio total" underneath this baffling graphic indicated that about $150,000 of the trust's  portfolio was invested in either equities or "aggressive income instruments," which was blatantly contrary to our family's orders. 
     According to the “performance detail by product type,” my mother had only 1/16th of her funds in Fixed Income. The vast majority – if not all – of her money belonged there. She could not have made that more clear. 

SO MUCH CHURNING, WE SHOULD HAVE GOTTEN SOME BUTTER
   The documents raised other questions: Why were Capital World Growth & Income shares sold, and then bought back two weeks later? And then bought again later in 2010 and then sold within two months and then bought again the following month? And then sold three days later? 
    What the hell is going on? 
    All of these churns came with a 3.5 percent sales charge and an additional transaction fee. Perhaps there is a very good or even brilliant explanation for this, but no one would tell us what it was.
    Why was Lowe’s bought in July and sold in August, incurring a commission each time?
    Is it standard business practice to sell a stock (Pepsico) in two bundles on the same day, with a $600 commission?
    Regarding the portfolio totals as a whole, the document stated, in fine print, "these indices do not take into account brokerage fees, taxes or investment management fees. If such fees were taken into account they would have had the effect of reducing performance." 
     What were we to make of this? Why doesn't Edward Jones take them into account and then tell us what's left of my mother's money?

BLATANTLY IGNORING CLEAR, CONCISE DIRECTIONS
    For the first time, I learned that the advisor had retained 13 stocks in the portfolio after our meeting with him and my father, when we explicitly stated our desire to get out of the market. More than half had lost money. It was only after my Dad died that the advisor sold all but three of these speculative investments.  
    When I expressed this frustration and disbelief to our advisor, and again told him we wanted answers, in writing, to the questions I had submitted, he told me that the people at headquarters would have to handle this matter. He was not permitted to respond in the way we were demanding.
     Six weeks later, in July 2012, I received a thick stack of transaction sheets from the Edward Jones compliance department, which could have been printed out in five minutes.
There were so many papers, it was difficult to grasp their significance.
     The only ones that shed light on anything involved purchases that generated commissions of between a few hundred and more than a thousand dollars. 
    It had been 10 weeks since we had posed direct questions to Edward Jones about how and why it had invested my mother's money as it did, and how much she had paid, and how much she had made. 
    Even the people in the compliance department at headquarters ignored our questions. They remain unanswered.
     I posed these questions yet again to Edward Jones headquarters personnel in an email on July 11. There has been no acknowledgement or response of any kind.

THE TWILIGHT ZONE AND EDWARD JONES
    If I hadn't subsequently read about this happening to so many other people, I would find it hard to believe. I would think it was just some huge misunderstanding. 
    At Edward Jones it is well understood. It's called a business plan, and it relies upon the ignorance of its clients. As long as they are good, trusting customers -- lulled into smiley-faced complacency by the whole Honest Abe image of their advisors -- everything goes along quite smoothly. My parents  had been with Jones for years before my intrepid mother was inspired to examine her statement and ask some insightful questions.
    That was when all hell broke loose.
     The only contingency plan Edward Jones seems to have if the natives get restless is to close ranks and ignore them until they go away.  
    But I didn't go away. I'm glad I didn't. This has all been very interesting. 
    We're pulling our portfolios out, of course. And if Edward Jones tries to mess with us the way the have with so many other clients who have decided to take their business elsewhere, we will SUE THEIR ASSES.
    And maybe I'll even write about it. Or turn it into a reality show (although only those who've dealt with Edward Jones would believe it was really reality. It's just too bad to be true.).

    This concludes a five-part series on the investment firm Edward Jones.