Last month, Jim Cramer ripped Edward Jones a new one; While I agreed with what he said, I didn’t bother to follow up because I assumed Ed Jones had come clean.
Apparently not.
From today’s WSJ:
"Edward D. Jones & Co. received $82.4 million in secret payments from seven mutual-fund firms in the first 11 months of 2004, through a lopsided fee structure that in some cases gave the brokerage firm more compensation for selling poorly performing funds than for selling stellar performers.
The disclosures were posted yesterday, on Jones’s Web site as required by its $75 million agreement to settle regulatory charges that it failed to adequately disclose the payments to investors. They are by far the most detailed figures ever made public on the industry practice of mutual-fund companies paying brokerage firms to induce them to sell their products, an arrangement known as revenue sharing. Unlike front-end sales commissions, which are widely disclosed to consumers, revenue sharing has been largely secret."
That’s pretty egregious behavior. I used to think well of Edward Jones as a firm. Non mas. . .
Here’s Cramer’s comments:
Edward Jones’ True Colors Aren’t Pretty
So Edward D. Jones wasn’t a conservative brokerage house
with a boring recommended list meant to keep its clients in healthy shape.
Edward Jones simply de-emphasized research entirely, paid little attention to
it, and steered people toward funds for kickbacks.
During the vast bubble and its subsequent burst, I was
impressed that Edward D. Jones seemed to have its feet on the ground, not
suggesting wildly inappropriate stocks for its clients. I praised the firm on
my radio show for seeming to have its clients’ conservative sentiments at
heart.
What a chucklehead I was. Instead of pushing inappropriate
stocks on clients, Edward Jones could have pushed inappropriate funds on them.
Stocks can’t give kickbacks, but funds can. What Jones was doing was far worse
than just recommending bad stocks.Monday, this firm agreed to pay a gigantic fine, $75
million, and to stop this outrageous pay-to-play junk where preferred funds got
tons of money in return for hefty fees on the back end. To think that this firm
cloaked itself in conservative clothes is just outrageous. The company
exhibited a stupefying two-facedness that makes me want to scream.
Of course, it will pay the fine and be allowed to stay in
business. Everyone gets to stay in business. You would think it was in the
Constitution or something, that it was written, that, no matter how outrageous
the fiduciary violation, you still are good to go in the financial services
business because once you are in, you are in.
When I started my radio show, I alleged that there were a
lot of secret revenue-sharing agreements between brokers and funds because
otherwise, the really crummy funds would have no customers. Who would
deliberately stay with a crummy fund? Who is that stupid?But I wasn’t able to get the documents that told you who was
paying to get money and who wasn’t. We now have settled the problem when it
comes to brokers. Next up? The kickbacks some of these human resources people
have been taking to keep their companies with bad funds for the 401(k)s. Some
of it will be kickbacks to the companies, others will be under the table. What
else is new?
Would anyone mind taking a pledge with me to do what’s best
for the client over the long term, so both he and the client make big money? Is
there anyone willing to raise his right hand and swear he will do his best for
his client, not for his firm or himself?
From here, the silence sure seems deafening.
Geez. That says it all . . .
Source:
Edward Jones’ True Colors Aren’t Pretty
James J. Cramer
RealMoney.com, 12/21/2004 9:05 AM EST
http://www.thestreet.com/p/rmoney/jamesjcramer/10200162.html
Jones Discloses Secret Payments From Fund Firms
By LAURA JOHANNES and JOHN HECHINGER
THE WALL STREET JOURNAL, January 14, 2005; Page C1
http://online.wsj.com/article/0,,SB110565044387025581,00.html
What I don’t get is if the company made $82.+million on the scheme, why is the fine only $75million?
And what is going to happen to this $75million? Are they going to return it all to the people who originally paid it (with interest)?
Cramer summed it up well. But he touted them as well at one point; he seems to be consistently late in pointing out fallacies like this.
Not only are so many of the “Wall Street practices” wrong, but the enforcement/punishment is of equal poor footing.
Yes, there are funds that meet their fiduciary responsibilities.
The Street.com reports on the research tool: “Does Your Fund Meet Its Fiduciary Responsibilities?” Quote of Note: “Don Trone, founder and president of Fiduciary Analytics, said the firm conducted the extensive study due to the groundswell of investors and retirement-plan fiduciaries asking what to do with funds from families implicated in the scandal. “Not surprisingly, the funds that have been implicated didn’t rank very well,” Trone said.”
Additional quote of note: “Of Vanguard’s 100 funds, 85% were in the “passed/acceptable” camps, while 71% of T. Rowe Price’s 83 funds made the cut. . . [Vanguard founder John] Bogle always talks about meeting the fiduciary responsibilities of Vanguard’s investors, and this ranking is a vindication,” Trone said. Also turning up among the top 50 were American Funds Group (No. 31, with 62% of its funds making the top two categories) and Fidelity (No. 48, with 50% of its funds making the cut).
Source:
http://www.benefitscounsel.com/erisaarchive/000830.html
Great work un-covering some of the secrets… after reading the disclosure on their web-site, it sounds as though it’s going to be business as usual going forward (“we want you to be aware of our revenue sharing arrangements”). We’ve posted our comments and links to the source itself in our blog at http://marketweek.blogspot.com/ for anyone who might be interested…
Has anyone started a blog simply posting their loses due to EJ’s brokers recomdations. Mine are $100,000.00+ to date. There are no laws to punish incompentent brokers who are stupid. The WEB does exist!
Has anyone started a blog simply posting their loses due to EJ’s brokers recomdations. Mine are $100,000.00+ to date. There are no laws to punish incompentent brokers who are stupid. The WEB does exist!
Has anyone started a blog simply posting their loses due to EJ’s brokers recomdations. Mine are $100,000.00+ to date. There are no laws to punish incompentent brokers who are stupid. The WEB does exist!
Has anyone started a blog simply posting their loses due to EJ’s brokers recomdations. Mine are $100,000.00+ to date. There are no laws to punish incompentent brokers who are stupid. The WEB does exist!
Let’s start a contest. Who lost the most money taking the advice of the morons at Edward Jones. I’m over $1,000,000.00
Bob Gienger
I’ve never heard such a load of uneducated shit in all my life. Revenue Sharing is not illegal people! All the brokerage firms do it! EDJ got fined for not properly documenting revenue sharing for the funds they sell…how many investors actually read those stupid prospectuses anyway? Do you not think that that your local grocery store is not getting a “kick back” for putting the Baked Lays & the Pepsi One at eye-level??? They sure as hell do. It’s called advertising people! And I’ll tell you what…I’ll pay a few extra cents to buy mutual funds that are the best of the best like American Funds! Not to mention, if EDJ is so terrible then why did they get the voted #1 for client satisfaction by JD Power??? Obviously MOST of their clients know that they are with the right firm and the rest of you jokers need to do a little research!
I would like to know which funds are involved in this probleem
Someone else writes:
“Revenue Sharing” is another fancy word for plain old
KICKBACKS.
Whenever there is a kickback … the customer gets screwed. I found out a year or two later than I should have that my PUTNAM fund STUNK.
My broker never told me this. I found out by visiting morningstar and doing a year analysis on my holdings which I run through their “screen” each January.
I have gradually shifted everything over to T. Rowe PRICE where I can sleep confortably at night knowing no broker is buying multi- million dollar mansions with my hard earned money.
Edward Jones this is not right. People are losing a lot of money at your firm and its going into the owners pocket. I ask you open up your books to the public and we can see how much money is being moved around. Every year we read in the paper the people in st louis with the largest salaries and 6 out of 10 of them our from edj. Now we can see where all the millions of dollars have gone, but why not give it to your employees ??? Every person I knew that worked in home office said how UNDER paid they are. Since as a customer I wont see any of this money atleast give it to your underpaid workers.
Thanks for the forum to vent.
I just received a “peace offering” check for $10.24 from the “Fair Fund”(wahooo)-if I cash it, it must imply that I am happy. To dispute this, I have to submit my objections in writing along with supporting documentation so that a Mr. John Ellis can investigate and issue a preliminary recommendation as to the resolution of the dispute. I wish I knew how much money I really lost here but the burden of proof is apparently up to me. I think instead I will go take a good healthy “Jonesy” and flush it along with the letter.
Who actually lost money because of an Edward Jones recommendation of a mutual fund? I want to know symbols and holding periods. If you actually lost money you’d be posting this information, not just spurting out “oh I lost 100k” or “I lost 1 mil.” Give us symbols and holding periods. Otherwise, shut the hell up and stop your meaningless banter, because that’s all it is. Did you know… American Funds (the second largest mutual fund manager in the US) pays revenue sharing to over 70 financial institutions, Edward Jones being one of them. Don’t blame Jones for being the largest. Chase Legg, Morgan, and Merrill for selling mostly B & C Shares, which are horrible deals for clients while paying the brokers handsomely. Oh, and they get revenue sharing too. Read your prospectuses, ladies, and get a life.
~~~
EDITOR’s NOTE: The poster is an employee of Edward Jones . . .
Ed Jones was so above board that they took $82.4 million in secret payments from their recommened funds — sounds very credible — no conflict of interest there.
And it is OK to steal from your clients, as long as everyone else does also?
And I guess no one lost money on the Ed Jones mutual fund recs — is that right too?
Man, you retail brokers are pathetic.
Perhaps you should speak with your compliance officer before posting this stuff.
Jones Discloses Secret Payments From Fund Firms
By LAURA JOHANNES and JOHN HECHINGER
Staff Reporters of THE WALL STREET JOURNAL
January 14, 2005
http://online.wsj.com/article_print/SB110565044387025581.html
Edward D. Jones & Co. received $82.4 million in secret payments from seven mutual-fund firms in the first 11 months of 2004, through a lopsided fee structure that in some cases gave the brokerage firm more compensation for selling poorly performing funds than for selling stellar performers.
The disclosures were posted yesterday, on Jones’s Web site1 as required by its $75 million agreement to settle regulatory charges that it failed to adequately disclose the payments to investors. They are by far the most detailed figures ever made public on the industry practice of mutual-fund companies paying brokerage firms to induce them to sell their products, an arrangement known as revenue sharing. Unlike front-end sales commissions, which are widely disclosed to consumers, revenue sharing has been largely secret.
Revenue sharing is legal, but federal and state regulators have argued that the industry’s failure to disclose the payments defrauds consumers by hiding brokers’ conflicts of interest. Federal regulators allege that the large payments that Edward D. Jones got from its seven preferred mutual-fund families would cause brokers to pick those funds over other fund companies that aren’t paying the firm. Other brokerage firms have begun to make disclosures about these payments in the face of increased regulatory scrutiny.
Edward D. Jones, of St. Louis, has nearly 10,000 sales offices nationally, making it the largest network of brokerage outlets in the U.S. Its revenue-sharing practices were the subject of a page-one article in The Wall Street Journal in January 2004. Jones’s spokesman John Boul declined to comment for this article, although Jones and other brokers long have argued that preferred lists help them narrow choices among the thousands of U.S. mutual funds.
According to Jones’s disclosures, the brokerage firm received two types of revenue-sharing payments. One was a one-time payment based on the dollar amount of a particular mutual-fund family’s shares sold by Jones’s brokers. The other: annual “asset fees” based on the total value of a fund family’s assets held by Jones’s clients.
By selling one firm’s funds over those of another, Jones could in a year’s time earn up to three times more in revenue-sharing monies — and possibly even more in some cases. Those payments, while paid to the firm as a whole, helped determine bonuses paid to individual brokers.
Some of the worst-performing fund families offered Jones the richest incentives to sell their products. For example, Van Kampen Investments, which according to a Morningstar Inc. analysis is one of the poorer performers in Jones’s stable, paid a whopping $22.24 per $10,000 of fund shares sold. By contrast, Lord Abbett & Co., one of the top-performing fund groups, didn’t make any one-time payments based on sales. Both funds groups paid similar amounts in continuing asset fees. Both firms declined to comment.
That means a Jones broker who sold $1 million in Van Kampen funds last year would net a one-time revenue-sharing payment of $2,224 for the firm, and assuming those assets were held a year and didn’t change in value, Jones would get an additional $966 in asset fees. If the same broker sold a Lord Abbett investment under the same conditions, the revenue-sharing payments would be only $1,000. Overall, Van Kampen paid Jones $13.2 million and Lord Abbett paid $10.6 million last year through November.
If mediocre or poorly performing funds on the preferred lists are paying more than stellar ones, it could lead brokers to push inferior products, industry watchdogs say. “It becomes more of a problem the higher the compensation is — and the lower the quality of the product,” says Mercer Bullard, a former staffer in the Securities and Exchange Commission’s Investment Management unit and now a University of Mississippi law professor.
Marsh & McLennan Cos.’ Putnam Investments, for example, was the worst performer among Jones’s seven favored fund families, with only 29% of its stock and bond funds beating their peers over the past five years, according to Morningstar. But Putnam paid Jones hefty fees — a one-time payment of $12.50 for every $10,000 in funds sold, plus annual fees of $7.50 for every $10,000 in shares held by the firm’s clients.
MIXED BAG
Details of previously undisclosed fees that brokerage Edward Jones received from its “preferred” fund families, along with the percentage of each firm’s funds that beat their average peers’ returns over the five years through 2004.
In a statement, Putnam said it “does not comment about the specifics of client relationships” and it “provides revenue-sharing disclosure in its prospectus.” Putnam, which overall paid $9.8 million to Jones through November in revenue sharing, says half its funds outperformed peers, when counting only the Class A shares, which are most often sold through Jones.
By contrast, American Funds’ returns were the best among Jones’s preferred list. Jones didn’t break down its payments from American, but said the fund firm paid it a sum equivalent to $3.36 per every $10,000 held at the firm, according to the disclosures. However, because American was the biggest selling fund family at Jones, it paid the most total — $27.2 million last year through November.
American Funds, which hasn’t been charged in the scandals, last year disclosed some details of its broader revenue-sharing arrangements. The firm said it pays up to 0.02% of its assets under management to the top brokers that sell its funds — a figure that would amount to about $100 million last year. Spokesman Chuck Freadhoff said the fees don’t cost shareholders money because they are paid by American’s distribution arm, not by its management company.
Goldman Sachs Group Inc. declined to comment on the figures, but said its revenue-sharing arrangements with Jones are “fully disclosed” in its fund prospectuses. Goldman paid Jones $3.7 million last year, through November.
Hartford Funds has one of the richest arrangements with Jones. Hartford’s payments included an unusual feature, in which Jones was entitled to receive a share of Hartford’s profits if the total holdings of Jones’s customers were at least $1 billion. Overall, Hartford paid Jones $16.6 million last year, through November.
In a statement, Hartford said the payments reflect the company’s launching of a mutual-fund business “from a standing start” in 1996. “Edward Jones provided distribution, for which they received due compensation as one of our key broker-dealers,” Hartford said.
Through November last year, Federated Investors paid Jones $1.3 million. A Federated spokeswoman declined to comment on revenue sharing, but said Jones concentrated its sales in a handful of the company’s top-performing funds.
http://online.wsj.com/article/SB110565044387025581.html
My mother had three Van Kampen funds at Ed Jones in the ’90’s.They were actually very good performing funds. Out did the S&P – especially the tech fund,obviously.There was a point a while after the initial tech bubble bursting where the average guy who studied the economy just a little could tell that it was a serious downturn in the offing and there was plenty more to come. Quite apart from trying to “time the market”, you knew this was major.
Now, one day EdJones had a group of elderly retirees come for a meeting and were treated to a plea to just stay put and how there had never been any 25 yr. period where the market lost, etc,etc. Also the common defense I hear is that, once out, how do you know when the bottom is?
I contend you don’t need to know the bottom.
As long as you get back in at a point lower than the sum of any transaction fees – You have avoided that much loss.These people were 70-75 yrs. old and didn’t have years.
This advisor did not even advise re-allocating out of the tech-heavy fund at that time until being questioned and asked to defend his stand that my mom stay put.
(What complicated things further was the 5.75% front-end fees on them)
Very poor, or non-existent advice from Ed Jones.
So NOW,2007-08, with another telegraphed free-fall in the market just when those elders – if they’re alive still – saw their funds barely returning to 2000 levels are allowed to LOSE ALL OVER AGAIN.My mom is passed 5 years now but I know for a fact this guy is telling them the same damn thing. He tell’s them to just take it easy.They ought to tell him to just shove it. No body should ever get themselves roped in with self-interested middle-men like Edward Jones because of the intimidating nature of concepts they think are too far beyond their comprehension.Especially with ETF’s and the web for education. Each of the few times I went to the office, the young guy is sitting at his table/desk with nothing on it, doing nothing, just sitting or slowly wandering through the office.Seemingly feeling NO
SENSE OF RESPONSIBILITY FOR HIS CLIENTS.He said on Jan 23,2008,condescendingly,”It’s a correction.The Dow is at 12,000.They’re fine if they are diversified.” GAWD, what a freakin’ popmpous idiot. He’ll look at you as if you are treading on sacred ground by disagreeing with him because after all HE is the professional. BULLSHIT.
THOSE ELDERLY RETIREES HAVEN’T MADE A CENT – most of them – SINCE 1999.
AND THEY’VE SPENT THE LAST 8 YEARS UNEASY – OR WORRIED. AND MADE ABSOLUTELY NOTHING.
ALL BECAUSE THEY PAID FOR MANAGEMENT THAT DID DISPENSE HONESTLY.
I DESPISE ED JONES AND OTHERS LIKE IT.
MANAGEMENT THAT DID NOT DISPENSE HONESTLY.