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.
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:
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
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 . . .
Edward Jones’ True Colors Aren’t Pretty
James J. Cramer
RealMoney.com, 12/21/2004 9:05 AM EST
Jones Discloses Secret Payments From Fund Firms
By LAURA JOHANNES and JOHN HECHINGER
THE WALL STREET JOURNAL, January 14, 2005; Page C1