The transcript from this week’s, MiB: Penny Pennington, Edward Jones, is below.
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VOICE-OVER: This is Masters in Business with Barry Ritholtz on Bloomberg Radio.
RITHOLTZ: This week on the podcast. I have an extra special guest. Penny Pennington is the head of investment giant Ed Jones. Technically, her title is Managing Partner. She is the sixth such partner in the 98-year-old firm. And the first one not to be part of the founding family, she was originally a financial advisor who just came up through the ranks.
If you are at all interested in things like asset management, financial planning, what it’s like to run a giant firm with 50,000 employees and 17,000 financial advisors, who better than Penny Pennington? This is really just an absolutely fascinating conversation.
There’s a little bit of it that’s kind of inside baseball, and — and I’ll let you guys in a secret. I — I treat these conversations as if it’s a one-on-one, and I just ask the questions that I’m genuinely interested in. I learned a lot and I think you will, too.
So with no further ado, my conversation with Edward Jones, Penny Pennington.
VOICE-OVER: This is Masters in Business with Barry Ritholtz on Bloomberg Radio.
Richard Clarke: My extra special guest this week is Penny Pennington. She is the Managing Partner of Edward Jones, a 98-year-old Fortune 500 company. They have seven million clients and about $1.3 trillion in assets managed by 49,000 associates. She is the first non-family member to manage the firm, and she was ranked number 33 in Fortune’s Most Powerful Women in Business list.
Penny Pennington, welcome to Masters in Business.
PENNINGTON: Thank you, Barry. It’s great to be with you, great to be with your listeners today.
RITHOLTZ: Really nice having you. You have both an interesting background and — and an interesting career path, but I’m going to jump a little bit towards the end. Tell us what was going on ’08-’09, what was happening in the firm, how did you respond, how did clients react to suddenly, you know, lots of people were poo-pooing the — oh, it’s no big deal, it’s contained until it wasn’t. Tell us what the great financial crisis was like, what we’re clients calling and — and worrying about, and then how does this version compare.
It seemed people sort of learned their lesson not to panic in ’08-’09. That — that seems to be what, at least, the lesson was in 2020. But what was your experience?
PENNINGTON: Yeah. Well, as it relates to clients and what they were experiencing, if you go back to ’08-’09, the — the catalyst for the ignition switch for that market volatility, what happened in the global markets was a financial ignition switch. It was a meltdown in certain aspects of the financial markets. And as a result, the stock market, as we certainly remember, did a deep dive and remained deep and volatile for some period of time while the financial markets were, to some degree, rebuilt. Regulation was a part of that. New entrants and new — new partnerships among financial services companies were part of that. But the investing public got a — got — got a — a reminder of what significant volatility and a deep reduction in the stock market felt like. And it took 10 years to rebuild from that.
The difference with the — the — the effects of what I’ve called a “triple pandemic” over the past eight months or so is that the ignition switch had nothing to do with the economy or the financial markets. It was a health crisis that was the ignition switch. For a period of market volatility that was actually pretty short in February and March, we have had some more recent market volatility, and we expect that that will continue.
But the markets, because — for — for a lot of reasons that we could talk about, the markets actually recovered pretty significantly. However, the anxiety and the marketplace is still there. And anxiety for investors sometimes means that they question the way their portfolios are built. They become more risk-averse. And very importantly, they turn to a financial advisor to help them make sense of all of that.
So that was a common feature of ’08-’09 for — for investors and how they responded. The common feature for us and our financial advisors and how we respond is to keep people focused on their long-term goals and help relieve as much as we can the anxiety that people are facing with market volatility, but this time, with things like health crisis, loss of jobs, their kids and grandkids who are going through — through significant changes in their lives.
RITHOLTZ: So sometimes I ask questions and I just want to know the answer to, hey, how do you create a consistent experience from advisor-to-advisor even if they’re in different offices? The portfolios might look similar, but how do you maintain that corporate culture? It’s a really challenging question because it’s — you know, it’s not an easy thing to do, especially during working from home.
PENNINGTON: Our financial advisors and our branch office administrators are client service professionals. They have been in the branch the whole time. Our branches are very safe, and we closed them to the public. So we’ve been meeting with clients, investors and prospects by Zoom in virtual means, but the financial advisors are in our branches. And that really has helped. It’s been a centering mechanism for them and a way that’s — that’s kept us all together.
RITHOLTZ: So that raises a really interesting question, which I was going to ask later, but let me ask now. Edward Jones has something like 13,000 branches. Is that right? They were all …
PENNINGTON: No, 15,000 branches.
RITHOLTZ: Fifteen thousand. So I’m looking at all data. So all 15,000 branches were opened and actually operating lights on during — during the entire …
RITHOLTZ: … 2020, during work from home, during pandemic lockdowns. It wasn’t open to the public, but you had people going into those offices and turning on the lights.
PENNINGTON: Absolutely. Most of our branches, we have two to three people in the branch, so they are, by their nature, safe places. We could distance …
PENNINGTON: … our — our colleagues could be distanced from each other, and we were deemed an essential services. So because of that, even during state by state lockdown — and boy, I remember the night that we got the news that Pennsylvania was locking down — that was the first state — you know, just — just a wave of emotion and a bit of oh, my gosh, this is really happening, and this is going to happen across the entire country.
And so we got set-up very quickly within a matter of hours and days to ensure that our branches could remain open, but also to ensure that our financial advisors and our BOAs, branch office administrator, the client service professional in each of our branches could work remotely if they needed to or wanted to. So within a matter of about 10 days, we went from 15,000 remote connections available across our firm to 50,000 remote connections.
PENNINGTON: So while every single one of our branches has remained open, our colleagues can work flexibly and through — through all kinds of virtual means, like Zoom, and Skype, and WebEx with — with clients, investors, and prospects and with each other.
RITHOLTZ: So what do you think the impact of keeping 15,000 branches open has been? And let’s talk about all of your essential communities. What do you think it’s been on the local community, the employees, the clients, and — and any prospective clients of seeing the lights on?
PENNINGTON: Yeah. Well, I believe — and I’ve got evidence that proves that — that our clients and our perspective clients have seen those lights on and recognize that we are purpose-driven to be there for their well-being.
You know, what — what has been going on with clients and investors, the anxiety that — that this pandemic, the economic downturn and the social unrest have caused across our communities, that anxiety has impacted clients and investors. It’s also impacted every single one of us who serves them. And so we’ve been going through the same things that they have.
But what being in the branch is, what being on the job at work for their benefit, for their well-being has meant to us is that we’re doing something bigger than ourselves. Despite our own personal anxiety, all of us have had to deal with all kinds of disruptions in our own lives, but we get out of bed every morning thinking about our clients and helping them reduce the anxiety in their lives.
I’ll tell you a real quick story and — and it’s — and it really is an image. It was sent to — sent to me back the beginning of April from a branch in Florida where the branches were closed to the public, but our financial advisors and BOAs are in the branch.
And the image that was sent to me was a client standing outside the branch with their hand pressed up against the window of the branch. And one of our Edward Jones colleagues on the other side of that window hand-to-hand with their client, just passing back and forth good energy, “Thank you for being there. We know you’re there for us.”
And words didn’t have to — have to go back and forth. Papers didn’t have to go back and forth. That — that was not the ethos that was being expressed. It was this — it was a convergence of love, of taking care of each other, of being in it together, of knowing why we’re here, and that is to relieve the anxiety of our clients and keep them focused on the long-term.
RITHOLTZ: It sounds as if there are certain key values and certain key ideas you want to make sure every Edward Jones customer experiences or — or am I putting words in your mouth? Should I — is it more variable from office-to-office, advisor-to-advisor?
PENNINGTON: Yeah, I — I — I like the way that you said that. The experience they have may be different in terms of the products, the services, the tools that they are exposed to or that they’re utilizing. The — what is common is the outcome that they achieve financially whatever it is that’s most important to them and that they have the — have the sense of well-being as — as we are helping them achieve that.
RITHOLTZ: So you raised a number of interesting points that I — I want to unpack one by one. Let’s start with why you believe this particular cycle was so tight. Why was the downturn in February and March six weeks as opposed to ’08-’09 where it was 18 months, which by itself was relatively short?
PENNINGTON: Yeah. Well, in large part, it has to do with what the ignition switch was. The — the economy before the — the pandemic was fundamentally quite strong, a period of low interest rates, a period of very high employment, a period that fundamentally was very healthy for the economy, lots of people working, and in our country lots of people spending money. And since two-thirds of our economy is driven by consumer spending and demand, when people spend money, stocks are doing well and — and the — the market is fairly sanguine. That was the environment that we had before the pandemic.
The environment that we had in ’08-’09, we discovered, was a little more fragile in terms of the — the fundamentals of the economy, as well as the fundamentals of the financial services industry. That caused a ripple. When — when it began to come apart caused a ripple effect that we know now was global. So that really is the — the — the distinguishing difference.
Now, why — why we had relatively little volatility then, at the beginning of the pandemic, we do have to look at the — the broad stock market indexes and realize that a few growth companies have performed exceedingly well, in large part, because of the way that they have served the consuming public and businesses during the pandemic. I think the five or six highest growth stocks are up, you know, 40 percent over the past six months or so. And the rest of the S&P 500 is up far less and in some and on some weeks is down. So it’s a pretty narrow market that is driving those — those — those broad benchmarks.
RITHOLTZ: So a lot of moving parts with how the contraction came about, how the economy recovered, what sectors are doing well. But I want to focus on what you brought up earlier. You have over 17,000 financial advisors. How do you make sure everybody has the same client experience, whether it’s portfolio management or customer service? How do you translate that army of advisors into one? I don’t want to call it uniform, but a consistent experience, a consistent interaction with Edward Jones no matter where your office is, where your advisor is.
PENNINGTON: Yeah. What — what a — what a great conversation that we can have about that. So we have 19,500 financial advisors. We — we’re the largest firm in terms of number of financial advisors in our industry. Those financial advisors are spread across the United States and in Canada. We have 49,000 colleagues all together, so we are all pulling in the same direction in terms of what drives us, Barry.
Our purpose, what gets us up in the morning is making a meaningful difference in the lives of the clients that we serve, the seven million that we serve today and the — the tens of millions of more that — that look like serious long-term individual investors that we would like to serve.
Now, you said how do we ensure that every client is having the same experience? Well, actually we don’t because we — we really focus on the humanity of each of our clients and discovering what it is that’s most important to them, tailoring the experience to what they need, providing to them as completely as we can an experience that improves their financial well-being thereby their entire well-being.
And the experiences that — that that is rooted in, that the motions that — that those experience are rooted in is a common factor in terms of what we’re seeking to deliver. We know that our clients want to feel understood about what’s most important to them, informed about how to achieve that financially and how they are progressing toward that.
In control, they want to feel like they’ve got some agency. Albeit, no one’s got control over the market, but some — some control in agency in their own lives. And we know when they feel those things that there’s a sense of security and confidence about their long-term path.
So the experiences that we seek to deliver family by family, individual by individual are all focused on helping individual clients and investors feel those emotions. And — and how that’s achieved is through a deep trusted personal relationship with a financial advisor. We don’t have call centers. We have financial advisors in — in communities working face-to-face one on one with clients and their families.
RITHOLTZ: Quite interesting. So, Penny, let’s talk a little bit about financial advisors. What — what makes for a good financial advisor? And is that something that can be taught or is it, you know, you either are or aren’t?
PENNINGTON: What makes for a good financial advisor is someone who recognizes that what we do is a balance of E.Q., emotional quotient, emotional intelligence and I.Q. So knowledge that can be learned, expertise around the financial markets, around building a portfolio, around balancing complex tradeoffs between — among a client’s goals, that’s the E.Q. part of — of what we do.
And there is — boy, there’s lifelong learning associated with — with the — I’m sorry with the I.Q. part, with the intelligence quotient. There is lifelong learning associated with that.
And, Barry, your organization helps financial advisors and — and folks in the financial marketplace with that lifelong learning and insight and perspective.
The E.Q. part is now more than ever and will continue to be a hallmark of what really great financial advisors do. The E.Q. part is being empathetic. Recognizing that listening to another human being about what their hopes are, about what their fears are, and how those are changing over time, how they’re impacted — especially now by current events — really generously listening to that on the part of another human being. And with — with that kind of empathy and with that sort of expertise building a — not only a plan — a financial plan, but building a plan based on relationship to keep people focused on their long-term goals, notwithstanding that those short-term ups and downs that are part of that to keep people focused on the long-term. So empathy, generous listening, the — the process of — of — of thinking short-term to long-term, all of those things make for — make for the strength of a financial advisor.
And back to my earlier point about the I.Q. part of this, a lifelong learner, someone who is really interested in — in continuing to dial up their own skills from an expertise standpoint, but also from — from — from an empathy and E.Q. standpoint.
RITHOLTZ: So let’s stick with the concept of advisors. You guys are coming up on your 100th birthday not too far off in the future. You began as a brokerage firm, and in the early days, most of your employees who were client-facing were brokers. How has — over the past century, how has that changed to what Edward Jones is today?
PENNINGTON: Yeah. Well, it’s a fascinating history and it’s really one that’s rooted in recognizing what was scarce in the marketplace, and boldly and sometimes admittedly in a — in a very unusual way going after serving that underserved market. So back in the 50’s and 60’s when Ted Jones, our founder’s son, recognized that the brokerage companies were all congregated in the large cities, but there was — there were significant numbers of people with wealth and with — with businesses and jobs where they were creating wealth who really deserved access to financial information, to products and services, to the ability to open an account and do a transaction in the financial markets in a really seamless and person-to-person way, Ted Jones recognized that that was scarce. It was scarce in more rural communities. And so he went about building a distribution system that spoke to — to those clients.
Now fast forward to today, you know, as I say opening an account and doing a transaction was scarce then, it certainly is not today. That’s not what scarce, and that is not what — what is — is the definition of value today. In fact, the ability to do a transaction in the financial markets is nearly a free good today with zero commissions on trading and that sort of thing.
Today, what is scarce is that hyper-personalized human-centered relationship for tens of millions of people whereby they can get good advice and achieving what’s most important to them. And that is across the ark of generations, as well as across the ark of complexity of needs. And so we don’t have account minimums and we don’t have account maximums.
We work with clients who are serious long-term individual investors. That means they value relationship. They want advice and they’re focused on the long-term in their lives.
RITHOLTZ: Quite interesting. You followed Jim Weddle who was the Managing Partner at Ed Jones for 13 years. He oversaw a giant rise in both clients and assets. Edward Jones is now one of the nation’s biggest wealth management company. Those are some pretty big shoes to fill.
PENNINGTON: Yes, they are, and I feel it every day. If — if you were in my office and on the floor where — where a number of our offices are there, there’s some paintings down the hall. And there are five paintings of our former managing partners, our five former managing partners, including two whose last names were Jones, then Doug Hill, John Bachmann, Jim Weddle.
And right across the — the hallway from those — those paintings is a picture of Ted Jones who was our founder’s son, our second managing partner. And it’s a picture of Ted with this horse and a couple of dogs out on his farm, and he’s talking about what he loves and what he’s grateful for
And those — those — those paintings and that picture of Ted remind me every day that I’m in the office of what our roots are, what our values are, who we came from. Importantly, all of our former managing partners were financial advisors. They sat with clients, building trust with clients. Albeit all the way back to 1922, there’s a lot that …
PENNINGTON: … changed about that. But what’s fundamentally the same is building trust with clients.
And as you said, my immediate predecessor, Jim Weddle, was the leader of tremendous growth — and growth and impact in our firm that took us from a few thousand financial advisors to today 19,000 financial advisors in every nook and cranny, every large city in the suburb in North America, in — in Canada and the United States.
PENNINGTON: So following in those footsteps is — is an incredible responsibility, a great opportunity because what I learned from studying those former managing partners, they all looked forward boldly to the needs of millions of investors who we weren’t serving yet and took some — some — some pretty distinctive steps in order to serve them differentially. And — and perhaps we’ll — we’ll talk some — about some of that as we — as we go along today.
RITHOLTZ: That is definitely on my list to get to. Did you get to work directly with Weddle? Did you pick up anything from him?
PENNINGTON: Oh, well, picked up tons from him. So I was part of the Management Committee and Executive Committee while Jim was Managing Partner.
Interesting story, I was a Financial Advisor in Michigan from 2000 to 2006. Jim was the Managing Partner who came in in 2006, and that year invited me to become a General Partner in our firm and moved to Saint Louis into home office leadership. And so I had a ringside seat to Jim’s tenure as Managing Partner, how he made decisions, how he thought about opportunity. I also had a ringside seat to — to our leadership team working through the Great Recession and the impacts of 2008-2009 on clients, on our industry and on our firm.
And, boy …
RITHOLTZ: So …
PENNINGTON: … it taught me a lot about — about decision-making during crisis. And I’ve — while we haven’t had a playbook for what has occurred over the last eight months, I have drawn on those experiences to know how to move forward.
RITHOLTZ: So full disclosure, we’re recording this a few days after the election, but before the outcome is announced. So we have an inkling as to what might happen, but we really don’t know for sure what the outcome is going to be.
But let me ask you a couple of questions sort of in that — in that area. In my office, before the election, that’s all any client asked. What’s going to happen? What does this mean for my portfolio? What does it mean for my taxes? On and on down the road, what — what sort of questions have you been getting from clients about the election? Is it an issue they care about or is it, you know, just another element that occasionally comes up?
PENNINGTON: Oh, sure. Our — our experience has been the same as yours, Barry. You know, we’ve — we’ve been around for 98 years, so through the — the — the change of many, many, many administrations during that period of time. And, fundamentally, what’s — what’s the same about those conversations is clients wondering what — what a potential change and — and policy might mean for them, just as you described.
What we know over the long-term is that very broadly, while White House policies are going to help shape the economic terrain, history shows that the broader path has been pretty similar. Why is that? Because the nature of the U.S. economy, because it is a broad-based. It is diversified. It relies on consumer spending and business investment. And while White House policy is going to affect those things, it doesn’t dramatically swing those things one direction or another every four years.
So again, we keep focused on the long-term, recognizing that — that that policies may change with a new president. And policies may change if we — if we continue with the — the president that we’ve had for the past four years. Who knows what’s going to happen in the — in the coming days and weeks?
What we do expect is that the economy will continue to rebound. We have begun a rebound. We are not post-pandemic, I’m not saying that, but we have begun a rebound in the economy, and we believe that that’s going to continue.
We do believe that we’re not going to see a rapid snapback in 2021 to where the economy was pre-pandemic. We do believe that we’re going to see more fiscal stimulus. We’ll see the size or — or — or focus of that depending on the administration.
And then finally, we — we know that — that monetary policy will continue to be exceptionally accommodative. That means interest rates are going to be very low for quite some — sometime. The Federal Reserve has — has not only telegraphed that. They’ve been very explicit about that.
RITHOLTZ: Quite interesting. One of the changes we did see with this administration was the possibility of the fiduciary rule being more aggressively imposed on things like qualified accounts, 401(k)s and anything like that. If there is a change in administration, what are your thoughts as to what might change? What are your thoughts on the fiduciary rule generally?
PENNINGTON: Well, broadly what I would say, Barry, is that retirement security and helping investors have an experience that is — that is more helpful to them is a nonpartisan topic. It is one where we have seen a great deal of reaching across the aisles in the past couple of administrations. So we welcome an environment where we are partnering with our regulators and policymakers to help Americans have more retirement security, and so access to retirement savings vehicles.
Regulation that — that helps clients have more confidence that our industry is operating in their best interest, all of those things, in one way or another, have been — been dialed up over the past two administrations. I — I think that will continue to be a hallmark of the investing public’s experience. There are different ways to get to that.
And there are different types of regulations, some much more specific, some much more prudential or principle-based in nature. But I have no doubt that our policymakers, legislators and regulators are going to continue to be focused there.
RITHOLTZ: Quite interesting. I know you’ve been pretty involved in trying to recruit a greater degree of diversity in — in the workforce at Edward Jones. I am the median financial advisor. I’m a white guy in my 50’s. That’s the vast majority of the industry. What should we, in the industry, be doing to try and bring about more gender diversity, more people of color, just making less of — of what’s been dominating the industry, bring a little diversity of thought and — and — and a little bit of change?
PENNINGTON: Yeah, yeah. Well, I — I think we’ve got to ask why is that important to do. Let me share with you what are statistics are. Our — the average age of our financial advisors is 45 years old. Twenty-one percent of our financial advisors are women, a couple of percentage points higher than on average in our industry, and about nine percent of our financial advisors are people of color, again maybe a point or so higher than — than the average in the industry.
But the — the reason that I share that is really to say that two things — we — we have been focused on this and on a path toward greater diversity for — for a couple of decades. We are not where we want to be. There is so much more opportunity. And so that gets to the question of why is this important.
Well, this is important because it is critical for the investing public to have choices about who — who they are advised by and to have a sense that the companies that — that they are doing business with reflect the environment around them, reflect who they are that that investors and clients also have a sense of belonging — belonging at that firm with that group of financial advisors.
Now, I am not saying that if you’re a woman investor, you always want to be served by a woman financial advisor or if you’re a — a black investor or a client that you want a — a black financial advisor or a white financial advisor. What my point is that — that you have a choice, that you look at the face literally of the organization that you are working with. And so, you know, that — that place is — is open to all, is eager to serve a diversified marketplace and are — the market place is becoming more and more diversified, less homogeneous every single day.
And so that’s the big why, why — why diversity is such — such a driver for our industry. And just as you said, our industry, for too long, has been more homogeneous in its makeup. And that — that — it will — it will do us good. It is doing us good by looking at the marketplace we serve and reflecting the — the needs and desires of that marketplace.
RITHOLTZ: So let’s talk about a couple more recent investing themes that have come along. Obviously, robo-advisors were a big thing. They made a big splash pretty much around the financial crisis era and they’ve expanded pretty rapidly over the past decade. What are your thoughts on automated investing and those sort of software-driven advisors?
PENNINGTON: Yeah. Well, you know, you could go back to — in the 1990’s and look at online trading. And the advent of online trading during that period of time is kind of the first robo-advisor. It wasn’t exactly an advisor per se, but it was the ability to trade online. It goes back to Ted Jones saying, you know, what — what is — where is the underserved market or what is the new innovation in the marketplace?
And online trading came about. It has proliferated. And now, you know, through various robo-advisors includes more advice associated with that trading because that’s what investors are demanding. As I said earlier, the trade itself, executing a trade in the marketplace is — is nearly a free good. And there’s much more value to be delivered in providing advice.
So the robo-advisor, as a way to do that, we know it is appropriate for some investors. We believe that 15 percent of the marketplace is appropriately self-advised. And so robo-advisors, the — the — those that — that have very little human interaction associated with them are — are appropriate for some clients.
Where — where that begins to break down is when markets are sanguine, when things are seem easy, and when goals are straightforward in terms of the tradeoffs between and among goals. It’s a little bit easier to take a hands-off approach or to have that done in a — in a mechanical way. It’s when markets become volatile, which happens unexpectedly.
When folks are — are dealing with emotional and complex tradeoffs, among things like, you know, how do I save for — for college for my child or grandchild and have a comfortable retirement at the same time? That’s not just a mathematical equation. Actually, it’s a very emotional conversation about where — where values go, about what those tradeoffs are going to mean to a particular individual or a family. And that’s where humanity is really important in terms of how we interact between financial advisor and client.
RITHOLTZ: Really interesting. So the ‘90’s we had all that crazy online trading. You — you mentioned the transition to practically free. The modern era we have apps like Robinhood, which supposedly millennials and other young people really are liking and engaging in a lot of active day trading given that everybody’s bored and stuck at home, what do you do when you have a client who is enthusiastically swinging cash around because they’re bored? How do you manage that from — from the perspective of, hey, everything we’ve talked about is long-term, but — but you’re in and out of stocks every other day. Let’s — isn’t that a risky behavior. How do you as a long-term advisor manage that?
PENNINGTON: Yeah. Well, we go back to — to what a serious long-term individual investor is, that someone who values advice, who appreciates relationship and who has a long-term orientation. The valuing advice is — where that’s going to come in is it is sharing with clients and investors that beating the market, trading in a rapid way in order to time the market or time particular investment sectors is — is not a — not a particularly good way to build wealth reliably over time that can be proven.
And, in fact, here’s — here’s part of that proof. Clients who are advised by financial advisors, on average, have 25 percent more assets than those who are not advised. And financial advisors share this kind of investment philosophy with clients.
Diversification is important. You can’t beat and time to market on a — on a daily or a weekly basis, and you need to be focused on the long-term putting money away, investing wisely in high-quality investments, albeit, rotating them and reallocating them as markets change.
So, you know — you know, Barry, you — you probably have had this experience. You have to say that over and over and over again. That is part of the relationship and is part of the goodness of having a financial advisor is that as a — as a client, you are going to hear that advice again and again and again. Take the emotion out of it, stick to quality and to the long-term.
RITHOLTZ: Quite interesting. So we were talking earlier about Robinhood and — and people trading at home. Most of the data I’ve seen about what happens when a client passes away and the next-generation inherits the wealth is that they tend not to stick with the existing advisor. How do you manage that? What should advisors be doing so that when there is a generational wealth transfer, the next generation sticks with the company or the advisor they’re working with?
PENNINGTON: We have to be relevant to the next generation. We have to have built a relationship with them where mom and dad or grandma and grandpa have a particular set of values, a particular set of goals, a particular type of portfolio that we know from working with multiple generations of clients that what that generation, what that — that grandmother, grandfather, mother, father are really interested in is passing on their values to their children and their grandchildren.
Now, those values can pass through that wealth, but — but it’s — it’s more than that, isn’t it? It’s — it’s recognizing what that family desires to accomplish together and what that next generation is motivated by.
And frankly, the — the — the millennials that Gen Xers are motivated differently than their parents and their grandparents. And the — the — the goodness of the human relationship, financial advisor to client and prospective clients is it’s the financial advisor’s job to understand that, to find out what’s important to that next generation, what their values are, what motivates them and to help form a bridge between the values of the — of the previous generation and the next generation.
There’s some really important things happening, and this — this typically happens actually. It’s through research you can show it happens with the next generation, quote-unquote, when there has been a significant and traumatic event in the marketplace, in the economy, in society. And there’s a significant impact on the risk appetite of — of generation, younger folks whose — whose points of view about the world and society are being formed in — in that crucible.
Their risk appetite is affected. Their trust in institutions is affected. And their reflection on what’s going to be important to them and going to be driving them for the rest of their life is affected.
You know, the — the — the really classic one is folks who grew up during the Great Depression and our parents and grandparents …
PENNINGTON: … who — who we know and — and can — can see from them how they live the rest of their lives based on those experiences, that — that’s really the one that many people point to. But people who are coming of age during the Great Recession and people who are — who are being impacted today during their working lives, this is going to have a lasting impact on them.
And so as financial advisors recognizing that digging deep into that with the next generation is going to help us help them be better investors and prepare for a very long life, probably much longer than their parents or grandparents had.
RITHOLTZ: Quite interesting. Whenever we’d see surveys of millennials, there is a very enthusiastic embrace of ESG investing or impact investing or socially responsible investing. I’m not so sure I’ve seen the dollar flows match that investing enthusiasm just yet, but it certainly seems like it’s a trend that’s developing a work in progress. What are your thoughts on environmental, social and governments investing — ESG investing? Is this something that’s going to have a lasting impact or the jury is still out.
PENNINGTON: Yeah. It’s such a rich topic of conversation and one that there’s so much focused on in our industry and with investors right now. And fundamentally, what we’re talking about is having our investment portfolios reflect our values as — as individuals, whatever those may be, but lining up our — our portfolios with our values.
I think individual consumers are doing this broadly, aren’t we? I mean, you — you — you read a lot and see a lot and maybe it’s your own personal experience that you’re buying today according to your values. Research says that consumers are focused on brands, that they see as being helpful during this pandemic where they see local helpfulness, where they see organizations that are — are trying to be part of solutions, that that is driving consumers to buy differently. So you can expect that that’s going to happen in the investment markets as well.
When — when you talk about ESG investing, I — I do — I do want to note that sound investing has always focused on companies and management teams that were — that were focused on the durability of their firms, that were focused on — on a wide array of stakeholders because if you don’t do that as a company, you’re probably not going to be around for a long, long time. And so there are new labels that are put on it, ESG, green investing, all kinds of things that label this — this type of fundamental orientation to multiple stakeholders and to the long-term.
But it is, I believe, Barry, to your point, it is going to become an ever greater point of emphasis for — for younger generations as they — as they grow into their investing lives.
RITHOLTZ: You mentioned earlier that we’re in a low-yield environment and probably lower for longer. What does that do to people who are looking for income from bonds? What does that mean for the traditional 60-40 portfolio?
PENNINGTON: Yeah. Well, what it means is that a bond that you — that you bought a decade ago in a very different interest rate environment was yielding to you a higher rate of income. And very classically, the 60-40 portfolio enabled you to live off of that income from that fixed income differently a few years ago than you would be able to today.
And so while the split of the portfolio may still be 70-30 or 60-40, and I don’t want to get hung up on that split. Those rules of thumb can sometimes be dangerous. The point is that fixed income and stocks, equities and bonds form the basis of a diversified portfolio. And nobody has repealed the — the — the — the fact that where you invest in non-correlated assets you are likelier to have a smoother ride during a volatile market. And so fixed income or bonds and equities or stocks, in the right measure for your risk appetite and your time horizon, continues to be very important.
However, living off the income of those bonds is going to be a little more challenging than it was several years ago. Diversification remains very, very important.
Now the flip side of a low interest rate environment is that a low interest rate environment generally correlates with a fundamentally strong stock market. And — and we — we’ve seen that over the past 10 years. So don’t — don’t — don’t despair completely. In a low interest rate environment, there’s some countervailing benefits to that — that kind of environment.
RITHOLTZ: So let’s talk about some other non-correlated assets. What do you think about alternatives such as private equity or venture capital?
PENNINGTON: Well, it’s getting a lot of press these days because there is a significant portion — a more significant portion of — of businesses and capital formation that is happening outside of the public market and public companies.
For the vitality of our economy for the different ways that capital can be created and companies can be formed and scaled and grown, I think that that’s a very healthy thing. What I think we have to be really thoughtful about as long-term investors is that the public market affords a kind of transparency into companies and access to — to those companies and owning shares in those companies that results in liquidity, that results in ways to verify the — the financials of those companies, that all results in a kind of transparency and reliability that is a really important part of capitalism and about the public nature of our stock markets.
So flip that over and say that venture capital and private equity, while a really important part of capital formation and our economy, when — when an investor gets all whipped up about returns that they see or read about or hear about in those markets, they have to recognize that that comes with a tradeoff — a tradeoff of risk, a tradeoff of less transparency, different kinds of risks — illiquidity, different kind of risks than they see in the public markets. And so everything in moderation and recognizing that broad diversification and asset allocation across a number of asset classes is what has reliably grown wealth over time.
RITHOLTZ: So I know the date I’m about to reference is old, but let me — let me play with it a little bit and tell me how far off I am.
Your revenue has more than doubled from $3.5 billion to over $7.5 billion not too long ago. It raises the question, what sort of practice areas are there left? If you’re to expand into, where is the room for growth at Edward Jones?
PENNINGTON: Yeah. We talk about growth, Barry, in terms of growth of impact. The impact that we want to have is driven by our purpose. Our purpose is to make a meaningful difference in the lives of more people in North America. And the — the part of the marketplace that we serve are serious long-term individual investors. And — and I’ve said a couple of times what that means is folks who value relationship, who want advice and who have a long-term orientation.
Today, we work with about seven million clients. Our research shows that there are 40 million investors in North America who look like serious long-term individual investors. Now they are across multiple generations, across various demographics and spread all over North America. So our addressable market is — is significantly larger than the — the marketplace that we serve today. So we believe our opportunity remains rooted in what makes us unique, the human-centeredness of what we do and the locality of what we do.
And so we intend to — to continue to focus there, focus on — on the — the relationship that we have with clients, focus on a — a kind of smart consistency and serving them, but also the ability to hyper-personalized to them. That takes greater technology. It takes frankly being more relevant to younger generations because it really suits our purpose to make a meaningful difference in more lives if we get emerging investors started as serious long-term investors. If we get them started toward their goals sooner, frankly, they’re going to live a whole lot longer than their parents or grandparents. They got to build up more investment over time in order to achieve what’s most important to them.
RITHOLTZ: So let’s talk a little bit about practice areas. I know you guys do financial planning, as well as asset management. Do you also have other practice areas like trust and estates, tax planning, insurance, anything along those lines?
PENNINGTON: Yeah, you bet. So our financial advisors are licensed in a number of different areas. We are duly registered as a firm, so we’re a brokerage firm, as well as having investment advisory fee-based platforms to help our clients and achieve their asset management goals over time. We are also licensed in insurance, so we help our clients protect their goals against all kinds of things that — that might happen.
You know, the — the worst thing in the world is to build a really solid plan, planning on everything going right and then having things go wrong unexpectedly. So things like long-term care needs.
You know, this is an area, Barry, where — where people are becoming more attuned to the fact that they are going to need significant investment to pay for their health needs and potential long-term care needs later or maybe even earlier in life, as well as life insurance. And so we represent and — and help our clients protect their goals as well.
We have — we have products and services that are tax-efficient that help our clients manage in that kind of situation. We also help our clients with charitable planning. This is something that — that really aligns with — with folks’ values, with their goals, with the — the values that they want to pass on to the next generation is their charitable-mindedness. And so we help our clients with that as well.
And then we work with — with a significant number of businesses and business owners. So helping them with their employee retirement plans, their 401(k), their simple-step IRAs, all the different ways that they can support their employees for their retirement planning, we do that for businesses and business owners.
RITHOLTZ: Quite interesting. Before I get to my favorite questions that I ask all my guests, let me throw a curveball at you. Dancing with the Stars? What was — what was that?
PENNINGTON: Oh, Barry, you’ve been doing too much research. I think that’s on the third page of my — of — of the Internet search. So we …
RITHOLTZ: There’s no hiding from Google.
PENNINGTON: Yeah, we have a local organization — a tremendous organization called the Independent Center, and they provide — they provide support services, full lifestyle support services for adults with mental illness. And they surround those people with — with — with the services they need to live lives of meaning and well-being.
Well, they also have one of the most unusual fund raisers every year, and that’s called Dancing with the Saint Louis Stars. And so executives and — and community leaders here in town agree to work with a professional dancer, get eight lessons and then do that dance in front of 700 people.
And so I did that a few years ago. I learned how to tango. And I’d tell you it was — I — I have a mantra, do something every day that — that terrifies you just a little bit. Well, I had my dose the day that I did that. But the point was — was not the dancing, it was — it was raising support for that incredible organization.
RITHOLTZ: Quite amusing. All right. So let’s jump to our favorite questions. We — we ask these of all of our guests, and — and let’s start with the first one. What are you watching and streaming these days? What — what’s keeping you busy under lockdown, either Netflix or Amazon or — or any podcast you’re watching? Tell us what’s entertaining you during this era?
PENNINGTON: Yeah. Well, it’s a little bit different than Netflix or podcast, but it — but it’s art. I — I — I love and appreciate, in particular, contemporary art. And what I find is that as I study and watch all kinds of virtual tours of museums all over the world, which has been a real silver lining of the lockdown, I haven’t gone — been able to go see it in person, but — but digitally, I’m able to experience all kinds of different art and artists.
And what’s inspiring to me about that is they’re making sense of the world. During times of tumult, during times of high anxiety, and getting that out and putting it on canvas or in performance or in music is — is another way to think about how to serve, how to relieve anxiety, and — and — and how to make sense of the world around us.
RITHOLTZ: You know, my wife teaches art and I’ve been dragged to museums all around the world. And one of the documentaries we stream not too long ago was on Mark Rothko. And if you’re — if you like contemporary art, that’s — I’m going to make that recommendation because it was pretty fascinating discussion of how his art evolved into what it eventually became.
PENNINGTON: Yes, thank you for that suggestion. He’s one of my favorites.
RITHOLTZ: Yeah, me, too. And it wasn’t 20 years ago I sort of did a 180 on Rothko, and I have no explanation for why other than I hit a certain age and suddenly, oh, that’s not just a splotch of color, that’s a lot of really interesting things going on.
RITHOLTZ: Maybe — maybe she shepherded me along. Let’s talk about your mentors. Tell us about the folks who helped shape your career.
PENNINGTON: Yeah. You know, the — the — the folks who helped shape my life most fundamentally are my parents. My father, who was an executive at a publicly-traded firm in Nashville, who started in — on the factory floor quite literally and retired as the CEO of that organization. So the daddy-daughter CEO thing is — is kind of a fun story, but — but — but more importantly, the way that he thought about business, about leadership, about integrity and trustworthiness in the business world, about relationship building shaped me.
My mother was an executive with Tennessee Valley Authority, and she was an executive during a time and in a place that there weren’t quite — there weren’t quite as many women as there were men. And so watching her operate and learn and — and put up with stuff during that time across a very long career was — was inspiring and instructive to me.
In business, as — as part of my journey at Edward Jones, we have a very widely dispersed leadership structure in each of our regions across North America. And so my regional leaders, those who showed me the way as a new financial advisor, talked to me about values, about service. They — they were very inspiring to me.
And then — then my predecessors as — as managing partners here, I’m a student of them. Some of them I — I know and worked with directly. Others of have I never met Mr. Jones Senior and Ted Jones, the founders of our firm. I am the first Managing Partner who never met them. So becoming a student of their values, of their strategy, about how they thought about being differentiated in the marketplace, those have all — have all taught me great lessons.
RITHOLTZ: Very interesting. Let’s go to everybody’s favorite question. Books, tell us what you’re reading now and perhaps give us a few titles of some of your favorite books.
PENNINGTON: Yeah. So I’m reading a book called “Agile Transformation Without Chaos.” It focuses on the — the way that companies are organized to create better experiences for consumers and clients organized in an agile way to meet the marketplace more quickly and in a more experimental way. So I’m reading that.
I have several art books stacked up on my table. And I’m reading a book by David Brooks. It’s a new book. It’s a — it’s a compilation of interviews that he had done over time with some of the world’s leading stinkers, community builders, leaders. And so just getting their — their quick interviews and — and getting a window into those folks — I read one of those interviews at night — is — is really inspiring as well.
RITHOLTZ: Very interesting. What sort of advice would you give to a recent college graduate who was interested in a career in finance?
PENNINGTON: Very broadly, the advice that I’d give to everyone as they think about their career is — is ensure that what you’re doing is lined up with your own personal and professional why. I say what are you really doing when — when you’re doing what you’re doing every day. I’ll say that again, what are you really doing when you’re doing what you’re doing every day? What does it ladder up to in terms of the mark that you want to make on the world, not — not the position that you want to have or the — the role that you want to attain or the income that you desire to have over time. That’s not what I’m talking about. I’m talking about the mark that you want to leave on the world. And so whatever you’re doing, if it is in financial services really reflect on how it ladders up to — to the person that you want to be in the mark that you want to leave.
I will say very enthusiastically that the financial markets, financial services makes a meaningful and positive difference in the world on our country. It can have a much more influential impact on society, on communities, on human beings and society. And I think that financial services is very much focused there today.
And so the advice that I would give to — to those recent college graduates is look at this industry as one that has and will continue to be very meaningful in our country and in society that it can intersect with who you are as a person. It is not all math and numbers. That’s a common misconception about the financial services industry. There are certainly parts of it that are, but there’s a vast part of this industry that — that is — that is all about making connection with human beings and understanding what they value and helping them achieve that.
RITHOLTZ: And our final question, what do you know about the world of financial services today that you wish you knew 25 or so years ago when you were first starting out?
PENNINGTON: Well, what I probably didn’t appreciate as I was first starting out was how intersected the financial services industry and world is with the trajectory of history, the history of our economy, the history of formation of communities and society, the — the — the history of achievement by individuals, families and businesses. And so charting the course of history being — really having a front row seat to, you know, when I started in 1985 at a bank — 1987 and the — the market meltdown there, the technology evolution — revolution in the 1990’s, the Great Recession that we had talked about earlier and currently what we’re facing in our economy.
I’m a student of history, and so just having a front row seat to how the — how the economy, financial industry, and society intersect has been fascinating. And I — and I — I — I guess when I’m in my arm chair, after all of this is over and look back on it, I’ll — I’ll really be able to see something about the arc of history from a — from a ground level view.
RITHOLTZ: Thanks, Penny, for being so generous with your time. We have been speaking with Penny Pennington, Managing Partner at investment giant Ed Jones.
If you enjoy this conversation, well, be sure and check out all of the hundreds of previous such conversations we’ve had. You can find them at iTunes and pretty much wherever you usually find your podcast.
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I would be remiss if I did not thank the crack staff that helps put these conversations together each week. Nick Falco is my Audio Engineer. Michael Boyle is my Producer/Booker. Atika Valbrun is our Project Manager. Michael Batnick is our Head of Research.
I’m Barry Ritholtz. You’ve been listening to Masters in Business on Bloomberg Radio.