It's a question many aspiring financial advisors and potential clients ponder: How exactly do Edward Jones agents make their money? If you've ever wondered about the compensation structure behind those local Edward Jones offices, you're in the right place. This comprehensive guide will break down the various ways Edward Jones financial advisors generate income, offering a transparent look into their business model.
Understanding the Edward Jones Business Model
Edward Jones operates with a unique, highly localized branch office model, often with just one financial advisor and a branch office administrator per location. This "Main Street" approach emphasizes building personal relationships with clients, many of whom are individual investors or small business owners. Their compensation model is designed to align with this client-centric, relationship-driven strategy.
Step 1: Let's Dive In – What's Your First Impression of a Financial Advisor's Income?
Before we unveil the specifics, take a moment to consider: What do you imagine are the primary ways a financial advisor earns their living? Do you think it's purely commission-based, a fixed salary, or something else entirely? Keep that thought in mind as we explore the intricate details of Edward Jones' compensation structure.
Step 2: The Foundation: Client-Generated Revenue
At its core, an Edward Jones agent's income is directly tied to the revenue generated from their client accounts. This revenue comes from a variety of sources, reflecting the different ways clients interact with and invest through Edward Jones.
2.1. Commissions from Transactions
Historically, and still a significant component, Edward Jones agents earn a portion of the commissions paid by clients when they buy or sell certain investments.
- Equity and Fixed-Income Investments: When you purchase or sell stocks, bonds, or exchange-traded funds (ETFs) in a traditional brokerage account, a commission is typically charged. The amount of this commission can vary based on the type of investment and the transaction amount.
- Sales Loads and Charges on Packaged Products: Mutual funds, unit investment trusts (UITs), annuities, and insurance products often carry sales loads (also known as sales charges) or commissions. A portion of these charges goes to Edward Jones, and subsequently, to the financial advisor. Edward Jones aims to standardize the percentage paid to advisors for mutual funds to reduce potential conflicts of interest.
- Markups and Markdowns: For certain securities, particularly bonds, Edward Jones may act as a principal, buying and selling from its own inventory. In these cases, the agent's compensation comes from the "markup" (when you buy) or "markdown" (when you sell) on the price.
2.2. Asset-Based Fees from Advisory Programs
Edward Jones has increasingly moved towards a fee-based model for many of its advisory services, particularly for clients seeking ongoing portfolio management and financial planning.
- Percentage of Assets Under Management (AUM): In programs like Edward Jones Guided Solutions® and Edward Jones Advisory Solutions®, clients pay an annual fee calculated as a percentage of the assets held in their account. This fee typically covers the advisor's services, trading costs, and ongoing portfolio management. The percentage usually decreases as the client's asset value increases, offering a tiered fee structure.
- Program and Platform Fees: These asset-based fees are often broken down into a "Program Fee" (covering advisor services and investment selection) and a "Platform Fee" (covering account support and maintenance).
- Payout to Advisors: A portion of these asset-based fees is paid directly to the financial advisor. This provides a more consistent and predictable income stream for advisors as their client assets grow.
2.3. Ongoing Service Fees and Trail Commissions
Beyond initial transactions or asset-based fees, agents can also earn revenue from ongoing service payments.
- 12b-1 Fees (Mutual Funds): Many mutual funds pay "12b-1 fees" to brokerage firms for marketing and distribution. Edward Jones receives these fees, and a portion is then passed on to the financial advisor. These fees, typically ranging from 0.25% to 1.00%, reduce the overall return for the investor.
- Trail Commissions (Annuities and Insurance): Insurance companies offering variable annuities or life insurance policies make ongoing payments to Edward Jones, known as "trail commissions" or "renewal commissions." These payments are often a percentage of the contract value or premium and continue for a set number of years. A share of these fees also goes to the financial advisor.
Step 3: Beyond Client Transactions: Other Income Streams
While client-generated revenue forms the bulk of an Edward Jones agent's income, there are other avenues through which they can supplement their earnings.
3.1. Supplemental Salary and Bonuses for New Advisors
Edward Jones provides significant support for new financial advisors, recognizing the time it takes to build a client base.
- Minimum Guaranteed Salary (MGS): New financial advisors receive a minimum guaranteed salary, ensuring a baseline income while they are training and building their practice.
- Supplemental Salary: For up to four years, new advisors may receive a supplemental salary, which adjusts as their assets under care and commission levels grow. This helps bridge the gap as they establish their business.
- New Asset Bonuses: During their initial years, Edward Jones also offers monthly bonuses based on the accumulation of new assets brought into the firm. This incentivizes rapid client acquisition.
3.2. Branch Profitability and Firm-Wide Incentives
Edward Jones fosters an entrepreneurial spirit, and an advisor's income can also be influenced by the profitability of their branch and the firm as a whole.
- Branch Profitability Bonuses: Financial advisors are eligible for bonuses based on the financial performance and profitability of their individual branch office. This includes revenue generated minus branch expenses and an allocation for firm support. These are often calculated and paid on a trimester basis.
- Profit Sharing: Edward Jones has a long-standing tradition of sharing profits with its associates. Financial advisors, like other employees, receive contributions to an employer-sponsored retirement plan based on their total compensation, which includes direct compensation and bonuses.
This profit-sharing can be a significant long-term benefit. - Partnership Opportunities: Experienced and successful Edward Jones financial advisors may be invited to become limited and/or general partners in The Jones Financial Companies, L.L.L.P. As partners, they share in the firm's overall earnings, which vary based on profitability and the amount of capital they have invested.
3.3. Referral Fees and Other Miscellaneous Income
While less significant, other minor revenue streams can exist.
- Referral Fees: Edward Jones may receive referral fees from external providers, such as mortgage providers, and a portion of this could indirectly benefit the advisor.
- Trading Activities and Foreign Exchange: The firm also generates profits from its own trading activities and foreign exchange transactions, which contribute to overall firm profitability and can indirectly impact partner earnings.
Step 4: Understanding the Payout Structure and Factors Influencing Income
It's crucial to understand that an Edward Jones financial advisor doesn't receive 100% of the revenue they generate. Their payout is a percentage of the firm's revenue.
4.1. Payout Percentages
Financial advisors typically receive between 36% and 40% of the revenue Edward Jones receives from various sources, including asset-based fees, transactional revenue, 12b-1 fees, trail commissions, and premiums.
- Variations: This payout percentage can vary based on several factors:
- Years of Experience: Advisors with less tenure may have a slightly lower initial payout.
- Type and Amount of Investment: Different products or transaction sizes might have slightly different payout rates.
- Location of the Branch: While less common, there might be slight regional differences.
- Discounts Applied: If a client receives a discount on fees or commissions, it can impact the advisor's payout.
4.2. The Importance of Building a Book of Business
Ultimately, an Edward Jones agent's income potential is largely tied to their ability to build and maintain a substantial book of business. The more clients they acquire, the more assets they manage, and the more transactions they facilitate, the higher their overall revenue generation and, consequently, their compensation. This emphasizes the entrepreneurial aspect of the Edward Jones model.
Step 5: The "No Ceiling" Potential and Long-Term Growth
Edward Jones emphasizes that there is no ceiling on a financial advisor's compensation potential. This is because their earnings are directly tied to the effort they put forth in building their practice.
- Career Progression: As advisors gain experience and grow their client base, their commission payouts often increase, typically reaching the higher end of the 36-40% range after several years.
- Long-Term Wealth Building: Through profit-sharing and the potential for partnership, Edward Jones financial advisors have opportunities to build significant long-term wealth, aligning their financial success with the firm's overall prosperity.
By understanding these multifaceted revenue streams and the payout structure, one can gain a clear picture of how Edward Jones financial agents make their money. It's a combination of direct client-generated fees and commissions, supplemented by firm-provided support and performance-based incentives, all geared towards a long-term, relationship-focused business model.
Frequently Asked Questions (FAQs)
How to become an Edward Jones financial advisor?
To become an Edward Jones financial advisor, you typically need a bachelor's degree or equivalent work experience with a track record of success, often in sales or financial services. Edward Jones provides comprehensive training and support to help you obtain the necessary licenses (SIE, Series 7, Series 66, and state insurance licenses).
How to do Edward Jones financial advisors get paid initially?
New Edward Jones financial advisors receive a minimum guaranteed salary (MGS) and a supplemental salary for up to four years, which helps them during the initial phase of building their client base. They also start earning commissions and can receive new asset bonuses.
How to compare Edward Jones fees with other firms?
Edward Jones offers both commission-based and fee-based accounts. Their fee-based programs typically charge an annual percentage of assets under management, which can be compared to similar advisory programs at other firms. Commission rates vary by investment and transaction amount, similar to other brokerage firms.
How to calculate an Edward Jones financial advisor's potential income?
An Edward Jones financial advisor's potential income is primarily calculated based on the revenue generated from their client accounts (commissions, asset-based fees, ongoing service fees). They typically receive 36-40% of this revenue, plus potential bonuses, profit sharing, and partnership earnings.
How to understand the difference between commission-based and fee-based Edward Jones accounts?
Commission-based accounts mean you pay a commission each time you buy or sell an investment. Fee-based accounts involve paying an ongoing fee, typically an annual percentage of your assets under management, for advisory services, regardless of the number of trades.
How to tell if an Edward Jones financial advisor is a fiduciary?
Edward Jones operates as both a broker-dealer and an investment advisor. For its advisory programs (fee-based), Edward Jones generally acts as a fiduciary, meaning they are legally obligated to act in your best interest. For commission-based brokerage accounts, they are subject to a "suitability" standard, meaning the recommendation must be suitable for you, but not necessarily the absolute best option.
How to assess the long-term career prospects of an Edward Jones agent?
The long-term career prospects at Edward Jones are generally strong for those who successfully build a client base. The entrepreneurial model allows for uncapped earning potential, and the firm offers profit-sharing and partnership opportunities for successful advisors.
How to find an Edward Jones financial advisor?
You can find an Edward Jones financial advisor by visiting their official website and using their "Find an Advisor" tool, or by looking for their local branch offices in your community.
How to inquire about specific fees charged by an Edward Jones advisor?
For specific fees, always ask your Edward Jones financial advisor for a detailed breakdown. They are required to disclose all fees and compensation. You can also refer to their client agreements and prospectuses for various products.
How to understand the training provided to new Edward Jones agents?
Edward Jones provides a comprehensive training program for new financial advisors, covering licensing exam preparation (SIE, Series 7, Series 66, insurance), investment knowledge, and business-building skills. This training can last several months and includes both classroom and in-field experience.
