You've come to the right place if you're curious about how Edward Jones financial advisors earn their living! It's a question many people have, and understanding the compensation structure can shed light on the financial advisory industry as a whole. So, let's dive in and unravel the various ways Edward Jones financial advisors make money, step by step.
Step 1: Let's start with a little self-reflection.
Before we get into the nitty-gritty, consider this: What do you imagine a financial advisor does all day? Do you picture them making high-stakes trades, or are they more focused on long-term client relationships? Your perception might influence how you view their compensation. Now, let's peel back the layers and see the reality.
Step 2: The Dual Nature: Commissions and Fees
Edward Jones financial advisors operate under a "dually registered" model. This means they can act as both broker-dealers and investment advisors. This dual registration is crucial because it allows them to generate revenue through two primary methods: commissions and asset-based fees.
Sub-heading 2.1: Commission-Based Revenue
Historically, commissions were the backbone of many financial advisors' incomes, and they still play a significant role at Edward Jones.
- What are commissions? Commissions are one-time payments an advisor receives when a client buys or sells certain investment products. Think of it like a sales fee.
- Types of products generating commissions:
- Stocks and Bonds: When you buy or sell individual stocks or bonds in a brokerage account (like the Edward Jones Select Account), the advisor may earn a commission.
- Mutual Funds: Many mutual funds have a "sales load" or "sales charge" when you initially purchase them. A portion of this load goes to Edward Jones, and then a part of that is paid to the financial advisor.
- Annuities and Insurance Products: The sale of these products often involves commissions paid by the insurance company to Edward Jones, with a share going to the advisor.
- Unit Investment Trusts (UITs): Similar to mutual funds, these can also carry sales charges.
- Markups and Markdowns: For certain fixed-income securities like bonds, Edward Jones might act as a principal, buying and selling from its own inventory. In these cases, the firm makes money on the difference between the price they buy the bond for and the price they sell it for to the client (a markup), or vice-versa (a markdown when buying from a client). A portion of this revenue also goes to the advisor.
Sub-heading 2.2: Asset-Based Fees (Advisory Programs)
In recent years, there's been a significant shift in the industry towards fee-based models, and Edward Jones has embraced this. This model involves charging a recurring fee based on the value of a client's assets under management (AUM).
- How do asset-based fees work? Instead of a one-time commission, clients pay an ongoing percentage of their account's value. This fee is typically assessed monthly or quarterly.
- Edward Jones Advisory Programs:
- Advisory Solutions®: This is a "wrap fee program" where Edward Jones manages the client's portfolio for an asset-based fee. This includes various models that invest in mutual funds, ETFs, and even separately managed accounts (SMAs). The fee covers the advisory services, portfolio management, and often the trading costs.
- Guided Solutions®: This is another fee-based program where clients receive ongoing investment advice and guidance. While clients still have a hands-on role in making investment decisions, they pay an asset-based fee for the ongoing support and strategy.
- Benefits of asset-based fees (for advisors): This model provides a more predictable and recurring revenue stream for financial advisors, as their income grows with the client's assets. It also helps align the advisor's interests with the client's, as both benefit from asset growth.
Step 3: Other Revenue Streams and Advisor Compensation
Beyond direct commissions and asset-based fees, Edward Jones and its advisors benefit from other sources of income.
Sub-heading 3.1: Revenue Sharing from Product Partners
Edward Jones receives payments from mutual fund companies, 529 plan program managers, and insurance companies. These are often referred to as "revenue sharing" or "12b-1 fees."
- What is revenue sharing? This is a payment from product providers to Edward Jones for services like marketing and distribution of their products, and for maintaining client account information.
- Impact on advisors: While these payments are primarily to Edward Jones, a portion of these fees can indirectly impact advisor compensation as they contribute to the firm's overall profitability, which can then influence bonuses and profit-sharing.
Sub-heading 3.2: Account-Based and Miscellaneous Fees
Clients may also incur other fees for specific services or account types.
- IRA Fees: Annual fees for Individual Retirement Accounts (IRAs).
- Wire Transfer Fees: Fees for transferring funds electronically.
- Returned Check Fees: Penalties for bounced checks.
- Transfer on Death Services: Fees for designating beneficiaries.
- Margin Interest: Interest charged on borrowed funds in margin accounts.
Sub-heading 3.3: Advisor Payouts and Incentives
So, how much of this revenue actually makes it to the financial advisor's pocket?
- Payout Percentage: Edward Jones financial advisors generally receive a percentage of the revenue generated from asset-based fees, transactional revenue, and ongoing "trail commissions" (like 12b-1 fees). This percentage typically ranges from 36% to 40%.
- Factors Influencing Payout:
- Years of Experience: More experienced advisors may have higher payout percentages.
- Branch Location: The specific location and its market dynamics can play a role.
- Type and Amount of Investment: Different products and larger investment amounts may have varying payout structures.
- Discounts: Any fee reductions for clients can impact the advisor's payout.
- Supplemental Salary and Bonuses (especially for new advisors):
- New Financial Advisors: Edward Jones often provides a supplemental salary for new advisors, sometimes for up to four years, in addition to a minimum guaranteed salary (MGS). This helps them get started while building their client base.
- New Asset Bonuses: Advisors, particularly in their early years, can earn bonuses based on the accumulation of new assets brought to the firm.
- Profitability Bonuses: Advisors may be eligible for bonuses based on the firm's overall profitability and the financial performance of their individual branch.
- Profit Sharing: Edward Jones has a profit-sharing plan, contributing to advisors' retirement plans based on their total compensation.
- Partnership Opportunities: Experienced and successful advisors may have the opportunity to become limited and/or general partners in The Jones Financial Companies, L.L.L.P., allowing them to share directly in the firm's earnings.
- Travel Award Programs: Incentives for top-performing advisors often include travel awards.
Step 4: The Edward Jones Philosophy and Its Impact on Compensation
Edward Jones has a distinct business model that influences its advisors' compensation.
- Community-Based Approach: Edward Jones emphasizes having local, community-based financial advisors. This means advisors are often responsible for building their own businesses within their community. This entrepreneurial spirit directly links their effort to their earning potential.
- Focus on Long-Term Relationships: While commissions are a part of the picture, Edward Jones encourages long-term client relationships and holistic financial planning. The growing emphasis on asset-based fees aligns with this, as ongoing relationships lead to sustained revenue.
- No "Territories": Edward Jones doesn't assign specific territories to advisors, though branch locations are strategically chosen. This means advisors actively cultivate their client base, and their compensation directly reflects their success in attracting and retaining clients.
Step 5: Transparency and Disclosure
Edward Jones, like all regulated financial institutions, is obligated to disclose how it and its financial advisors are compensated. This information is typically found in:
- Client Agreements: When you open an account, the agreement will detail the fees and commissions associated with different account types and products.
- Form ADV Brochure: For advisory services, this document provides comprehensive information about the firm's services, fees, and potential conflicts of interest.
- Edward Jones Website: Their website often has a dedicated section explaining their compensation structure and fees.
It's crucial for clients to review these disclosures carefully to understand all potential costs and how their advisor is compensated.
10 Related FAQ Questions:
How to become an Edward Jones financial advisor?
To become an Edward Jones financial advisor, you typically need a bachelor's degree (though not always required), a track record of success, and the ability to obtain necessary licenses like the SIE, Series 7, and Series 66, which Edward Jones provides training and support for.
How to choose between a commission-based and fee-based Edward Jones account?
The choice depends on your investment preferences and how you prefer to pay for services. Commission-based accounts (like Edward Jones Select) involve transaction fees, while fee-based accounts (like Guided Solutions or Advisory Solutions) charge a percentage of your assets under management for ongoing advice and management.
How to understand the fees I pay to Edward Jones?
Edward Jones provides detailed disclosures on its website, in client agreements, and through its Form ADV brochure, outlining the commissions, asset-based fees, and other charges associated with various accounts and services. Ask your advisor for clarification.
How to know if my Edward Jones financial advisor is acting as a fiduciary?
Edward Jones is dually registered as a broker-dealer and an investment advisor. When offering investment advisory services (e.g., through Advisory Solutions), they act in a fiduciary capacity. For brokerage services, they operate under a suitability standard.
How to prepare for the licensing exams required for Edward Jones?
Edward Jones offers comprehensive support for new advisors, including study guides, dedicated study time, and trainers to help you prepare for and pass the SIE, Series 7, and Series 66 exams.
How to switch from a commission-based account to a fee-based account at Edward Jones?
Discuss your options with your Edward Jones financial advisor. They can help you evaluate if a fee-based advisory program better suits your needs and guide you through the process of transferring assets.
How to find out the specific payout percentage for an Edward Jones financial advisor?
While the general range is 36-40% of generated revenue, the exact payout percentage for an individual advisor can vary based on factors like experience, location, and the type of investments. This specific internal compensation detail is generally not publicly disclosed.
How to get a clear breakdown of all the costs associated with my Edward Jones investments?
Your Edward Jones financial advisor can provide a personalized breakdown of all costs, including commissions, advisory fees, and any other account-related charges. Don't hesitate to ask for a comprehensive fee schedule.
How to assess the value of an Edward Jones financial advisor's services given their compensation structure?
Consider the level of personalized advice, financial planning, and ongoing support you receive. While compensation is important, the value lies in whether the advisor helps you achieve your financial goals and provides a service that justifies the fees or commissions.
How to understand if Edward Jones receives revenue sharing from mutual funds I invest in?
Edward Jones discloses its revenue sharing agreements with mutual fund, 529 plan, and annuity product partners on its website. These payments are made to Edward Jones by the product providers and are not an additional charge directly to you, but they do contribute to the firm's overall revenue.