Why is Edward Jones being fined by the State of Nebraska?
First, I must disclose my bias. I am the owner of a Registered Investment Adviser firm and we provide ongoing investment advice and retirement planning to clients in exchange for a recurring fee. Unlike agents who work at Edward Jones (“Jones”) and many other broker-dealers (who also call themselves “financial advisors”), we do not earn commissions on product sales.
Second, my attorney wants you to know there is no evidence that Edward Jones or its brokers had a malicious intent to harm clients. In other words, this is less about “they wanted to hurt clients” and more about “they failed to ensure that clients did not get hurt”.
Edward Jones is paying a $320,000 fine to Nebraska and every other U.S. state, Puerto Rico, Washington D.C., and the US Virgin Islands. The fine is the result of a settlement agreement, which concludes a four-year investigation.
Why is Edward Jones paying a fine?
Prior to 2016, Edward Jones agents did not have a fiduciary duty to their clients. In other words, they did not have to act in their clients’ best interest and could instead recommend the client purchase a product that benefited themselves with a higher commission. This is sort of like when you buy a car at a dealer; the agent or salesman you are working with can be (and probably is) a good person, but he’s not always looking out for your best interest.
Edward Jones, like most broker-dealers, charges a front-load commission on sales of mutual funds, known as Class A funds. Since the front-load fee is paid only once, these funds are generally appropriate if held for many years. This type of arrangement is known as a brokerage account, because the agent is only acting as a broker in a transaction, and not as an impartial advisor to the client.
In 2016, the Department of Justice created a new rule that imposed a fiduciary duty on all professionals giving investment advice regarding retirement accounts such as IRAs. A fiduciary is someone required to put his clients interests before his own. This rule would have negatively impacted Jones’ practice of selling Class A mutual funds in these accounts.
After the rule change was announced, Jones permitted its agents to move client assets into advisory accounts (based around ongoing investment advice), where they were charged recurring fees. Thus, clients ended up paying the one-time front-load commission AND ongoing fees. (Again, there is no evidence that Jones or its agents intended to harm clients, just that there were “gaps in Jones’s supervisory procedures”)
Will clients be receiving any money?
No. In determining the settlement terms, the States determined the advisory accounts had a higher investment return than the brokerage accounts.
I am a client at Edward Jones; should I be worried?
When you work with a financial advisor or a financial planner, it’s important that you receive value in exchange for the fees you pay. Many financial planners (such as we at 402 Financial!) provide financial planning, retirement, and tax advice to their clients, in addition to investment management.
Like most big companies, old-school brokers are slow to adapt to the changing landscape of financial planning, and some still provide you with investment products only. So, if you are looking for something more, use the link below to book a free, no obligation consultation with us today.
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About the Author
Joseph Fowler, CFP® is a financial planner and co-owner of 402 Financial in Lincoln, NE.
402 Financial provides financial planning and investment management services to people approaching or in retirement. Joe always acts as a fiduciary and never takes commissions on product sales.
Click this link to schedule a free consultation with Joe.
