Edward_Jones vs. Fidelity/Vanguard_Brokerage: An Early Retiree's Opinion (Investor’s/Client's Retirement Satisfaction Could Largely Depend on "Advisor")
May 3, 2011 (Updated Oct 12, 2011)
Review by henry_thoreau
Rated a Very Helpful Review
About eleven years ago I opened my very first brokerage account—at Fidelity Investments, which, as you likely know, is a long-established, highly reputable company. Nevertheless, Fidelity’s phone representatives irritated me on two or three occasions. (I was somewhat icily told I'd been phoning them "too frequently;" in actuality, however, I hadn't phoned them in several months; and even when I had been phoning them—once daily—it was only because that was initially the only way I could monitor the closing net asset value for a newly established stock fund that wasn't yet accessible via Fidelity's website.) Hence I eventually became somewhat disgruntled with Fidelity's support. Moreover, there wasn't a bricks-and-mortar Fidelity office very near my home; and—despite my general satisfaction with all other aspects of their brokerage—within two years I switched to the pretty comparably well-known Edward Jones.
Recommend this product?
According to the Wikipedia article (whose perspective might not be entirely impartial), Edward Jones (founded in 1922) “is a financial services firm headquartered in Des Peres (in St. Louis County), Missouri.”
“Edward Jones financial advisors sell commission-based and fee-based financial products. Offices are usually staffed by two associates: one Financial Advisor (a licensed broker) and one Branch Office Administrator. The one-broker-per-office model allows clients to choose their broker directly and deal with just that broker. This model also allows the firm to open offices in areas and towns where a large office staffed by many brokers would be unprofitable. This model is also the reason that Edward Jones currently has the largest number of branch offices among brokerage firms in the United States.”
My understanding is that—unlike certain "registered investment advisers"—a conventional broker (including the one dubbed "advisor" at your nearest Edward Jones office) isn't legally obligated to function in a purely "fiduciary" (i.e., “unmotivated-by-self-profit”) capacity on his client's (your) behalf. For example, he could sell you a merely "suitable" mutual fund product that he knows full well will likely end up delivering no better a total return (and conceivably a somewhat inferior total return) than would various alternative, "no-load" (non-commission-based) products available from such firms as the well-known Vanguard. [As reported by Humberto Cruz in a February 2010 article that appeared in the Chicago Tribune, “… brokers are free to pick the fund that pays them the biggest commission from among a group of suitable funds.”]
This leaves you, the client, to decide whether your "advisor's" predictably not wholly unbiased investment-selection guidance is truly worth its implicit price. It just might indeed seem fully worth it. Or not. It could largely depend on your personal objectives and the extent of your familiarity with diverse investment vehicles (not to mention your particular broker’s relative trustworthiness and expertise). It might additionally depend on whether the particular investment products you want are available only as "loaded" instruments via a brokerage. [That's generally the case with, for example, mutual funds in the well-known American Funds family.]
Much may depend on your particular, local "advisor"
On balance, I myself have been satisfied with Edward Jones over the past nine years. However, during the first few years, I happened to use their office/advisor in the nearby suburb of Lenexa, Kansas. (An advisor for that particular branch had rung the doorbell of my Olathe, Kansas home and introduced himself, and I'd been suitably impressed with his general demeanor and knowledge.) At that time I was merely interested in making telephone (rather than "in-person") requests (in conjunction with using postal mail) solely to purchase the occasional government-agency bond; hence I scarcely minded making the nine-mile drive to Lenexa on the rare occasions that I opted to chat with that office's two-person staff face-to-face instead of by phone.
However, after several months that first advisor moved on to another job with a different investment firm; and this "here today, gone within a year" pattern persisted with about four successive advisors at that particular branch. Eventually I noticed that a different Edward Jones branch had opened very near my house, and since then I've been dealing solely with that advisor. Unfortunately, several months thereafter that nearby branch closed, and my advisor established a new Edward Jones branch six miles away. Given that I normally need go there only about once every other year; and given that he (as well as his assistant) is always duly patient, personable and professional when executing transactions or answering questions via phone (or, for special purposes, via postal mail), I've actually scarcely missed no longer having an Edward Jones office within walking distance.
Not all Edward Jones advisors are created equal
A couple of my prior Edward Jones advisors would now and again (slightly annoyingly) phone me in the attempt to sell me this or that bond, even though the bond's interest rate was actually quite mediocre at best. The tone of one of those gentlemen verged upon the "fast-talking" (albeit not really high-pressure) salesmanship pitch. The other advisor, on the other hand, was decidedly low-key, but his recommendations were still comparably mediocre. Again, neither of those gents lasted long at Edward Jones; but not long after departing, one of them (the "fast-talker") phoned to invite me to transfer my account to his competing company—an invitation that I cordially declined. [And very recently—years after his departure from Edward Jones—yet another such "early" advisor phoned me in a comparable (failed) attempt to acquire my money, er, business.]
By contrast, my "advisor" of the past several years has (evidently profitably) stuck with Edward Jones for a very long time. And his general professionalism is superior to that of his aforementioned predecessors. He only very occasionally phones me (at most, once per quarter)—basically just to routinely touch base regarding my portfolio and to inquire if I've any particular questions or needs; and his tone is suitably sedate, neither high-pressure nor insistent.
Two anecdotes. To illustrate how “hard experience” taught me that not all Edward Jones advisors dispense consistently admirable advice, let me recount a couple of "incidents."
Years ago, one of my aforementioned erstwhile advisors persuaded me to (slightly skeptically) convert a tiny chunk of my money (then “stuck” in a moribund, post-2000 Nasdaq-indexed fund) into "reliable" Bank of America stock. [That was the only time in my life that I ever invested—or likely ever will again invest—in a single stock (as opposed to a diversified mutual fund). I strongly feel that most investors should focus on diversified stock funds instead of particular equities. Hence, other than to point out that Edward Jones' predictably relatively high fees make it far from the best brokerage for buying/trading individual stocks, I'm inclined to say little on this topic.] Mercifully, my stake in Bank of America was "only" a few hundred bucks; nonetheless, that commission-craving broker’s, er, helpful advisor's "can't-miss" stock eventually plummeted toward zero during the 2008-09 market debacle; and by the time it fully recovers, I'll likely be long-departed.
Around 2002, a still earlier (much older and—ostensibly—wiser) advisor confidently suggested that I reallocate a roughly $10K chunk of cash to a GMAC (General Motors Acceptance Corporation) bond paying a whopping 7%. However, after an initial “free look” period, I nervously backed away from that investment. For, while I naturally coveted its coupon, I had a nagging hunch that that particular corporate bond might not be as “safe” as the advisor had deemed it. And, sure enough, not long thereafter, GMAC’s creditworthiness declined into “junk” territory. And by 2006 General Motors Corporation had sold their controlling stake in it; and from 2008 through 2009, the total U.S. Treasury department's “investment” in the otherwise insolvent GMAC reportedly amounted to $16.3 billion. In 2010 (presumably to dispel the tarnish of “bankruptcy” from their corporate image) the once proud GMAC re-branded itself as Ally Financial Inc.
Fortunately, the above two incidents were the only downright disturbing experiences I ever had at Edward Jones, and their impacts on my overall portfolio were, respectively, minor and inconsequential. Nonetheless, such examples serve to illustrate the importance of not necessarily putting much, er, stock in any advisor’s "can’t-miss" investment ideas. At least in some cases, your contrary assessment of a proposed investment could ultimately prove to be far superior to that of the busy broker.
I've already indicated that my current advisor evinces agreeable professionalism and has proved to be someone with whom I can work rather comfortably and satisfactorily. Now, does this mean I'd implicitly trust any Edward Jones advisor to always recommend the investment industry's "best" (high-return and lowest-cost) products? Well, an Edward Jones advisor/broker must, after all, work within his company's "commission-based" system to earn his keep; moreover (as noted above), the inescapable reality is that even the best such "advisor's" services aren't—from a legal standpoint—"fiduciarily based." Hence (regardless of how charmingly and discreetly he may comport himself) the broker is, by training and inclination, predictably vigilant for opportunities to augment his net worth in the course of (hopefully and eventually) enlarging yours.
Accordingly, it would surely be a chilly day in Hades before an Edward Jones advisor would recommend that his client go purchase, say, an ultra-low-cost (indexed, no-load) mutual fund from the likes of Vanguard—not when there are "loaded" (broker-enriching) alternatives, such as those in the American Funds family.
Fortunately, that's not always a bad thing for the client, given that various American Funds products—despite their loads—amount to superlative long-term investments. In fact, even William Bernstein, who is a buddy of John Bogle (the index fund pioneer) and who normally despises load funds (along with the brokers who hawk them), essentially praises American in his popular book, The Investor's Manifesto:
"The American Funds group is ... an oddity. ... they carry ‘load fees' of various sorts to compensate [advisors/brokers] and of course to fleece you. In spite of this, their investment culture is among the most disciplined and focused in the business, and their long-term track record is not bad. Were someone to force me to purchase an actively managed load fund, I would buy one from American Funds."
What is more, Bernstein is less stinting in his praise of American in another of his books, The Four Pillars of Investing:
"... there's even one load fund company worthy of praise: the American Funds Group. Its low fees and investment discipline are head and shoulders above its load fund brethren."
Mind, American is one of only a handful of mutual fund companies—including even "no-load" ones—that Bernstein doesn't disdain.
Last year I invested nearly a tenth of my net worth in The Income Fund of America, one of American's most conservatively (yet actively) managed "balanced" funds. This fund features a long (nearly 40-year), successful track record; a reasonably low (.58%) total-expense ratio, and fairly low (normally around 30%) portfolio turnover. Approximately two thirds of its holdings are U.S. and (to a lesser yet significant extent) foreign stocks; and the remaining third of its holdings chiefly comprises (mostly U.S.) bonds.
A noteworthy attribute of this American fund is that its "active management" basically comprises not just one or two unpredictable decision makers but rather a team of experienced managers.
So far, Income Fund of America has been performing rather well for me. Not factoring the 4.5% front-end sales charge that I grudgingly paid [I normally only buy no-load funds], the fund's one-year total return as of March 31, 2011 was 14.15%. (Its lifetime "Average Annual Total Return"—since December 1, 1973—was 11.47%.) The quarterly dividends (which generally are more than "4%") are reliably, automatically deposited into one of my local bank accounts. Even though (as a retiree) I've opted not to reinvest those dividends, I fully expect the growth of my invested principal will—over the next one, two or three decades—significantly outpace the inflation rate, which is more than I could say if I'd instead invested that chunk of change in, say, a "safe" Treasury bond or a "cash" instrument.
That said, other (especially younger) investors might prefer one of American's [or, perhaps better still, a "no-load" company's] less conservative funds.
Your Edward Jones advisor might alternatively suggest a fund from some other family than American (e.g., Franklin Templeton). But the common denominator is that all such funds will be, essentially, "loaded." That is, you'll pay an extra fee immediately (up front), at the "back end" (when redeeming shares), or in the form of a significantly higher ongoing expense ratio. Of those three options, the long-term investor should generally fare best with the front-load version; after a decade or more of fund performance, that so-called "Class A" version's initial fee's impact on your annualized return will have become relatively muted, and you'll almost certainly end up with more money than if you'd opted for any of the alternative "classes" of the same fund.
U.S. government agency bonds
Over the past decade, I've had assorted Freddie Mac, Fannie Mae, and other agency bonds. Unfortunately, such bonds (generally earning 6% or marginally more) came saddled with "early call" provisions such that, regardless of their nominal maturity dates, they were inevitably—and annoyingly—"called" just a few years after I'd purchased them. Of course, I did receive back the full amount of my principal; nevertheless, at the time (primarily early 2009) that most of these bonds were (not surprisingly) "called," it seemed not only annoying but also problematic because I then needed to reallocate that large chunk of "safe-bond" money to some other species of investment instrument—which, fortuitously, turned out to be the MetLife "LIS (GMIB) Plus" deferred variable annuity that I reviewed in early 2009.
As with my various corporate bonds (see below), the current market values and other details regarding these agency bonds are clearly described on my monthly hardcopy, snail-mailed statements, not to mention my always-available (daily updated) online account at EdwardJones.com. And interest payments have always been properly processed at their due times.
I should mention that I've likewise owned a modest diversity of corporate bonds in my Edward Jones account. These are not in the form of a mutual fund but rather individual securities, all of which are "investment grade." (My understanding is that Edward Jones doesn't sell any individual bonds rated lower than investment grade.) Collectively, these bonds pay a (fixed) rate of about 6% (i.e., a rate I could no longer obtain with optimally "safe" government bonds).
However, with some of the highest rated companies' bonds, I did have to pay a "premium" (additional fee) in order to buy them during a point in the market cycle when such bonds were unusually pricey, which means I'm effectively garnering less than the nominal "6% plus" (i.e., more like a "5% plus") rate. Even so, at the time I was (grudgingly) willing to thereby lock in such relatively high rates via investment grade bonds that—in all probability—will never "default." That said, I still have mixed feelings about having paid those damnable premiums; and such bonds don't constitute anywhere near the lion's share of my financial assets. Even so, their semiannual interest payments should help moderate my portfolio's "paper" losses during market-cycle junctures when my stock funds are declining; and, as an early, frugal retiree who appreciates sleeping well, I'm reasonably satisfied with these bonds.
In early 2009, via my Edward Jones advisor, I bought a MetLife "LIS Plus" (a.k.a. "GMIB Plus") deferred variable annuity. Given that I reviewed that product quite extensively in a separate Epinions review, I'll merely mention a few pertinent points here.
First, before you consider buying any such "living-benefit" annuity, take your time—and then some—and study every single aspect of both its prospectus and (not least) the actual contract that you're given to sign. Don't focus solely on the glossy sales brochure's description (which will likely encompass rosy, "hypothetical-scenario" data that could—whether intentionally or merely inadvertently—prove confusing or even downright misleading) or on your advisor's glib remarks. And pay especially close attention to the "pay out" rates for annuitizing, respectively, the actual subaccount value or the "GMIB base" value. You'll notice that the "GMIB-annuitization" rates (toward the back of the contract) are significantly stingier than the regular "subaccount-annuitization" rates (toward the front of the contract). And this is something that your advisor (poised to reap an exceptionally large commission) might not go out of his way to emphasize before cueing you to sign on the proverbial dotted line.
In any case, to date I've been altogether pleased with the performance of my chosen subaccount fund, which invests relatively aggressively (in "85% stocks" and "15% fixed income"). Given that I bought this annuity shortly before the stock market bottomed in early 2009, you could say I've done better than "all right" since then.
And given that I don't presently expect to start tapping this portion of my nest egg sooner than age 70 (or conceivably 75), it should someday prove a significant supplement to the Social Security payments that I presently plan to delay receiving till age 70.
One trivial gripe. For some reason, the Edward Jones web site generally doesn't display the most recent day's closing value of my MetLife annuity. In other words, Edwardjones.com instead displays the annuity's value from two business days ago. Therefore, whenever I want to know yesterday's closing value, I'm compelled to phone (toll-free) MetLife's pertinent department's "automated support" and input both my annuity account number and my Social Security number (God bless landline telephony!). Edward Jones really ought to improve their web site such that one's most recent annuity value is posted right along with the routinely "daily updated" values of all one's other investments.
Although I might have enjoyed the convenience of holding one or both of my Roth IRA accounts under the umbrella of my Edward Jones account, I will surely never actually do so. This is because Edward Jones (greedily?) charges a $40-per-year "IRA fee." By contrast, certain other investment companies (including The Vanguard Group) don't charge any such IRA fee. Frankly, this is one area where Edward Jones simply, er, sucks.
I myself use "Edwardjones.com" in a purely passive way, i.e., to monitor my account balance and holdings. For that purpose, the site is altogether satisfactory (despite my minor gripe regarding the "daily" value of my MetLife annuity, as discussed above).
Incidentally, evidently in an attempt to "personalize" your account-access experience, the web site always begins and ends (i.e., when you log on and off) by displaying the beaming visage of your local-branch broker. Now, nothing against my advisor, but, hey, I really don't require his virtual presence every time I punch my User ID and password into cyberspace!
Compatibility with Quicken
I should add that I likewise generally have no problem getting my Quicken software to interface with (download) my Edward Jones account data. In order to get such data displayed on the "main" (text-oriented) page of Quicken, I do have to click the "Update" button. However, even sans such "manual" initiation of downloading, the day's closing values of my Edward Jones-held mutual funds and bonds are already, automatically displayed as labels attached to a colorful pie chart on an optionally displayable page within Quicken, which is pretty cool.
My only significant gripe is that Quicken doesn't download my aforementioned MetLife annuity along with the various other "Edward Jones" investments. Therefore (as a "next best thing"), I simply created a special Quicken account to contain the annuity's value. Into that account I simply enter the annuity's most recently available value (which I can fairly quickly obtain via MetLife's pertinent toll-free phone number, if not via EdwardJones.com). To me, that requisite, extra bit of "manual data entry" amounts to an easily tolerable issue.
In any case, based on my experience to date, most users of Quicken should have little difficulty interfacing with their Edward Jones accounts from within Quicken.
Periodic postal mailings
The monthly hardcopy, multi-page account statements arrive (via postal mail) like clockwork, and they're satisfyingly thorough and comprehensible.
Likewise, the annual tax statement, which duly arrives around February, is satisfactorily complete and comprehensible. (I've never had any trouble quickly transferring that document's salient information into the pertinent portions of my chosen tax software (either H&R Block at Home or TurboTax).
And regarding Investment Perspective (the so-called "monthly research report" mailed to Edward Jones clients), that colorfully illustrated, generally 12-page pamphlet sometimes makes for fairly compelling reading. Not infrequently, though, its canned, encouraging rhetoric strikes me as a spoonfeeding of the usual "stay-the-course" (and "see-your-advisor") platitudes that are ubiquitous in the investment industry. Hence I generally briefly scan the featured article(s) before consigning that document to File 13.
On the whole (excepting one or two early, relatively minor disappointments involving a couple of my prior advisors at a different branch), I've been, and remain, quite satisfied with my Edward Jones account. The monthly hardcopy, multi-page statements arrive (via postal mail) like clockwork, and they're easy to understand. And I've encountered no glitches when accessing my account via the Edward Jones web site. And both my advisor and his female "Office Administrator" have been unfailingly professional and courteous whenever I've contacted, or personally visited, the local branch office.
Moreover, at Edward Jones—regardless of whether I phone the local branch or their St. Louis headquarters—I’ve never been treated with the aforementioned insulting disregard that I experienced when using Fidelity Investments’ brokerage a decade or so ago.
That said, it behooves the consumer to educate himself as much as possible about stocks, bonds, and other investment products before dealing with even the most reputable broker, er, advisor. I suspect that many of the (minority of) folks who've occasionally posted strongly negative comments regarding their experiences with Edward Jones had never originally troubled themselves to learn much about the most basic principles of investing (much less the salient distinctions between a brokerage and a "non-profit" entity like Vanguard or TIAA-CREF).
Always remember the aforementioned William Bernstein's no-punches-pulled characterizations of "any" stockbroker:
"Your broker is not your buddy."
"The average stock broker services his clients in the same way that Baby Face Nelson serviced banks."
For, while Bernstein's characterizations may (in most cases) be at least slightly exaggeratedly harsh, the prudent client at any brokerage—including Edward Jones—should always proceed with due caution when/if his "advisor" proffers this or that investment product.
Again, much of your satisfaction (or lack thereof) with Edward Jones will likely depend on just how good your local advisor turns out to be. If you're lucky, his advice—notwithstanding its implicit cost—will prove to be at least somewhat more akin to that of a fully ethical consumer advocate than to that of the lowest species of used-car salesman.
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