Edward Jones offices around the country hang plaques that tout Edward Jones as winner of JD Power and Associate’s “One of the Best Companies to Work For.” I’m sure they are great to work for because they have a heck of a business model that benefits from an endless stream of investor newbies, directing them to buy investments at a premium allowing them to profit enormously. At the end of the day it’s their client that pays the overhead for their 11,500 brick and mortar branch offices across the country, the sports domes, the billboards, the TV commercials. I wish EJ was publicly traded, they would probably be a great investment ($6.28 billion in revenue in 2014), although arguably not an ethical one.
While I don’t think my Edward Jones adviser (a friend of the family actually) ever set out to intentionally do me wrong, the company is structured so that advisers are commission based salesmen. They are encouraged to promote mutual funds like American Funds which have ridiculous loading fees of 5.75% ( For every 10k you invest, you lose $575 from the get-go that won’t be growing over the next 10, 20 or 30 years) and on-going high expense ratios that skim money from your holding whether the fund is performing well or not. They will tell you that choosing “Class A Shares” with loading fees is good because these funds have no sales fees later and lower expense ratios than Class C shares, and if you are to hold funds for a long time, in the long run this is better. While this Class A vs C is true of American Funds, what they don’t tell you is that other fund families have no loading fees and lower expense ratios as American funds class A shares.. American Funds has very cozy relationship with EJ – they get a commission on the loading fees AND on the high expense ratios you pay (even with Class A shares) are partially comprised of whats called 12b-1 fees – that’s an ongoing finders fee that American Funds is kicking back to EJ for getting you into their fund! If you are savvy enough to choose your own investments and buy mutual funds not associated with EJ, they are still going to take commissions far greater than other brokerage firms.
Any stocks you buy have ridiculously high commission rates (2% taken) at both the time you Buy and Sell. That’s like buying stock on Wednesday and stock immediately dropping 2%. On top of that Edward Jones then takes 2% of all your dividend earnings when you have selected to have your dividends reinvested into the same stock or any other fund. That’s money they take as a commission for a process that is fully automated and as far as I know this commission on divined earnings is not something any other major brokerage firm does.
To add insult to injury, EJ has all these other little charges that add up, annual account charges and even a monthly fee if your checking account drops below $2000.
Now, 10 years after mediocre returns at best, having made EJ thousands of dollars of my hard earned money and all I have to show for it is a stack of their annual Birthday and Christmas cards (no i didn’t really save these). I’ve realized why savvy investors gibe EJ customers with “How are those American Funds doing :P” and calling them “Jonestown” followers. I for one can’t drink the green Kool Aid any longer!
It is extremely easy to move your IRA or other investments to another broker and you can transfer them “in-kind” which means you’re not even out of the market. After you move your funds over to another firm, you can then sell them for far less commissions and reallocate them in funds that will likely outperform American Funds. There’s a particular investment firm out there that is member owned and has the lowest fees. I won’t mention them by name in case that’s bad etiquette when reviewing another company, but if you do your research you’ll find many savvy investors recommending them.