Have You Outgrown Your Edward Jones Advisor?
Have You Outgrown Your Edward Jones Advisor?
Your Edward Jones financial advisor is a good guy. You like him and don't want to hurt his feelings by leaving. But your family's future is at stake. When your financial situation becomes more complex that it exceeds the capabilities of your current advisor, it's time to seek a second opinion.
Midwest Millionaires often get started at the local Edward Jones office. If you travel down Rt. 36 from Steubenville, Ohio, to Macon, Missouri, you will pass through dozens of small towns with an Edward Jones office just off the downtown square. Across the country, 16,000 of these small, single-advisor offices help people get started saving and investing.
Indeed, many Midwest Millionaires would not have developed a discipline for saving and investing without Edward Jones; however, where does loyalty end? If you have over a million dollars invested, it is in your best interest to seek a second opinion.
How A Fiduciary Can Help:
The saving and investing strategy that served you well in the beginning stages of your wealth accumulation might now feel restrictive rather than supportive of your long-term financial goals. The fees you pay and the investment selections are a significant part of it. You also want a team who can support you throughout retirement and provide advice wherever money touches your life.
Comprehensive Wealth Management:
Financial advising encompasses far more than just investment management. As your net-wealth grows, you likely need integration between various aspects of your financial life—tax planning, estate planning, business succession strategies, philanthropic giving, and more.
If you find yourself working with multiple professionals (CPAs, attorneys, insurance specialists) without cohesive coordination, you might benefit from a more comprehensive wealth management approach that some specialized financial advisors provide.
Fee Structure Concerns:
As your portfolio grows, the standard fee structure at Edward Jones might become less competitive compared to other options available to high-net-worth individuals. You would not pay for a United First Class ticket and expect a Spirit Airlines economy experience. As your wealth increases, you should expect more from your financial advisor. You deserve it!
The compensation model at Edward Jones is complicated. Asking, "How do you get paid?" can feel awkward, so let's break down the three account models with associated fees you might be paying your Edward Jones advisor, whether you know it or not.
No Minimum Investment: The Edward Jones basic account model has no minimum investment requirements. However, you will pay commissions and sales charges when buying and selling investments, generally ranging from 0.75% to 5.75%. Some investments have third-party internal expenses, so the advisor may also receive compensation from the mutual fund company (see below).
$5,000 Minimum Investment: If you have $5,000 to invest, the Edward Jones "guided solutions" account allows you to invest with an advisor. However, be aware that for the first $250,000, the annual Program Fee is 1.35% and the yearly Platform Fee is 0.05%. Also, some investments also have transaction fees, commissions, and sales loads.
$25,000 Minimum Investment: Edward Jones also has managed account models. The program fees are similar to their guided solutions, starting at 1.35% and the yearly Platform Fee is 0.05%, but they also charge SMA Manager Fee based on the market value of the assets held in the account. Those fees range from from 0.20% to 0.40%
The fees do start to decrease when your assets under management increase, but for comparison, let's examine the impact of these fees on a $2 million account.
If your portfolio averages an annualized return of 8.0% for 20 years, and you have fees of 1.57% (program fee + platform fee + SMA fee), you will have $6,955,226. That sounds good, right? However, if your fees were only 0.9%, you would have $7,885,323. That's a difference of almost $1 million!
Other Revenue from Third Parties:
Your Edward Jones financial advisor may also receive non-direct compensation from someone else other than you. Below are a few of the most common ways Edward Jones advisors are compensated beyond the investment management.
- Interest on margin accounts: If you need cash, your Edward Jones financial advisor has an incentive to recommend a margin loan instead of selling your investments because he then receives compensation for both the interest on the margin loan and the investments under management. Once a margin account is established, your financial advisor may encourage you to maintain a margin loan balance and to grow the balance instead of using available cash or new investments to pay down the loan.
- Payments from mutual fund companies: Mutual fund companies pay Edward Jones ongoing service fees, known as 12b-1 fees, in part for assistance in marketing and distributing their shares or products. These fees generally range between 0.25% and 1.00%. A fee-only fiduciary financial advisor does not recommend any funds with 12b-1 fees or high expense ratios. They will instead choose low-cost mutual funds or ETFs to reduce the fees, which creates drag on the portfolio.
- Payments from insurance companies:Your Edward Jones financial advisor receives a percentage of the commisions that the insurance company pays, including any renewal commissions. A fee-only fiduciary financial advisor will not receive commissions or kickbacks from third parties.
- Payments from Elan Financial Services: Beware if your financial advisor recommends you sign up for a credit card.They receive compensation for every new credit card holder. A fiduciary financial advisor is more likely to recommend paying off your debt and abstaining from using credit whenever possible.
What's Next?
If you do decide to make a change, remember, you are not betraying your old advisor, you've just outgrown him which means you've made great progress on your financial plan. You now need someone who can handle your more complex needs and help you navigate the next phase of wealth-building and asset management.
For over two decades, the fiduciary financial advisors at Hurlow Wealth Management Group have helped clients find clarity, make decisions with confidence, and feel comfort in retirement. Click here or call 812-333-4726 to schedule a complementary second opinion.