Edward D. Jones & Co. continues to widen its lead as the largest brokerage force by headcount.
Noted for its single-broker offices stretched across rural America, Jones ended the third quarter with 18,505 brokers, a 7% year-over-year increase, according to its parent company’s 10-Q filing on Thursday.
The Missouri-based partnership added a net 1,184 advisors in the 12 months ending September 30, including 331 hired during the third quarter. Its branches grew by just under 900 from 12 months earlier, or 6%, to 14,900.
Over the past five years, Jones’s headcount has increased by more than 33% while broker population numbers at its rivals have generally declined.
Morgan Stanley, the largest of the four wirehouse giants, ended its September quarter with 15,553 advisors, down 102 from a year earlier. LPL Financial, the biggest independent broker-dealer, grew its force by 1% over the past year to end its third quarter with 16,349 independent contractor advisors.
The population explosion at Jones led to a 7.2% increase in compensation and benefit costs of $1.65 billion, and the firm expects branch expenses to continue to increase “in the near term as new financial advisors obtain branch offices,” the filing said.
A Jones spokeswoman said she could not immediately comment on the experience range or source of the new advisors, but the firm has historically developed its brokerage force through internal training of inexperienced advisors, many of whom turn to wealth management as a second career.
Jones’s net revenue in the third quarter was up 8% from the comparable 2018 period to $2.37 billion. Its net income before distribution of the profits to its 3,029 partners rose 3% to $281 million, according to the filing.
Unlike wirehouses that are focusing brokers’ attention increasingly on very wealthy customers, Jones continues to fuel its volume-driven profits by selling mutual funds and insurance products to middle-income investors. Fund sales provided 70% of its revenue, the filing said.
Like many of its competitors, Jones has been recommending fee-based advisory accounts to clients that generate revenue regardless of trading activity. Advisory accounts held 33.3% of the firm’s end-of-quarter client assets of $1.27 trillion. Morgan Stanley said last month that 46% of its $2.565 trillion in client assets were held in fee-based accounts, which have the additional advantage of throwing off gains when markets rise, regardless of new assets.
Jones also continues to battle a putative class-action claim over allegations that it had shifted clients over several years to fee-based accounts without sufficient disclosure of potential costs. A court dismissed an earlier version of the lawsuit, but plaintiffs’ lawyers refiled it in July. Jones has moved to dismiss the case, according to the filing.
The firm’s dependence on a growing advisor force for volume-related revenue creates a self-perpetuating hiring loop (and complaints from some former brokers that Jones has been concentrating too many branches in the same geographic areas).
Broker attrition rose to 7.9% of the sales force annualized basis in the third quarter, up from 7.1% a year earlier and higher than rates closer to 5% at wirehouses. At least 6,000 financial advisors have been at Edward Jones for fewer than five years, former recruiting head Katherine Mauzy told AdvisorHub in July.
Jones executives have recently floated a goal of employing 30,000 brokers but have not given a timeframe for reaching that level. The firm three years ago backed off of its declared goal of having 20,000 brokers by 2020.
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