Questions for EJ guys
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[quote=footsoldier]B-
Help me on the accounting. I am losing money in two countries where I have expanded and never been profitable. I am losing money on 50% of the offices (I have no idea if that is accurate or not, total guess)in the US. My partnership income is down, and I am being told its good to go out and open more offices because when times are really good it will more than offset the leaner times. It's a house of cards. The foundation is cracked due to the market and its likely things will dramatically change for the FA to protect the viability of the partnership. Partnerhips require cash, and infusions (i.e., more new GP's) from time to time. It wouldn't suprise me in the least if the partners have to dig into their pockets to continue the expansion. The model in this environment doesn't make sense. The only rosy picture you can paint is with a market recovery. What if this is a 20 year cycle, and we are only 10 years into it? [/quote] Foot, you're sort of right. But I think you're assumptions are a bit dramatic. First off, we were actually profitable last year - no need for a cash infusion (LP return was like 15%). Net Income 2007 - $4.1B, 2008 $4.6B, 2009 $5.2B (forecast). And 1/2 the offices are not losing money. Maybe at points in time - like last month or February or something - I have no idea. But on an ongoing basis, it's just not the case. On top of that, during the past past 15 years of growth, the dynamics have always been like that - lots of newer brokers losing money for the firm. But you have to look at the numbers. 10 years ago we had about 4,000 offices. So if half were profitable, that makes 2,000 profitable offices. Today we have, I don't know, 12,000 offices. If half are profitable, that makes 6,000 profitable offices. It's all about the profit dollars covering fixed costs. And with the rise of Goodknights and Legacy Plans, the overhead for unprofitable brokers is getting lower and lower, since many are not geting their own offices until they are already on their way to profitability (or the loss dollars and break-even point is much lower). SO in 5 years we'll have 18,000 offices and 10,000 or so will be profitable. At some point, we will slowly start to close un-profitable branches (like Starbucks did), and consolidate assets. Not a bad busienss plan. I predict over the next few years, profitability per-branch becomes a bigger focus, and that is how we will really grow profits (through growth & health). Also look at it this way - in the last 10 years, we have grown the # of advisors 180%, but Net Income has grown 250%. Good numbers if they perpetuate themselves. Why do you think they created the Advisory program? It's profit and cash flow. As they continue adding more accounts to it, continue bringing over assets (our ACAT ratio grew tremendously this past year), and continue to recruit transfer brokers with assets, the asset pie just gets bigger. And as we emerge from this bear, we will obviously be much stronger (like all firms). But I'm not sure that a sideways market for 10 years will really hurt us as much as you think. Bottom line, I'm not sounding any alarms until there's reason to. Here's what I DO see happening some day....we continue growing our UK/Canada presence, then sell off those assets and exit those countries. I have no idea what the end-game/exit strategy is, but you're right, if we have no hope of becoming profitable there, they might as well sell them and get some cash out (they are not profitable due to the overhead, not because the offices themselves are unprofitable. There would be value in the assets/advisors to another firm).Hey Foot, FYI, just heard April was our most profitable month since December. the last 4 months of 2008 and the first 4 months of 2009 were both profitble. We have yet to see a losing month, so you should feel better knowing that we have weathered the bulk of the storm! (I know you were worried for us )
I find it humorous that Jones is getting hammered for hiring during the downturn, but in another thread UBS is getting hammered by their folks for laying off before the upturn.
Well, Jones isn't getting hammered for it. Foot is just trying to come up with reason for why Jones will ultimately fail.
"Yeah, I know LP returns were 15% in the worst year in their 85 year history, but just wait! Things are going to be bad for another 10 years, and then Jones will REALLY be in trouble! 17,000 unprofitable offices, thousands of layoffs, fire and brimstone coming down from the skies!, human sacrifices!, dogs and cats sleeping together!,mass histeria!!"Guys-
I think you have missed my point...again. If Jones is so profitable where are the bonuses? The GP's will continue to make their dough at the expense of you. They won't tolerate 39% reduction in their comp. I don't think Jones will fail. I think the model might. They will adjust and you will be left in the cold...again.Well, I didn’t say SO profitable, just that they weren’t losing money as was suggested. I don’t think the model will ever be broken, for the exact reason you think it WILL BE. If it were a public company, I would agree with you. But as a private partnership, the GP’s will only be successful if the FA’s are successful. Now, the GP’s won’t exactly go broke, but without successful FA’s, their income will stay low. And the LP’s are protected by the 7.5% return floor. That’s when the GP’s have to start coughing up dough. I am sure they never want to get to that point. But they have never even come close to reaching that floor in 35 years.
The one-man office model would fail miserably in a public company domain. And Jones is smart enough to know that if they fuc! with our comp, everyone would just leave.When Jones needs more cash they just “announce” an LP offering and the drones line up with their checks…often times with borrowed money.
I know I know, pay 8%, get 20%, so it works.
Even if Jones can’t use all of the cash right away, they can just return it to the drones through the income…ponzi galore!
[quote=jkl1v1n6]
B24
Do you have a Tide bottle sitting in your office? Next to a Coke or Pepsi beside a box of Cheerios directly behind some Charmin. [/quote]I have a Caterpillar bulldozer in my conference room.
Jones actually believes that they are bullet proof. The LP's act as if their investment is just rock solid. The keep pushing and pushing and pushing this dream / culture on to the new guys hoping 3 of 10 hold on just long enough. The reality is most guys 5 years and under are F'in miserable, but they continue to be told "it will happen, it will happen, just follow the recipe." It is almost like Stockholm syndrome where they are so afraid of betraying their captor that they stick around and embrace the pain.
[quote=LuvIndy]
When Jones needs more cash they just “announce” an LP offering and the drones line up with their checks…often times with borrowed money.I know I know, pay 8%, get 20%, so it works.Even if Jones can’t use all of the cash right away, they can just return it to the drones through the income…ponzi galore![/quote]
Would you buy an investment that has returned 20% per year (fairly consistently) for 35 years, never returned less than 15%, and you can buy with borrowed money? So take $10K, buy 40K worth of partnership, pay 7% interest, and earn 20%. I’d sign up for that Ponzi scheme for some of my money. It’s known as partnership. Works the same way at every professional partnership.
Isn’t it obvious with LP returns at that level that those who are not yet partners are taking it in the rear in terms of their cut ?
[quote=B24] [quote=LuvIndy]
When Jones needs more cash they just “announce” an LP offering and the drones line up with their checks…often times with borrowed money.I know I know, pay 8%, get 20%, so it works.Even if Jones can’t use all of the cash right away, they can just return it to the drones through the income…ponzi galore![/quote]
Would you buy an investment that has returned 20% per year (fairly consistently) for 35 years, never returned less than 15%, and you can buy with borrowed money? So take $10K, buy 40K worth of partnership, pay 7% interest, and earn 20%. I’d sign up for that Ponzi scheme for some of my money. It’s known as partnership. Works the same way at every professional partnership.
[/quote]
Like I said, I know it works. The way I look at it they aren’t giving you anything until around 5 years after you’ve had it and you’ve gotten your original investment back. Then it is very lucrative. I’m not saying it’s a bad thing.
One of the unique characteristics of the employees is they do realize they can only control so much. Yeah the LP offerings are wonderful. But how much are you allowed to purchase? Typically in a career you would be lucky to own 10% of your net worth in LP. So while I can appreciate that it is a good investment, you have to look at it from all perspectives its limited.
By the way...nothing is given you have to pay for it. And if you finance it, the GP's make interest (another source of other income to Jones Financial Companies). As a pawn in the big picture, Jones reps can't see the forest from the trees. All they know is if they net 10K they are doing a good job in Jones eyes. So that's the bogey. What they can't know or control is what corporate is doing. Jones Financial Companies is struggling in a sideways or down market, you can't grow at the same pace if health is in question, and capital (no bonuses) is required to keep the growth engine going. If B24 or Spiff were in Segment 4 or 5 they would realize that they are getting hosed big time, because bonus money is at least 10% (if not 20% of comp). They are too new in the biz or not big producers (for the record I wouldn't be suprised someday they may be). I am not a doom and gloomer. I don't have any empathy for the GP, only the soldiers of the firm, the FA. I want Spif and B24 to succeed for themselves and their families. I hope that as they become more tenured in the industry and start to ask the questions that they see the light, and make the transition to ownership rather than employee. It doesn't have to be indy by the way.Unless things have changed since I left, if you financed through Jones they assessed interest (you would expect that from anyone lending you money to buy an asset or an asset that produced income).
foot,
Edward Jones has never (atleast not in my 20 years with them) provided the financing for the purchase of partnership. You can 1) pay for your partnership in full 2) arrange your own financing 3) go through a bank that Jones has a relationship with as far as financing partnership. I am not a CPA but I am pretty sure a firm cannot provide financing for investors to borrow to finance the firm that is providing the financing. How bout a tax or invesment banking expert clear this one up?Y-
Boone Savings & Loan. A wholly owned subsidiary of Jones Financial Companies...I would call that a relationship too. Like I said, things could have changed since I left, but they were always very accomodating to finance if we needed it. I paid cash. And before Spiff and B get all wigged out its a great bond.In fairness, my loan was from an outside bank. Maybe US Bank? Can’t recall exactly, as I only had it for a few months. It was not through Boone Savings & Loan. That I know. Otherwise, I would have just paid cash.
[quote=footsoldier]
One of the unique characteristics of the employees is they do realize they can only control so much. Yeah the LP offerings are wonderful. But how much are you allowed to purchase? Typically in a career you would be lucky to own 10% of your net worth in LP. So while I can appreciate that it is a good investment, you have to look at it from all perspectives its limited.
By the way...nothing is given you have to pay for it. And if you finance it, the GP's make interest (another source of other income to Jones Financial Companies). As a pawn in the big picture, Jones reps can't see the forest from the trees. All they know is if they net 10K they are doing a good job in Jones eyes. So that's the bogey. What they can't know or control is what corporate is doing. Jones Financial Companies is struggling in a sideways or down market, you can't grow at the same pace if health is in question, and capital (no bonuses) is required to keep the growth engine going. If B24 or Spiff were in Segment 4 or 5 they would realize that they are getting hosed big time, because bonus money is at least 10% (if not 20% of comp). They are too new in the biz or not big producers (for the record I wouldn't be suprised someday they may be). I am not a doom and gloomer. I don't have any empathy for the GP, only the soldiers of the firm, the FA. I want Spif and B24 to succeed for themselves and their families. I hope that as they become more tenured in the industry and start to ask the questions that they see the light, and make the transition to ownership rather than employee. It doesn't have to be indy by the way.[/quote] Foot, I agree with you. I know it's a challenge for most people to amass enough to make it meaningful. But that's not Jones' fault. If you join the firm at 25 and work for 30 years, you will be wealthy beyond belief. If you join at 55, not much chance. If you're a piddly producer, not much chance. But isn't that what they are rewarding you for? Contribution to the firm through years of service, profit contribution and service? Yeah, it doesn't seem like much compared to being indy and "owning" it all, but Jones is not an indy firm. So you can't compare to that. You have to compare the deal to Merrill or Morgan or Stifel, etc. Let's remember, most of the guys at Jones or any other firm are never going to go indy unless the rules really change. They have neither the ability nor the desire. So you have to evaluate the opportunity for what it is, not in comparison to something you will never do. And, I think the arrangement the firm has is fine. Overall compensation is on par with other wires/regionals. The "owners" (GP and LP) are being rewarded for the risk they take (more the GP's) and the opportunity cost of not going public. They SHOULD generate good returns for themselves. I'm not an LP, and I have evaluated the whole shootin' match versus being indy and going to other firms. I don't think I will EVER go to another firm (unless an offer I can't refuse comes up - but one did last year, and thank GOD I didn't take it). Now, would I go indy? Maybe. I really like the idea of branding and designing my own firm. I have plenty of experience running businesses in the past, so it is not at all intimidating for me. But right now, my assets aren't even close to being able to consider it (at least not in my mind - I know others have done it). But it wouldn't be because I have a problem with Jones. Sure, there's things I don't like. But nothing's perfect. Being indy is not perfect. And FYI, I know LP is a bond. And Jones knows it too. They called it a bond with some sort of enhancement ( I forget the term they used). They stated that in a Weddle Corner thing a while back when someone asked about LP and where it fell on the pyramid or something. So they are not trying to deceive anyone.B24 - Jones needs more LP’s and people in leadership like yourself. Guys that don’t BS and who actually have original thoughts. I wish I had you as a mentor/field trainer when I was there.