Revenue Sharing

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Butkus's picture
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There has been discussion of revenue sharing at Jones here recently. Revenue sharing for 2005 was $127 million of $717 million in asset fees, and was 4.1% of the $3.1 billion in total revenue.

footsoldier's picture
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But-
If you read the disclosure you will see a little different number. 172M with funds and 33M with insurance. What source were you using?

jonesescapee's picture
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Butkus wrote:There has been discussion of revenue sharing at Jones here recently. Revenue sharing for 2005 was $127 million of $717 million in asset fees, and was 4.1% of the $3.1 billion in total revenue.
Who cares?

munytalks's picture
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footsoldier wrote:
But-
If you read the disclosure you will see a little different number. 172M with funds and 33M with insurance. What source were you using?
 
 
FS- It seems ButKiss suffers from some form of Dyslexia. There is medication for it. But it reacts negatively when mixed with Koolade.

Butkus's picture
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Adding insurance increases the revenue sharing contribution to overall revenue from 4.1% to 5.2%.

footsoldier's picture
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Remember, Mr. Butkus, as it states in the disclosure, it is ONLY  a potential conflict of interest. Mr. Butkus, when do you feel it would constitute a real conflict? How do you describe this to your clients? Or are you like most IR's who don't read and have your head in the sand and hope your clients follow along.
Just wondering.
What happened to Guest1, proudlp, success, and the green monster? It would be nice to hear a competent rebuttal without a lame personal attack. After all the rest of us have gone to the dark side.

Butkus's picture
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You just cautioned me against giving a "lame personal attack" right you gave me one. No wonder there isn't much thoughtful discussion here as many people don't want to stoop to it.
Obviously it would be a real conflict if the revenue sharing affected my investment recommendations. I don't believe revenue sharing affects my recommendations, and neither do my clients. I think I explain it clearly and simply. No one that I have met with has rejected an investment recommendation because of revenue sharing and the disclosure.

Philo Kvetch's picture
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I don't have a dog in this fight, but it seems to me that the retail investor is not the one hurt by this type of shell game.  The betrayal is between the firm and the broker.  Arguably, many firms engage in the practice; however Edward Jones is the firm that a) seems to have been involved to a much larger extent, and b) was foolish enough to kick sand in the face of much larger and more upright firms via an ad in the Wall street Journal, yet expected no reaction. 
It would seem that the emperor has no clothes.

Soothsayer's picture
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Butkus wrote:
You just cautioned me against giving a "lame personal attack" right you gave me one. No wonder there isn't much thoughtful discussion here as many people don't want to stoop to it.
Obviously it would be a real conflict if the revenue sharing affected my investment recommendations. I don't believe revenue sharing affects my recommendations, and neither do my clients. I think I explain it clearly and simply. No one that I have met with has rejected an investment recommendation because of revenue sharing and the disclosure.

Try recommending a Pacific Life insurance product to your client, and you'll see where revenue sharing compromises your objectivity.  (You can't do it.......hint, hint)

The Truth's picture
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Good pt Sooth. That would be selling away at Jones. Take a look at some
independent sources that rank sub-account performance, riders, cost, etc.
Most of what Jones sell are inferior just like their funds.

Devoted SA's picture
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Joined: 2006-03-28

Butkus, how often do you offer anything to your clients that isn't on preferred fund family list?
In my opinion (and as I've been told it isn't worth much from the Jones IRs posting here) that's where the conflict of interest lies. We were always spoon fed the mantra at Jones that we only offer 7 (at the time) preferred fund families of companies with a proven, historical track record for success. (how does anyone explain Hartford being on that list btw?)

footsoldier's picture
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Devoted-
The GP's owned a stake in the Hartford Mutual Funds since 1996. No track record needed. Just pay to play. The ultimate conflict especially for the GP's who are selling.  
 

Ready2Jump's picture
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Joined: 2006-05-30

I use a non-preferred occationally and haven't heard a word from St Louis.  I started using it after the RS issue came up though.  Although I believe one can do better with asset allocation in a wrap account, the results from a balanced AF portfolio are hard to ignore.  It works fine for a conservative, no frills, retired person.  It has to work or EDJ would be out of business.  I believe they have a niche.
Being able to give my client an All-Star lineup AND get paid to do research to keep it that way... that is better for both my client and myself.  Not to mention no conflict of interest.

Ready2Jump's picture
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And I love this place.  I had no idea about the Hartford and EDJ connection prior.  They don't tell you such things.

zacko's picture
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Revenue sharing is PURE profit paid to Jones.  It's an ongoing kickback that shouldn't be buried in asset fees.  The number is much larger as a % when you take it as a % of net income.  Withput even looking at the 10-k, I'll bet that revenue sharing made up at least 50% of Jones profit.

footsoldier's picture
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Zacko or is it Karnak-
Hopefully most of you remember Johnny Carson. He did a Karnak the Magnificent routine. If you haven't seen it you ought to go and rent it for a good laugh. Now to the question at hand by Zack.
172M mutual funds. 35M insurance. 330 net profit. My calculator says 63% of net came from the backdoor. Zacko is right on once again.

rankstocks's picture
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Zacko and footsoldier,
    You bring up an absolutely moronic point.  What does it matter how much of revenue sharing makes up of profit?  Stock trades make up over 200% of profit, bond trades over 100%.....so what.  Put on that red pitcher suit they give you at Raymond James and jump through a brick wall.

troll's picture
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rankstocks wrote:Zacko and footsoldier,
    You bring up an absolutely moronic point.  What does it matter how much of revenue sharing makes up of profit?  Stock trades make up over 200% of profit, bond trades over 100%.....so what.  Put on that red pitcher suit they give you at Raymond James and jump through a brick wall.That's right Rank, when faced with an issue you can't overcome, resort to personal attacks.  That is always and effective technique!The size of revenue sharing relative to overall profits(or revenues) is relevant in that it indicates how much the GEEPS rely on this profit sharing to keep the firm profitable.  Pretty simple, but then again I don't expect a kool-aid drinker like you to understand any analysis which relies on independent thinking!  Just keep selling them long-term bonds and preferred funds and stop thinking there, sonny!

footsoldier's picture
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Rank-
Stay the course. They need you to keep the growth numbers stagnate.

Maxstud's picture
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zacko wrote:Revenue sharing is PURE profit paid to Jones.  It's an ongoing kickback that shouldn't be buried in asset fees.  The number is much larger as a % when you take it as a % of net income.  Withput even looking at the 10-k, I'll bet that revenue sharing made up at least 50% of Jones profit.
 
Why would you take it as a % of net income?  I have never seen a balance sheet that shows a revenue source as pure profit.  So your saying that EDJ doesnt use any portion of the revenue sharing money to pay for any kind of overhead?  I am certainly not an accounting expert but that doesnt make any sense to me.

Not1ofthem's picture
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Folks, I'm enough of an accountant to know that if Revenue Sharing amounts to 5% of revenues, then it brings in about 5% of net income.  I don't have any idea how Jones' accountants figure it, but from my super-powers, that means that if RS goes away, Jones would take about a 5% hit.  I'm sure that hurts, but I doubt we can all go celebrate their ultimate demise over it.

zacko's picture
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Not1ofthem--Wrong.  Go back to school.
MY POINT is that revenue sharing is not really earned income.  It doesn't come from any Jones rep placing a trade--nor is much (if any) ever shared with the broker.  Jones keeps about 90% of all revenue sharing dollars. 
LOOK AT THIS WAY: Funny how a firm that claims that they are so against fee based accounts and wrap programs derives over 50% of all their profit from....ONGOING REVENUE SHARING FEES.  If that's not the epitome of hypocracy--I don't know what is.  Jones has essentially elimnated the possibility of incurring losses by guaranteeing themselves an income stream.  The GP's have annuitized their income.  They promote and participate in the very thing they choose to not allow their IR's to do so.  How can that NOT piss you off if your a Jones IR?   In 2002, there was no bonus for IR's--yet GP returns were the 5th highest on record?
Those of you who are in your third fourth, or even fifth year at Jones think your at someplace special.  News flash--It's special for the GP's and not for you.  You only think it is because you never earned over 100k-150k before and now that you are--you think Jones is responsible for your success.  You follow the mantra like a second religion. 
Truth is most of you are clueless about much of what else is out there and when challenged, are incapable of spouting much more than the company line.  That's why they have so many meetings at Jones--to keep the "message" ingrained in your skulls.  They know that once original thought surfaces you will be looking elsewhere fairly soon.
This is a great business to be in--and you can do well for yourself and your clients.  Fact is that BOTH can be better served as an indy and certainly not at Jones.   

Maxstud's picture
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Joined: 2005-12-29

Revenue Sharing is not really earned income therefore it is not used to cover any type of overhead expense?  Pretty weak statement.  None of it goes to cover employee salaries, building maintenance, LP payout ect ect?
Simple formula Revenue - Expenses = Income, it doesnt matter if the salesperson directly creates the revenue or if its paid by a company to do business with another company.
Schools out Zacko.
 
 

munytalks's picture
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NOT1OFTHEM is a ruse. It's another name change.
He can't agree with you Zacko, because he is Not One Of THEM-
THEM=I R / Regular GUY/ LP
He's either Guest1  or another just like him.
He LOVES the Revenue Sharing Formula- he sleeps with it.

zacko's picture
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You defend a major source of revenue and the largest source of net profit for your firm for the very assets you have on the books IN YOUR BRANCH--yet recieve little or none of the benefits?  Now, that's priceless!!!
 

Maxstud's picture
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I wasnt defending anything, I was questioning your accounting.  I have never seen in any business where any form of revenue is pure profit.  I'm really just saying that your wrong about the pure profit statement.

Maxstud's picture
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munytalks wrote:
NOT1OFTHEM is a ruse. It's another name change.
He can't agree with you Zacko, because he is Not One Of THEM-
THEM=I R / Regular GUY/ LP
He's either Guest1  or another just like him.
He LOVES the Revenue Sharing Formula- he sleeps with it.

 
NOT1OFTHEM never defended revenue sharing either, he just stated an accounting opinion.  Its funny that you read so much into the post that isnt there.  Do you see communinst under every rock as well?

footsoldier's picture
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Ok for all of you that won't take the time to read the 10K. Straight from the horses mouths.
There are regulatory proposals being considered that could significantly impact the disclosure and potentially the amount of compensation that broker-dealers derive from mutual funds and annuity products. The Partnership believes it is likely in the future that broker-dealers will be required to provide more disclosure to their clients with respect to payments received by them from the sales of these products. It is also possible that such payments may be restricted by law or regulation.The Partnership derived 67% of its total revenue from sales and services related to mutual fund and annuity products in the first three months of 2006 and 68% in the first three months of 2005. The Partnership derived 30% of its total revenue for the first three months of 2006 and 34% for the first three months of 2005 from one mutual fund vendor. Significant reductions in the revenues from these mutual fund sources could have a material impact on the Partnership's results of operations.
So those of you who think we are blowin smoke up your rear making comments that EDJ could be in real trouble if RS is changed by the regulators, your firm at least feels there is concern if you don't.

munytalks's picture
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Maxstud wrote:munytalks wrote:
NOT1OFTHEM is a ruse. It's another name change.
He can't agree with you Zacko, because he is Not One Of THEM-
THEM=I R / Regular GUY/ LP
He's either Guest1  or another just like him.
He LOVES the Revenue Sharing Formula- he sleeps with it.

 
NOT1OFTHEM never defended revenue sharing either, he just stated an accounting opinion.  Its funny that you read so much into the post that isnt there.  Do you see communinst under every rock as well?

 
Communists under EVERY rock? NO, but I must ask, are you always so paranoid? I was speaking to Zacko- why do you feel you must defend Not1ofthem? Are you feeling guitly about something?

Maxstud's picture
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I read that as all revenues not just revenue sharing, agree?

footsoldier's picture
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Partly correct Max.
Most are unaware that at least 95% goes directly to the bottom line. Zacko's point. Imagine if 63% of your net income was suddenly gone. You would have to figure out how to replace it.
Clearly the GP's are smart enough to have contingency plans. What say you Guest1. Care to comment?

Maxstud's picture
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munytalks wrote:Maxstud wrote:munytalks wrote:
NOT1OFTHEM is a ruse. It's another name change.
He can't agree with you Zacko, because he is Not One Of THEM-
THEM=I R / Regular GUY/ LP
He's either Guest1  or another just like him.
He LOVES the Revenue Sharing Formula- he sleeps with it.

 
NOT1OFTHEM never defended revenue sharing either, he just stated an accounting opinion.  Its funny that you read so much into the post that isnt there.  Do you see communinst under every rock as well?

 
Communists under EVERY rock? NO, but I must ask, are you always so paranoid? I was speaking to Zacko- why do you feel you must defend Not1ofthem? Are you feeling guitly about something? Your post are very funny keep it up I love them.  Speaking to Zacko on a public board, try pm it much more direct.  I'm not defending Not1ofthem, just pointing out that fact that your post that he said he loves revenue sharing when his post didnt even imply that at all. Also to answer your direct question, no I dont feel guilty, hungry right now but not guilty.Really keep posting you crack me up!!!

Maxstud's picture
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footsoldier wrote:Partly correct Max.
Most are unaware that at least 95% goes directly to the bottom line. Zacko's point. Imagine if 63% of your net income was suddenly gone. You would have to figure out how to replace it.
Clearly the GP's are smart enough to have contingency plans. What say you Guest1. Care to comment?I really don't know if I have the energy or even the desire to try and correct this 95% bottom line bs.  So if I decide I do I'll come back and try to explain it, but I doubt if its worth the effort.

Maxstud's picture
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Maxstud wrote:Revenue Sharing is not really earned income therefore it is not used to cover any type of overhead expense?  Pretty weak statement.  None of it goes to cover employee salaries, building maintenance, LP payout ect ect?
Simple formula Revenue - Expenses = Income, it doesnt matter if the salesperson directly creates the revenue or if its paid by a company to do business with another company 
 I'll try by reposted the above quote.   Good luck

Incredible Hulk's picture
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If the EDJ GPs are only concerned about lining their pockets as you say, then we will have wrap accounts very shortly. If/When we do have wrap accounts, you will tell us that it is only for them to make more money, while you tell us now that wrap accounts are good for the clients. I look forward to the day when this is the topic of debate...

footsoldier's picture
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Max-
Your theory would have more validity if YOU shared evenly with the owners. Unless you are one.
60M from the EDJ Brokerage. 88M as a result of overrides or other companies. 172M from Mutual fund and 35m from Insurance.
There's the grocery store model. Nothing wrong or illegal about their businesses or their model. But what they tell us is usually the exact opposite of what they do. When you can't grow and you are losing vets at the same rate that you bring new ones on, clearly change is imminent.

Maxstud's picture
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footsoldier wrote:Max-
Your theory would have more validity if YOU shared evenly with the owners. Unless you are one.
60M from the EDJ Brokerage. 88M as a result of overrides or other companies. 172M from Mutual fund and 35m from Insurance.
There's the grocery store model. Nothing wrong or illegal about their businesses or their model. But what they tell us is usually the exact opposite of what they do. When you can't grow and you are losing vets at the same rate that you bring new ones on, clearly change is imminent.First things first, I am ONLY discussing the assertion that 90-95% of the revenue sharing is PURE PROFIT, it is NOT.  There is no such thing as pure profit in business, there is ALWAYS overhead and it doesnt matter if the revenue is directly generated from a salesperson or from a meteor dropped from the sky, someone needs to pay the guy that picks up the cash inside the meteor. In other words there are expenses that the business pays and that is deducted from ALL revenue.  I cannot explain it more clearly, I could ask the CPA I league bowl with to explain it but I would feel to stupid to ask such a question.  So I would maintain this is not a theory but a basic accounting fact.Grocery store model??? Please if you have been involved in any other business in your life you would KNOW this is how business is done.  Businesses make deal with other businesses to do business.News flash: Golden Rule is he who has the gold makes the rules.  I have never been involved in any business, little league sporting event, bowling leage, or frikin PTA meeting that people ddidn't put thier personal interest ahead of yours or anyone else's.  Grow up and learn that or you'll be whining about why your kid doesn't get to start the game ahead of the coaches kid for the rest of your life.  Everyone is in it for themselves so if you worried about the greedy GP your worrying about the wrong thing.

Maxstud's picture
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PS I love my clients.  Thank you and goodnight

Soothsayer's picture
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Guest1?  He ran off like a little bitch when he was outed on another thread. 
Maxstud is now using analogies with meteors, comets, lightning, things dropping from the sky.  Holy sh*t, he's about to go GP on me, and start quoting the bible and different psalms to back up the Jones position.  So, here's the question:
If revenue sharing were to cease tomorrow, what part of the Jones overhead would go away proportionately, if at all?  What capital is Jones risking, pledging, or holding captive by participating in their various revenue sharing agreements? 
I have long maintained that the revenue sharing payments that Jones receives largely funds the training costs (trainers, plane tickets, meals and rooms at the Westport, 24K annual salaries, etc.) for all of the "stuff" that they seem to endlessly, mindlessly, and blindly throw at the wall.  If those agreements are compromised in any way, your Regional Growth Leader will be looking for a new way to "voluntold". 

rankstocks's picture
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Zacko states "LOOK AT THIS WAY: Funny how a firm that claims that they are so against fee based accounts and wrap programs derives over 50% of all their profit from....ONGOING REVENUE SHARING FEES"
Where did you get your accounting degree? Let me guess: Corky's University.  "PURE PROFIT"...where are you coming up with this stuff? 
To answer Soothsayer, if revenue sharing payments went away, overhead would be reduced substantially simply by foregoing the revenue sharing disclosure related paperwork, dedicated team, lawyer fees, etc.
Who cares which about how much of profit is derived by revenue sharing? 
Maybe you would also care about how much profit is derived from annual account fees? transfer fees? TOD fees?
What about Raymond James? How much profit is derived from ticket charges?  This whole thread is rediculous.  You should know better Zacko.  I now think much less of you.

jonesescapee's picture
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I think we need a group hug

Maxstud's picture
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"Maxstud is now using analogies with meteors, comets, lightning, things
dropping from the sky.  Holy sh*t, he's about to go GP on me, and start
quoting the bible and different psalms to back up the Jones position."Thats funny.

zacko's picture
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It IS pure profit for the "firm" (GP's). 
While it might be legal accounting to post it the way they do (Of course I understand accounting), it's additional revenue that's generated without any true cost to obtain that revenue.  It's hard dollars paid for shelf space--nothing more.
 

Soothsayer's picture
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Okay, let me get this straight.  Jones spends far more than $207 million per year on paper, ink, envelopes, extra postage, and a team of lawyers to continue revenue sharing in its present form.  If revenue sharing dried up, these expenses and then some would go away completely; therefore having no material effect on Jones' overall operating income.  Got it.  Thanks for the clarification.

Maxstud's picture
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Soothsayer wrote:Okay, let me get this straight.  Jones spends far more than $207 million per year on paper, ink, envelopes, extra postage, and a team of lawyers to continue revenue sharing in its present form.  If revenue sharing dried up, these expenses and then some would go away completely; therefore having no material effect on Jones' overall operating income.  Got it.  Thanks for the clarification.Yea, have to agree that doesn't make much sense.  Who would want to keep a revenue stream that is eaten up be the cost to maintain it.

Maxstud's picture
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zacko wrote:It IS pure profit for the "firm" (GP's). 
While it might be legal accounting to post it the way they do (Of course I understand accounting), it's additional revenue that's generated without any true cost to obtain that revenue.  It's hard dollars paid for shelf space--nothing more.
 When I was in college I started working for an electronics retailer, right around the time Directv was just starting and we were selling the RCA dish for something like $500.  At that time Directv had an agreement with the retailer that they would pay residual payments forever for every customer we sold a dish to and signed up to Directv, as long as the customer kept the service.  Is that money pure profit to the owner of the electronics store?  Or does he use it to grow his business, help with raising expenses, and cover other costs?  If the residual payments are 5% of his revenue doesnt that mean its around 5% of his profits?  If all the customers cancelled their service doesnt that mean he loses 5% of his revenue and 5% of the profit?  Does that mean he needs to cut costs by 5%?

Maxstud's picture
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jonesescapee wrote:I think we need a group hugIs that a banana in your pocket?

jonesescapee's picture
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Maxstud wrote: jonesescapee wrote:I think we need a group hugIs that a banana in your pocket?
its a flashlight

Indyone's picture
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rankstocks wrote:What about Raymond James? How much profit is derived from ticket charges?  This whole thread is rediculous.  You should know better Zacko.  I now think much less of you.
Wow, Zacko...how can you live with yourself?!!  The King of Kool-Aid doesn't LIKE you!!!

Not1ofthem's picture
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Whew...3 pages ago I posted something about accounting and caused the sky to fall...Look I don't really give a darn about Revenue sharing.  I don't really care about EJ at all, but it is laughable to say that Revenue sharing is 60 or 90 percent of Income because you could just as easily say that Mutual Fund sales are 400% of income or that the brokerage brings in 200% of income...By that logic, the owner would owe someone money instead of making anything...It just couldn't work that way. 
In the interest of being fair, I read the one reply that seemed to make a case, but it, too, says that EJ gets revenues from these sources.  Revenues don't equal profit in my book.  If you disagree, that is fine...No sweat off my back and I don't take it personally.
 

Devoted SA's picture
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Incredible Hulk wrote:If the EDJ GPs are only concerned about lining their pockets as you say, then we will have wrap accounts very shortly. If/When we do have wrap accounts, you will tell us that it is only for them to make more money, while you tell us now that wrap accounts are good for the clients. I look forward to the day when this is the topic of debate...
Mr. Hulk (the real one) I think the more interesting topic of debate would be why Jones changed it's position on WRAP accounts. Another Jones IR posted that he thought Weddle would bring about WRAP accounts soon, and that there were rumblings about the possibility. What do you think about that?

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