James Weddle, Edward Jones' top executive, eats in the Edward Jones cafeteria and parks his car wherever there's a vacancy in Jones' vast lot. His office walls are painted beige and are undecorated; the only furniture is a small conference table and two desks — Weddle's and a dark wood antique used by the company founder Edward Jones, Sr. Other than that piece of history, the most impressive feature of the office of James “Jim” Weddle, Edward Jones' fifth managing partner, is the view — the distant skyline of St. Louis, America's 52nd largest city, 15 miles to the east.

A no-nonsense office in a boxy, tinted-glass building off a Midwest highway is appropriate. The last major private limited partnership brokerage firm — with the industry's fourth-largest sales force — has been decidedly un-Wall Street since Edward Jones, Sr., founded it in 1922. It has a unique model of Main-Street focused, one-man offices that now number in the hundreds in every state of the union, with a presence in Canada and the U.K. as well. Jones reps preach an unwavering, conservative buy-and-hold strategy for their mostly suburban and small-town clients.

The firm doesn't sell options, commodities or interest-rate futures, says Weddle. “Those are more like wagers than investments,” he says. Even in the past several years as the wirehouses and independent firms have moved upmarket in search of wealthier clients, chanting “holistic wealth management,” Jones has continued to serve Middle America, offering blue-chip stocks, high-quality bonds and mutual funds.

And it's been tremendously successful doing so. The number of reps has more than doubled in the past 10 years to 9,733; client assets have nearly quadrupled to $405 billion; and, last year, net income increased by 12 percent (to $300 million) over the prior year. “People criticize them for their model, how they serve the middle market, but there's no better model out there for doing it, and it's better than no one serving them at all,” says Dennis Gallant, a consultant with Cerulli Associates.

True enough, but Edward Jones is at a crossroads. As Jim Weddle sits at his desk on the 10th floor of the Jones headquarters in Des Peres, Mo., he acknowledges Jones' challenges. Ironically, the strategy that built Edward Jones is also now holding it back. For example, its technology is out of date and the firm hasn't been able to substantially increase the number of reps lately, despite ambitious growth goals.

But, there's more. According to observers and former reps, the firm also can't seem to hold on to its best reps, partly due to the firm's limited investment platform, a system designed to be as simple as possible. For example, Jones doesn't offer a wrap program, which is offered by most firms, because it is at odds with its buy-and-hold strategy, Weddle says. The firm also badly lags its peers in technological support for its reps. (Companywide email? Not yet, but coming.) And the firm is still mired in class-action litigation surrounding its old revenue-sharing arrangements, which has cost it $75 million in fines paid to the SEC. Three separate class-action lawsuits — consolidated from an original nine but not yet certified — seek hundreds of millions for investors who weren't properly advised about revenue-sharing payments. Critics also point to the firm's dependency on revenue sharing — making up about 57 percent of net income in 2005 — as a potential problem.

Weddle says he'd like to add 9 percent more reps (about 900 reps); long term, the goal is to employ 25,000. To help recruit and retain reps — the life's blood and profit engine of Jones since the firm has only a tiny investment-banking unit — the firm increased payouts and bonuses last year. STill, the number of the firm's reps grew by just 1 percent in 2004 and 2.5 percent in 2005, despite recruiting and training roughly 200 new reps per month. Many reps who left were new brokers, says Weddle. But former reps say some were also million-dollar-plus producers, who had simply outgrown the firm. The big producers say the firm isn't sophisticated enough and hasn't improved its portfolio-management tools despite repeated promises.

Under Weddle, the firm's commitment to the middle market, through what it describes as long-term, conservative investments, isn't going to change, he says. The typical Jones rep is 43 years old, has been in the business for six years and has 863 accounts worth about $44 million. The typical client is 54 years old, makes $61,525 a year and has $106,415 invested through Jones. (By comparison, a Merrill Lynch FAs' average book size is around $95 million.) Asked about the competition's pursuit of high-net-worth clients, Weddle replies: “They're fishing in a very small pond.” And the trend towards wealth management and fee-based service models? “We have a managed accounts program with $500,000 minimums, but our clients are buy and hold,” he says. “The wrap pricing approach doesn't fit with that philosophy.”

Drinking the Kool-Aid

No, it's not Merrill Lynch. But for most Edward Jones reps, that's fine. Selecting only high-quality bonds, blue-chip stocks and mutual funds from the research department's 13 covered families keeps it simple and safe for most clients.

Depending on whom you talk to, Jim Weddle is either the right man or the wrong man to be at the helm at this moment in Jones' corporate life. It's nothing personal: Some former top producers and former general partners who left the firm in the last couple years — and wish to remain anonymous — say the firm simply needs to pick an outsider to gussy up the firm.

In some ways, Jim Weddle is Edward Jones. He grew up in Naperville, Ill., a suburb of Chicago, graduated from DePauw University in Greencastle, Ind., and got his start at the firm in 1976, first as an intern. A year later, armed with an MBA from Washington University in St. Louis, he opened the 200th office in tiny Connersville, Ind., a town of subdivisions and small businesses, surrounded by farms — Jones' country. He became a limited partner five years later and a principal in 1984. And he hasn't forgotten what got him there: “I walked up and down the main street, knocking on every door and saying hello,” says Weddle. “It's slow, it's inefficient, but it's still very effective.” He also doesn't forget the help he got from his firm, specifically two more experienced reps that mentored him through his early years. “They would call me up regularly and say, 'How ya doin, whatcha doin,' what are you workin' on and how can I help?” he says. Weddle subsequently had a hand in the creation of the Goodknight program, by which veteran reps bequeath to new reps their smaller accounts.

That culture hasn't changed much: Recruiters and reps say the firm's culture is a distinct one. Jones brokers still pound the pavement, knocking on doors, preaching a no-nonsense conservative investing philosophy. Many Jones brokers are known to man their offices on weekends. Veteran reps still help newbies. It's like no other firm on Wall Street. Volunteering to recruit, to mentor and to train is held in high regard by management. Indeed, Jones reps are known for their seemingly unflappable cheerfulness. The firm has won Registered Rep.'s “Broker Report Card Survey,” in which reps rank their own firms, for 13 consecutive years; it consistently ranks among Fortune magazine's “100 Best Companies to Work For.”

The great majority of Jones reps never worked in the industry before joining Jones.

The training program is considered to be one of the best for rookie brokers, says Andre Cappón, founder of the CBM Group, a New York-based consultancy. Jones says that 90 percent of its reps pass the Series 7 exam on the first try. They also are indoctrinated in what Weddle calls “our tradeoffs — what we do and don't do at Jones,” he says, referring to the firm's conservative approach to investing.

All 9,733 reps work with at least one sales assistant in small offices that are nearly identical — from the paint to the furniture to the decorations — regardless of where they are located. Reps work in one of 195 different regions under the guidance of a regional leader. They meet regularly among their region to discuss ideas and ask questions, but according to reps, they are rarely, if ever, permitted to attend events where brokers from other firms are present. For all these traits, the firm is often compared to Avon and franchises like McDonalds. The model's rigid standardization combined with the steadfast allegiance of its reps is one reason the firm's culture is both fondly and mockingly referred to as the “cult of Edward Jones.”

Breaking Away

But lately big producers have been leaving, say former employees. And it's not always because of the money. One ex-Jones rep based in Texas with more than $150 million in assets who is now with UBS said his payout, with bonuses and profit sharing, was 52 percent of his production. Not only that, he received an average annual return of 20 percent on a limited partnership that had grown to $270,000 in his more than 20-year tenure, he says. “I didn't leave for dollars and cents, I gave up a lot of money when I left,” he says.

As his clients' net worth grew, he says they wanted more information (performance measurements) and more choices (alternative investments, a broader selection of managed account managers and fee-based pricing). “I left because I couldn't provide my clients with what they needed and wanted, period,” he says. Another top producer agreed that the money was fabulous at Jones. He says he left when he lost three $500,000 accounts because he could offer them only Jones' approved managed account managers and fee-pricing wasn't an option.

Howard Diamond, managing director of Diamond Consulting, a recruiting firm in Chester, N.J., says Jones is a prime target these days for these reasons. “More than half of our database of brokers looking to move are from Jones,” he says. In 2005, he says, three-quarters of the firm's placements (roughly 20 reps) were Ed Jones reps. Another recruiter, Nick Ferber with Sanford Barrows in Miami, says successful Jones reps are a hot commodity. He mentions a UBS branch manager who was elated to have nabbed a $600,000 Jones producer. “The way he sees it, he's done as well as he has at Jones where he doesn't have half the tools and resources he'll have at UBS, so he's a bargain.”

One of Jones' technology deficiencies is, in fact, a long-running joke in the industry — the lack of email. Today, 90 percent of Jones reps cannot communicate with clients or anyone else directly through email. Currently, the Jones satellite system only allows a client to send an email to St. Louis, whereupon the message is wired to the rep who can then call the client.

Portfolio Analysis, the Jones rep's asset-allocation tool, displays client assets in five categories-cash, income, growth and income, growth and aggressive growth. But reps report there are no subcategories-no small-, mid-, large-cap designations, no style boxes, no way to show risk in the portfolio, no tool to rebalance and no way to tell a client his internal rate of return. “Clients would walk in and say 'Mike, you're great, really, but how I am doing this year?' and I couldn't show them,” says one former rep with $100 million in AUM who left 10 months ago for Raymond James. “My SA would cringe because we'd have to dig up old statements and crunch it by hand,” he says.

Jim Weddle responds confidently, “Seven hundred branches have email currently, four thousand will have it by the end of August and everyone will have it by November.” More importantly, says Weddle, the firm will be replacing the satellite system with terrestrial T-1 and DSL lines, offering far greater information flow and functionality on rep desktops. To complement that, the firm will begin phasing in SunGard's financial-planning software to all reps in the next two months. All told, Weddle says all the improvements will cost the firm several hundred million dollars.

Skeptical former Jones reps say all these promises sound like the same old Jones. “They've been indicating improvements — to email, all of it — for years,” says the Jones producer from Texas. “They just didn't deliver.”

Philip Palaveev, a consultant with Moss Adams, says while the firm will likely continue to lose larger producers until it finds “another way” for them and their wealthier clients, the business of Edward Jones is really about serving the middle market. “I wouldn't push the panic button yet on Edward Jones,” he says. “It's a very solid firm, very profitable. Sure, they're not a great competitor in San Francisco and New York, but they're literally dominating the smaller locations.”

Hokey, maybe a little backwards. But still successful.

The True Meaning of Cold Call

For Fairbanks, Alaska-based broker Christopher Knott, when the mercury dips to 20 below zero the term “cold call” takes on a much fuller meaning.

To be sure, there are few things ordinary about 35-year-old Knott's life in the Great White North. For instance, his commute: Once a week from November to April, Knott takes the river instead of the road, mushing 14 of his 35 Alaskan Huskies from his home in Two Rivers to his office in Fairbanks. That's a 32-mile odyssey over the frozen Chena River and through the Fort Wainwright Army base. (Two Rivers, a town of 750 souls, is famous for its dogsled teams; in fact, Knott estimates dogs outnumber people 10 to 1.)

For the kid from Greeley, Colo., it all started with a book, Crossing Antarctica, by Will Steeger. Having just graduated with honors in corporate finance from Clemson University in 1992, and “after having a very rough first year of adjusting,” Knott says he needed a breather. He soon found himself working as a race-dog handler at kennels outside Fairbanks.

His experience? “Well, I had a beagle growing up,” he says. In 1998 and 1999, he joined the races, coming in 20th and 21st out of 90 teams in the Iditarod, which runs 1,200 miles from Anchorage to Nomeš. And in 2003, he placed 11th out of 55 teams in the Yukon Quest, a 1,000-mile race from Whitehorse, Yukon, to Fairbanks.

As it happens, Knott knocked on a Jones rep's door looking for someone to sponsor his Iditarod run. “He looked at me and essentially said I could do a lot better working at Jones,” he recalls. With a family on the way, he jumped. The rep was right: Today he handles $65 million in mostly retirement accounts for 800 households in and around Fairbanks. Nice work if you can get it. But the commute?

Se Habla Espanol (Spanish Spoken Here)

There probably aren't many financial advisors with Cesar Padilla's background. Padilla was reared by a single mother, a factory worker, in a southeast Los Angeles neighborhood that was once poor but working-class. (Today it is better known for gang strife.)

Now based in Chula Vista, Calif., in San Diego County, Padilla, 35, has $40 million in assets under management for 350 households — nearly half of which are Spanish speaking — with the average account worth roughly $50,000.

“There's a lack of experience, a lack of knowledge about financial services that is made worse by a language barrier,” he says of the Spanish-speaking community in the U.S. “When you're talking about finances, people want to be very comfortable, that means speaking in their first language.”

True enough: Hispanics represent about 14 percent of the U.S. population and control $736 billion in disposable income. But according to the FDIC, less than 20 million even have a bank account.

A graduate of San Diego State University — where he became the school's first Latino student body president — Padilla became a producing rep for Jones in 1995, and moved to Chula Vista, an immigrant town just 10 miles from both San Diego and the Mexican border (50 percent of the residents are native Spanish speakers).

Recruited by a big national firm after college, Padilla says he preferred Jones. “I liked the Jones model, its culture, the training and mentoring,” he says. And he says he is thriving there. “I'd like to grow in the next five years to $100 million in assets under management.” There's little reason to doubt he'll pull it off.