Spiff,

I agree, the tech charges are a bit absurd.  Sometimes I wonder if there is corporate overhead buried in there.  I realize we pay for a LOT of systems.  The problem is, they basically have to provide everything to everyone, regardless of whether they use it or not:

Server, Phones, High-Speed Internet, PC's, Fax/Scanner, color laser pritner, in-fax system, CRM, Cost-basis system (outside vendor), Morningstar, Portfolio, FAST, order-entry, real-time quotes, Bondnet, document scanning/storage, streaming video on demand, etc....the list goes on and on.  I don't want to debate the value or quality of each system, but the bottom line is that there is likely some sort of per-user charge for each of these systems, as MOST are 3rd party systems (or have 3rd party components in them).  They also have national contracts for onsite systems support.  Problem is, they must provide them and charge EVERY FA, regardless of how much they use them.  For most FA's, they could find less expensive or free alternatives to some of these (or not use them at all) if they were indy.  But huge firms like Jones need services with scale and durability.  So we end up paying the price.  It's sort of counterintuitive, as you would think a huge firm would have economies of scale, which they do, but they end up having to find more systems that are more robust than any one individual might require.

Gentlemen, is that a light bulb I see above your head?

The answer from any employee-model firm about lack of profitability is always to have the broker/advisor generate more revenue.  If you talked to 75-80% of self employed people and told them you were the prinicpal of a business that generated $200,000 of revenue, they would think you were hot sh**.  This business does NOT have to have a ton of overhead, unless someone else makes the decisions for you.

How many FAs out a year or less need their own full-time assistant?  Shoot, how many with less than $50 million AUM do?

Cowboy-

Tell a Jones FA they don't need a full time assistant unitl you hit the 50M number is taboo. They are not equipped to think like that. They are generally told what to say, and typically aren't interested especially if they aren't profitable. Guess what? Apparently they are going to have to become more oriented like a true business owner, but I have a sneakin feeling they aren't going to be able to affect the bottom line, just the revenue side.

True statements.  I hired a part-time BOA.  She works about 25-30 hours per week, gets no vacation, sick, or benefits.  She costs $1500-2000 per month.  I tell other FA's that she is part time and they look at me like I'm on drugs.  I have no reason to have her here full-time.  And she also covers my Legacy FA as well.  So only half her cost hits my P&L (about $800-1000 per month).  Between the two of us (I am out 4 years, he is out 2) we have about $35mm AUM and 300 clients.  We don't even bring in an on-call when she's out unless we see that we both have a few appointements that day.  If one of us is free, they answer the phone.

This is why I still insist that we don't all need one FT BOA, nor do we each need our own office.  We scan all our documents, we have e-mail, we have multi-buy mutual fund purchasing, we have Advisory Solutions which is turn-key, pretty soon they are rolling out this portfolio builder tool which will build portfolios and then buy them all with a click of a button, etc.  All firms have this stuff, and the point is, it makes doing a lot of the daily admin stuff easier to do yourself than giving to an assistant.  Granted, if you have a very transactional business with lots of clients, you need one.  But there are very few offices I have seen where you cold not have one BOA for two FA's (and one office).  I am still convinced that the two-FA office works.

HOWEVER, I was recently audited, and the auditor was telling me that it is a compliance issue.  Not sure if TWO FA's is an issue, or just more than that.  It jsut seems that we could cut way down on office overhead by reducing offices and BOA's.

It is just the math of things that I currently don't understand. Also I feel like an idiot for not understanding it. Since we are compensated based on this P&L I think Jones should take a lot of time to make sure that I understand it, however I have never been explained these things and I sincerely feel that my RL and AL either are not prepared to talk about it, don't understand it themselves, or are hiding something.

As far as the two person office, I couldn't agree more. I however do a ton of transactional so I really do LIKE having a full time BOA. That isn't a huge part of the problem for me. The depreciated and leasing of technology... That thing is insane, then add 5750 per month for ????

I know that some indys who hate Jones are probably getting hardons just reading our banter here, but I am glad to have an open conversation about what we are paying for.

As far as the expectations, I do agree. I am not against the concept. I however am fearful of Edward Jones trumping up more overhead costs into things like TEch depreciation making profitability a number that is so absurd. It isn't like we are producing widgets here, there is no manufacturing costs. The only thing we provide is investments and service both of which have no upfront costs. That is why I find it so hard to believe that we need to be producing 22K to really be profitable and even if our number is 16K... is that really realistically the true profitablity number? If so, what is our home office doing wrong? Again like the govt and taxes, they get tons of tax money but it is never enough...

RW,

Maybe it's because my background is in management accounting that ity makes sense to me....to me the P&Lm is pretty simple and straight forward.  The ONLY numbers that don't make sense to me are the tech numbers, because they are not itemized (or rather, there's no real way to verify their origin).  Everything else is straight forward - wages, benefits, rent, utilities, buildout amortization, etc.  I have verified every single number, every month.  Anything that seems wrong to me, I always shoot a Service request to Accounting, and the clarify it.  I have had to verify maybe 3 things in the few years I have been in this office, and they awlays end up making sense.

As far as the true "profit" number, keep in mind that there are a few different numbers we are talking about here (3, more specifically):

1. The $22K threshold - this is not the ACTUAL profit break-even number per branch, it is more of an average firm-wide for a branch to be profitable to the firm (NOT just branch profitable), so that represents what the firm wants each advisor to produce, minimum.

2. Location Margin - If this number is positive, it means you are covering the costs associated with running YOUR branch.  This would include your compensation (40%), your BOA, benefits, rent, utilities, buildout costs, technology costs, phone, etc.

3.  Bonus Eligible Profit - If this number is positive, it means that you are covering the costs of your branch (i.e. Positive Location Margin), PLUS you are making a positive profit contribution to the FIRM.  The firm estimates that each branch must contribute $69,000 per year in profit to the firm in order to cover home-office expenses.  So if my branch only contributes $50,000, that means some other branch must contribute $87,000 to make up the shortfall.  If every branch was contributing $69,000+, it would mean more profit to be allocated out, and the bigger producers would not be subsidizing the poor producers.

As far as home-office overhead, unfortunately, we are not much different than most firms.  And having 10,000 offices for 12,000+ FA's creates additional overhead requirements.  To compare, I think I read that MSSB has like 750 offices, but like 15,000 FA's (or more).  It's just a fact of life in our structure. 

Hope this clarifies SOME things for you.  Doesn't take the bite off, though.

B24- thanks but doesnt it seem like it is a bit high that it takes 264,000 for a branch that doesn't produce anything to be PROFITABLE. What I am saying is that we only get paid 103000 of that our help like 30000 of that. Our computer system is nothing above and beyond, quote system etc.I think that the math on the P &L stinks again, like spiff said technology going for like 1 million per year and then charging to depreciation... I just feel like something doesn;t add up

RW,

Of 264,000, you get paid 103,000, so now you are down to 160,000.  You have benefits, which includes 7.65%FICA, Medical, etc., call it 10%.  Now you're down to 150,000.  You pay your BOA $35,000 with FICA included.  Jones pays profit sharing, which would be about $6500 for all wages (yours and hers).  You're now down to 120,000.  You pay rent, utilities, phone, etc.  Call it $2000 per month (mine is higher).  Your down to 95,000.  You amortize buildout costs.  Call it $500 per month (mine is higher).  You're down to $90,000 (yes, I'm rounding with most of this stuff).  Branch systems/equipment is $15,000 (to pay for all PCs, printers, phones, cables, servers, etc., in addition to all the software the firm uses - I will touch on this again later).  You're now down to 75,000.  I did not include any miscellaneous stuff, and I rounded down on most everything.  So you are now at your $69,000 that Jones wants in profit contribution to cover Home Office overhead.

RW, I'm not defending Jones, I am just telling you that the numebrs all add up.  You can criticize them for their home office overhead, but the P&L DOES make sense.  And look at it this way, it's a partnership, so WHY would the PARTNERS want more home office overhead than necessary??  Most of the added profit by reducing overhead would go in their pockets, so they have a LOT of incentive to keep overhead low.

The fact is, Jones has a high-overhead model.  They don't try to hide it.  It just is what it is.

And getting back to the tech stuff, if you really add up all the hardware and outside software we have to lease every year (most enterprise software is paid on subscription basis), it really is expensive.  Morningstar Principia alone (which is what we have) is like $3000/yr. per user.  There's like 10+ sofwtare programs we use that we msut pay for every month (Sungard Financial Planning (FAST), Portfolio, Cost Basis (Net Worth Services, Inc.), Document File Cabinet, In-Fax System, Outlook web access, Video On-Demand, Advisor Learnings Site, S&P Marketscope, Quote Monitor, BondNet, Intercom, Webdial, Relationship Manager, Advisory Solutions, etc.).  Yes, believe it or not, these are all 3rd party systems.  Some may only cost $50/mo. per user, but they all cost money.  Again, I am not going to validate their usefulness, but the fact is that these are the systems they choose to use, and most other captive firms use something similar.

[quote=Spaceman Spiff]

239 months is the magic number to be exempt from a PIP.  I'm not sure I really understand why at 20 years in the biz suddenly it doesn't matter what your performance numbers are.  We've got a guy in our region who is about a year away from that right now and he is the poster child for the reason Jones needed to make a change.  If I've been at this desk for 20 years and I've only got $50mil AUM and I'm grossing under $300K a year someone needs to tell me to move on. 

[/quote]

Why? If he is serving his clients. Making a living for him and his family. Why should he climb the wall of greed?

Or is it because the firm profit comes first and then the reps and last but not least the clients?   

Does firm profit come first?  Of course fukcnut.  If you ran an indy shop and were LOSING money, what would YOU do?  The client has nothing to do with it.  You can serve clients well whether you are profitable or not. 

It is just idiotic to criticize a firm for mandating a profitable branch office.

And the firm profit does not come before the rep, since they are essentially one and the same.  If the firm is profitable, it means the rep made good money.  How dumb are you?

b24,

first time in a long time I agree with you.  In fact this may be the first time.  I really like your reason in this particular case.  If it ain't profitable cut it out like a cancer lest it spreads to other parts of the body.

Your firm did it with the UK, it wasn't profitable after 10 years so it was closed.

So when will your firm see the light with Canada?  16 years and NEVER been profitable.

The operations there is barely into Quebec.  Montreal metro area has nearly 4 million population and how many EJ people are there????? 12 maybe   some would argue poor management but that can't be as  the managing partner of Canada must be really good because he's the second highest compensated person at EJ. (as per the 10-K)

X-

IF B24 was the managing general partner,  Spiff would have been fired for too many posts. It isn't profitable to spend alot of time on these forums....

Sorry Spiff...couldn't resist. It was meant for a little brevity, honest.

[quote=Spaceman Spiff]

I don't disagree.  If you are making a profit for the firm, the last thing I think they'd want to do is let you go. 

My point was more that if I spend that much time in this business and I don't ever get to the point where I'm bringing home $200K+, then I need to find a new line of work.  A doc I know said that her nurse anesthetist makes close to that.  I volunteered to put her patients to sleep for half of that.  I have lots of unread prospectuses in my office. 

[/quote] Ok suppose you are bringing home 150k or even 100k, what do you suggest as another career choice? The characteristics to make it in this business, even at the lowest levels, do not transfer to other industries very well. I am basing this on a dollar for dollar transfer. For example, if a Jones guy is out 10 years and is "barely" getting by in the GP/LP's eyes, where could they go and have what I would consider an apples to apples comparison opportunity?

foot - funny.  However, if you look at an average post per day on B24's vs mine, then he'd have to let  himself go first. 

ND - The job skills we have don't translate very well outside of this industry.  I agree with you on that.  But if I add another 10 years to my career here at Jones and I'm not producing substantially more than I am right now, I really should consider some alternatives.  I would seriously look at getting some different education and trying a different line of employment.  What that is, I'm not sure.   My wife asks me that question every once in a while and I never have a good answer for her, so I just keep doing this.  I consider starting my own blog about the financial industry, but who wants to read my opinions about how everyone in the world, except for EDJ, sucks?

[quote=xej1984]

b24,

first time in a long time I agree with you.  In fact this may be the first time.  I really like your reason in this particular case.  If it ain't profitable cut it out like a cancer lest it spreads to other parts of the body.

Your firm did it with the UK, it wasn't profitable after 10 years so it was closed.

So when will your firm see the light with Canada?  16 years and NEVER been profitable.

The operations there is barely into Quebec.  Montreal metro area has nearly 4 million population and how many EJ people are there????? 12 maybe   some would argue poor management but that can't be as  the managing partner of Canada must be really good because he's the second highest compensated person at EJ. (as per the 10-K)

[/quote]

Well, as I said in a post somewhere else about Canada, the fact that they nixed the UK means that they must have something up their sleaves for Canada.  In a nutshell, they either have a real good gameplan for profitability, or they are formulating the right exit strategy.  Selling a financial services firm with $14B in AUM is no small task.

As I also said, keeping the thing going may lose LESS money than trying to close it/sell it.  They have narrowed the operating losses considerably.  It's sort of like dropping out of a marathon at mile 24 with a mild muscle cramp.  I think the UK was more like getting diahrrea at mile 15. 

Of course, I may be WAY off on this, but from a business perspective, these are the type of things we used to look at when evaluating deals (internal or external) in my previous life.

I guess that even if those numbers do add  up I find it unreasonable that it would cost every office 70K each year in payment to Edward Jones. That doesn't sound high cost it sounds ignorant as a business plan.

B24- I read what you said about doing something different and I have to agree with everything you said.

[quote=RealWorld]

I guess that even if those numbers do add  up I find it unreasonable that it would cost every office 70K each year in payment to Edward Jones. That doesn't sound high cost it sounds ignorant as a business plan.

B24- I read what you said about doing something different and I have to agree with everything you said.

[/quote]

RW, honestly, it doesn't sound high if you consider that it includes rent, buildout, and your assistant's wages and benefits.  What DOES sound high is when you're producing 400-500K and you're paying 240-300K to Jones.  I actually think it's the best place to be if you are producing under 300K and need to have an assistant, and possibly live in a high-rent area.  If you could hire someone for 25-30 hours at $15/hr., and pay rent of 500 bucks, then maybe it would be better to go indy at any point.  It also depends big time on your B/D payout as an indy.  One of my friends that went indy through Cambridge gets a 65% payout (I think his OSJ takes a cut) because he only produces like 125K.  He can only afford to work out of his house, without an assistant.  So his take-home is about the same as at was at Jones (he has some other expenses in adition to the B/D payout).  If he was producing 250K and had an 85% payout, then being indy would be a no-brainer. 

[quote=RealWorld]

.... Our computer system is nothing above ....[/quote]

You don't know what you are talking about. For the costs you are paying in software, I'd challenge you to duplicate it in the real world. You either don't use it or don't know it's there.

Go indy, figure it out afterwards. You'll be a little surprised at what tech costs and how tough it is to integrate them.

RW, he's got a point that you are overlooking.  Jones' systems are VERY well integrated.  Yes, you could by a CRM, a portfolio system, and order entry system, a document file cabinet, financial planning software, etc. from 3rd party vendors, and possibly pay less.  And you could possibly get better software as well.  But try getting them to all talk seamlessly to each other.  Now THAT is another story.

Lock, what has been your experience with the tech side of things since going indy?

As a starting point, I clear through Pershing. If what you want is to get the integration you ahve at Jones, RJ, a wirehouse, Cambridge ... well, that's tough. You need a central hub, and that tends to force you towards Redtail for CRM. It will hook with other tools pretty well, do the mailmerge thing, get a good coordination with a strong, client facing tool.

So I'm looking at using Redtail (65), plus financelogix (think eMoney, what the LPL guys have) for 110 - and that includes six CashEdge connections, plus Albridge (225). That's functional without completely all the bells and whistles of Jones. Which of course, I don't need as you well know. Morningstar Principia type analysis is available for free at ishares (and actually, you can get some very good additional tools not available). And the CashEdge connection again is something I didn't have at Jones.

So, I'm at $400 a month before the cost of website.