Edward Jones IRA Review

Let’s start with the obvious: If you don’t feel that you need a financial advisor, there is absolutely no reason to have an account at Edward Jones. You can go elsewhere and find less expensive funds, less expensive stock trades, and lower account fees.

If, however, you do need a financial advisor, should Ed Jones be one of the places to consider?

Let’s take a look.

Advantages of Edward Jones

The primary selling point of Edward Jones is their broad network of local offices. In most parts of the U.S., there will be a Jones office not too far from where you live. If face-to-face interaction with your brokerage firm is important to you, Jones is hard to beat in terms of convenience.

The second primary advantage of Edward Jones is that you’ll have no difficulty understanding your advisor’s recommendations. Jones’ investment philosophy is straightforward. They suggest that you buy and hold a portfolio of comprised of:

1. blue chip stocks,
2. bonds, and
3. actively managed mutual funds (i.e., funds that seek to earn above-market returns).

Edward Jones Commissions and Costs

Per a phone call to Edward Jones’ customer service line, their commissions per stock trade are based on the size of the trade and break down as follows:

• 2.5% for trades less than $6,000
• 2% + $30 for trades between $6,000 and $10,000
• 1.5% + $80 for trades between $10,000 and $25,000
• 1% + $205 for trades between $25,000 and $100,000

That’s likely hundreds of dollars more per trade than you’d pay with a typical discount brokerage firm. Between that and their $40 annual IRA fee, Edward Jones isn’t exactly on the list of cost-effective places to invest.

Edward Jones Conflicts of Interest

The biggest drawback to having an account at Edward Jones (and the other “full-service” brokerage firms like Merrill Lynch and Wachovia) is that your financial advisor is paid on commission. Specifically, Edward Jones financial advisors earn money when you:

• Buy or sell a stock,
• Buy a bond, or
• Buy a mutual fund that charges a sales load.

This payment system leads to Edward Jones clients receiving advice that’s biased in a few ways. For example, an Edward Jones financial advisor will never recommend a no-load mutual fund (even when that’s the best option for the client) because he/she won’t receive a commission if you purchase such a fund.

An additional conflict of interest is created by the fact that Edward Jones receives “revenue sharing” payments from a handful of fund companies.

In other words, certain fund companies pay Edward Jones in order to receive preferential treatment. So if you’re a Jones client, you can expect your advisor’s recommendations to consist almost exclusively of the following fund families:

• American Funds
• Franklin Templeton
• Hartford Investments
• Invesco
• Lord Abbett
• MFS Investment Management
• Oppenheimer Funds

No Online Trading

While it’s easy to check your holdings and account balances on Edward Jones’ website, they don’t actually provide any online trading capability whatsoever. If you want to execute any transactions, you’ll have to call your broker.

The official Jones position is that the lack of online trading is intended to prevent rash investment decisions. To some extent, that makes sense. Personally, however, I find it frustrating. I want to be able to do what I please with my money without having to talk it over with somebody.

Summary

Pros:

• Local offices,
• Personal customer service,
• Easy-to-understand investment philosophy.

Cons:

• Significant conflicts of interest between you and your advisor,
• High costs.

In most cases, if you feel that you need a financial advisor, I’d suggest going with one who charges a simple hourly or annual fee rather than one who is paid via commission. By using a fee-only advisor, you’ll get unbiased advice, and you’ll likely reduce the overall costs on your investment portfolio.

If you’d like to compare Edward Jones to other brokerage firms, here’s a comparison of IRAs at various discount brokerage firms.