Edward Jones Q3 profits fall due to lower stock values

Edward Jones profits tumble amid rising financial advisor attrition

November 15, 2022 4:36 PM

The losses to Edward Jones' headcount of 17,900 financial advisors are tapering off, but it's not clear where the wealth management firm stands on its goal of hiring some 1,500 this year.

Edward Jones sustained a "modest" uptick in attrition during the third quarter while hiring fewer incoming advisors under its "continued strategy to focus on intentionally building" the firm's pipeline, according to the Nov. 14 earnings statement of its parent corporation, The Jones Financial Companies. In 2021, the firm had a net loss to its advisor headcount for a calendar year for the first time in a decade, prompting St. Louis-based Edward Jones to disclose its plan to recruit about 1,500 representatives.

A freeze on incoming advisors during the pandemic and the terms of a $34 million race discrimination settlement with Black advisors has changed the firm's training over the past two years. In June, Edward Jones gave advisors the option to work together on teams for the first time. The company hasn't said how many fewer advisors it hired during the quarter or how many it has added this year, though. Slumping stocks are also pushing the value of clients' assets and Edward Jones' overall earnings down, even as the company notched a significant in-flow to customer holdings and paid much lower expenses for compensation.

In the period, Edward Jones "continued to focus on its strategy to grow and promote branch team success," according to management's analysis of the results in the filing.

"This approach to hiring may continue to result in fewer financial advisors hired than historical levels," the filing stated. "The partnership has begun offering options for greater flexibility and choice to its financial advisors, which may have a positive impact on financial advisor retention. These options include co-locating their branches with one or more financial advisors in shared office space while maintaining their own individual client relationships, an expanded variety of branch support roles and a pilot of multi-financial advisor team models."

When asked for additional statistics about the hiring and to know when it expects the headcount to begin to grow again, representatives for the firm declined to answer beyond the statements available in the quarterly SEC filing.

For the most interesting takeaways from Edward Jones' third-quarter earnings, scroll down the slideshow. To view coverage of Edward Jones' results in the second quarter, click here. For a look at where the company stood after the first three months of the year, follow this link.

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Note: All figures refer when possible to the company's U.S. business rather than its combined results including those in Canada, where it had 841 advisors at the end of the third quarter. The company breaks out most, but not all, of its results between the two countries.

Financial advisor headcount

Net losses to the firm's headcount ticked down for the third quarter in a row at Edward Jones. The number of advisors fell by 61, or less than 1%, year over year to 17,909 in the period, which is slightly lower than the net loss of 67 in the second quarter and drastically down from 156 in the first three months of the year and 350 last year. Still, the rate of attrition expanded by 40 basis points from the same time a year ago to 6.4% across the U.S. and Canada.

Client assets

Edward Jones advisors added $26.1 billion in net new assets during the third quarter — a 21% surge from the same three months last year when the value of stocks was still on the rise. The lower stock prices this year amid inflation and interest-rate hikes reduced overall client assets by 14% year over year to $1.48 trillion by the end of the quarter. Holdings in advisory accounts slipped by 7% to $603.4 billion as well.

Gender and race discrimination case update

In a lawsuit first filed in March, brokers Katie Dixon and Jaime Gaona accused Edward Jones of a "centralized, company-wide policy and practice of delegating critical compensation decisions to senior white male financial advisors." Edward Jones filed a motion to dismiss the case in May, and a judge in the St. Louis federal court issued a stay on Sept. 15 pending a ruling on the motion, according to the company's quarterly SEC filing. Edward Jones and its parent firm "deny the allegations and intend to vigorously defend this lawsuit," the filing said.

Expenses

Higher operating expenses contrasted with lower variable compensation tied to the level of client assets and advisor headcount in the quarter. Operating expenses surged by 4% year over year to $2.2 billion due to expanding corporate and branch office pay and "intentional investments in technology infrastructure, digital initiatives, virtual enablement tools and test-and-learn pilot programs," according to the firm's SEC filing. Variable compensation, however, tumbled by 18% to $405 million because of lower commissions and smaller future liabilities from non-qualified deferred plans for advisors.

Bottom line

The elevated interest rates, which led to more revenue for Edward Jones in the form of cash yields, dividends and other earnings tied to the Fed's rate hikes, failed to offset the losses to client asset values in the quarter. In addition, those higher rates led to losses in U.S. Treasuries held by the company as a hedge in its non-deferred compensation plans. Lower revenue from fees, transactions and other sources pushed down revenue and earnings for the quarter.

In all, the company earned $304 million in income before allocations to partners on net revenue of $3 billion. Revenue decreased 3% year over year in the third quarter, while profit tumbled by 22%.