Edward Jones is becoming a pioneer among large wealth managers with a business model allowing its advisors to offer a comprehensive financial plan in return for a flat, annual fee.
The St. Louis-based firm announced last week roughly 600 of its advisors will be able to start providing certain clients with comprehensive financial plans for $3,600 a year. The services will go beyond the usual investment recommendations paid for by asset management charges and extend to estate and tax planning, wealth transfers, protections against risk and advice on general life goals.
"For the first time, Edward Jones financial advisors will be able to deliver comprehensive financial planning and will be compensated accordingly for their time and effort to build and maintain a financial plan," said Lena Haas, Edward Jones head of wealth management advice and solutions.
Moving away from AUM
Industry reformers have long promoted the business model of offering a specific planning service for a flat fee, seeing it as a way to bring financial planning to a broader swath of the public. But Edward Jones views its new service as a supplement to the advice clients are already paying for through asset under management fees, which are set at a percentage of the assets held in client accounts.
Edward Jones' new offering was first tried out in 2023 by allowing investors to pay for a one-time financial plan provided through the firm's headquarters. Haas said Edward Jones' goal is to have the service rolled out to all of its more than 19,500 advisors by next year.
Financial planning for a fee is now available only to clients with $250,000 or more in their accounts, although that could change with time
"Because of the comprehensive nature of this initial offering, we believe that clients with $250,000 or more in one of our investment advisory accounts are the clients who most likely will be interested in, and benefit from, the ongoing financial planning program," Haas said. "That is why we are starting with this group, learning from their feedback, and designing additional financial planning offerings."
Financial planning a 'loss leader'
Adam Dell, the founder and CEO of Domain Money, said many of the services Edward Jones is including in its new offering have, of course, long been provided to a greater or lesser extent by large firms. The trouble, he said, is that comprehensive financial planning has tended to be viewed as a "loss leader" that makes little money on its own but helps to bring in more client assets and eventually higher AUM fees.
The flaw in that business model, Dell said, is that it gives advisors few direct rewards for going beyond basic investment management. Firms need to realign their incentives to ensure wealth managers have a compelling reason to give clients the services they actually want.
"This is a trend that will just continue growing," Dell said. "For most clients, investment management and financial planning really are part of the same equation. Your investments are just a subcomponent of your overall taxable brokerage account. And how that is managed and how your 401(k) investments are managed are really subcomponents of financial planning."
Domain Money, Dell's firm, is one among a growing number in the industry founded on the principle that clients should be able to pay a flat, simple fee for just the services they want. Domain Money, for instance, sells a basic financial plan for $2,500, a "strategic" plan for $4,500 and a "comprehensive" plan for $7,500, all with additional services that can be tacked on for more money.
Industry trend toward one-off fees
In a 2021 report, the research firm Cerulli found that almost a third of advisors charge fees in return for financial plans. Cerulli predicted more and more wealth managers would move in the same direction since one-off fees "present a significant opportunity for planning-centric advisors who want to offer their planning services independently of investment management."
Brett Bernstein, the co-founder and CEO of the Bethesda, Maryland-based advisor XML Financial Group, said Edward Jones' new offering may also come as a response to increased competition. Advances in technology have made it easier for people who are simply looking for investment management to go it alone with self-directed brokerage accounts or turn to robo advisors.
"So if people are going to want to stay with an advisor and not try to do it themselves or use a robo or AI, whatever it may be, firms need to provide a deeper level of service and sophistication," Bernstein said. "And I think the proof is in the pudding here, to have a firm of this size finally doing this."
Innovation at Edward Jones
Financial planning for a fee is only one of several changes Edward Jones has introduced in recent years in a bid to modernize its wealth management business. Last month, Edward Jones announced a new partnership with U.S. Bank allowing customers to open checking accounts and take out credit cards bearing both firms' names. The deal will not only enable investors to easily link Edward Jones accounts to bank accounts but will also give advisors greater insight into their clients' saving and spending habits.
The firm has also given all of its branches access to the fintech firm Envestnet's MoneyGuide product, which provides an easy way to visualize how changes in things like spending and saving are likely to affect their ability to, say, retire by a certain age. It has also allowed certain advisors to start engaging "discretionary" trading — meaning they don't have to obtain clients' approval for every single transaction. And Edward Jones has brought a new customer relationship management system, or CRM, provided by the industry giant Salesforce to more than 5,500 of its branches.
Many of the changes have been done in the name of making sure ordinary investors can make use of services they might not otherwise be able to afford. This month, for instance, it eliminated a minimum monthly fee of $10 for all its advisory accounts and lowered the fees charged on assets in the $500,000 to $1 million range to 1.2% from 1.25%.
SMAs for all?
Edward Jones took another step in the same direction last week with its announcement that it will be offering separately managed accounts, or SMAs, to certain clients. SMAs are portfolios of stocks, bonds and other assets that are often seen as an alternative to mutual funds and other sorts of index funds.
Unlike the assets in an index fund, which are usually assembled by large money managers for a mass market, SMAs are custom-built to meet the needs of an individual investor or group. Edward Jones already offers 70 SMAs through third-party providers. This new SMA will be proprietary to Edward Jones, drawing on the firm's internal market research.
The new SMA will differ in other ways from those offered by third parties. Those outside SMAs typically charge asset fees ranging from 0.1% to 0.4%, according to Edward Jones.
The firm's new SMA, by contrast, will have no separate fee. Instead, it will only be offered to clients enrolled in Edward Jones' Unified Management Accounts, which offer tax-management services and access to various index funds to clients with at least $300,000. Investors in a UMA are already paying advisory fees.
The new SMAs will hold between 40 and 60 stocks, mainly large-cap equities. The minimum investment will be $50,000.
Christopher Volpe, a managing director at the financial software firm Zephyr, said Edward Jones' offering is really part of a bigger movement to give more people access to SMAs. Volpe said Zephyr — whose software is used by Edward Jones for asset management — has a proprietary database that its clients' firms can use to analyze and track different SMAs.
For the longest time, Volpe said, SMAs were offered only to large institutional investors, "largely because of the cost of management." But over the past five years or so, they've been steadily extended to high net worth clients.
Edward Jones' latest offering is an initial step, Volpe said, toward bringing them to the mass affluent investing public.
"In this case, what they're saying is, 'Look, if you use our SMA as opposed to somebody else's, you can actually save money," Volpe said. "The fee is already included in the UMA, so you're not paying double fees. So that's a really interesting take on this. Because when you start looking at net of fees and everything else, you might see a higher return than with another large cap SMA, because you're paying fees on top of it."
