If I have a million with Edward Jones, in 10 years, how much money has my FA made off me?

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randydimera
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If I have a million with Edward Jones, in 10 years, how much money has my FA made off me?

Post by randydimera » Wed Jan 10, 2018 12:40 pm

Trying to gauge the general idea on how much the guy is making off of my parents, or how much he makes yearly off them.

123
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Re: If I have a million with Edward Jones, in 10 years, how much money has my FA made off me?

Post by 123 » Wed Jan 10, 2018 12:53 pm

If a financial adviser is paid 1% a year as an AUM fee for every $1 million the adviser gets $10,000 annually. Since the funds that are offered are usually high expense ratio fun (after all the customer knows little, why not?) you can usually figure another 1% in higher then necessary fund expense ratios. For each $1 million that comes out to something $20,000 annually versus a Vanguard alternative. Over $10 years that's $200,000 without any compounding. We're assuming the adviser is smart enough not to be putting it into his/her own Edward Jones account but you never know.

Edited to add:
Another discussion about Edward Jones fees: viewtopic.php?t=209742
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Re: If I have a million with Edward Jones, in 10 years, how much money has my FA made off me?

Post by Hiwatter » Wed Jan 10, 2018 12:58 pm

Is the money in one of their super special "Managed Account" portfolios where they charge your a fixed percentage based on the account balance each year?

If so, I think it's a just over 1% per year (on the account balance). But knowing those clowns there are probably some additional hidden fees in there too (like 2% of dividends etc).

You can try to make sense of it all here:
https://www.edwardjones.com/disclosures ... index.html

I've been trying to rescue my parents and Brother from the nonsense of EJ for a while now...

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Re: If I have a million with Edward Jones, in 10 years, how much money has my FA made off me?

Post by mrc » Wed Jan 10, 2018 1:01 pm

With your folks in mind, ponder the Keep Costs Low objective of the BH philosophy. That is the graph that made me move out of managed funds at a financial institution (and employer!) into index funds with low cost providers.
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randydimera
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Re: If I have a million with Edward Jones, in 10 years, how much money has my FA made off me?

Post by randydimera » Wed Jan 10, 2018 1:03 pm

123 wrote:
Wed Jan 10, 2018 12:53 pm
If a financial adviser is paid 1% a year as an AUM fee for every $1 million the adviser gets $10,000 annually. Since the funds that are offered are usually high expense ratio fun (after all the customer knows little, why not?) you can usually figure another 1% in higher then necessary fund expense ratios. For each $1 million that comes out to something $20,000 annually versus a Vanguard alternative. Over $10 years that's $200,000 without any compounding. We're assuming the adviser is smart enough not to be putting it into his/her own Edward Jones account but you never know.

Edited to add:
Another discussion about Edward Jones fees: viewtopic.php?t=209742
Interesting. Now I wonder how much they would save if they moved to vanguard with me with there million. They have it across like 3 accounts, like an IRA, another retirement account and a individual account or something similar to that.

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Re: If I have a million with Edward Jones, in 10 years, how much money has my FA made off me?

Post by randydimera » Wed Jan 10, 2018 1:13 pm

I did find this

https://www.edwardjones.com/images/ETY-1714E-A-MA.pdf

Look what happens to the people who have less than 6 grand with them. I dont even know what that means. Is that 2.50% squared 3 times or what? Thats nuts!!

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Re: If I have a million with Edward Jones, in 10 years, how much money has my FA made off me?

Post by John Laurens » Wed Jan 10, 2018 1:16 pm

Your title and question are incongruent. Are you asking what Edward Jones charges you or your parents. If it’s your parents, you could ask them.

Regards,
John

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Re: If I have a million with Edward Jones, in 10 years, how much money has my FA made off me?

Post by DaftInvestor » Wed Jan 10, 2018 1:26 pm

John Laurens wrote:
Wed Jan 10, 2018 1:16 pm
Your title and question are incongruent. Are you asking what Edward Jones charges you or your parents. If it’s your parents, you could ask them.

Regards,
John
I'm guessing his parents have little to no idea how much Edward Jones is making off of them nor how much they could save if they DIY.
OP is collecting data to start the conversation.

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Re: If I have a million with Edward Jones, in 10 years, how much money has my FA made off me?

Post by Ethelred » Wed Jan 10, 2018 1:28 pm

randydimera wrote:
Wed Jan 10, 2018 1:13 pm
I did find this

https://www.edwardjones.com/images/ETY-1714E-A-MA.pdf

Look what happens to the people who have less than 6 grand with them. I dont even know what that means. Is that 2.50% squared 3 times or what? Thats nuts!!
You might want to read that a bit more carefully.

1. That's their commissions for each sale of stock, not their annual fees for managing a brokerage account. The main thing these have in common is that they're both very high.
2. The "3" is a link to a footnote. The footnote says, "Minimum commission is $50.00."

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Re: If I have a million with Edward Jones, in 10 years, how much money has my FA made off me?

Post by Jack FFR1846 » Wed Jan 10, 2018 1:30 pm

A very, very rough estimate over 10 years is about $250k.

Front end load 5.75%, 1% a year X 10 ER, 1% a year X 10 AUM all just simply multiplied by $1M.

I mean.....they give your parents free coffee, right? And that piano music in their commercials must come with some hefty royalties.
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Re: If I have a million with Edward Jones, in 10 years, how much money has my FA made off me?

Post by 123 » Wed Jan 10, 2018 1:40 pm

Fees and expenses would be a lot lower at Vanguard. If someone uses their Personal Advisory Service (PAS) it costs .3% a year ($3,000 a year per $1 million) plus fund expenses fees of likely less then .25% a year ($2,500 a year per $1 million).

I use a Vanguard LifeStrategy fund that "fits" me and it only costs .14% a year ($1,400 a year per $1 million) and after buying it I don't have to do anything.
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Re: If I have a million with Edward Jones, in 10 years, how much money has my FA made off me?

Post by barnaclebob » Wed Jan 10, 2018 1:52 pm

Most people are answering how much your parents are paying in fees but I don't think anyone can say how much the FA him/herself actually makes.

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Re: If I have a million with Edward Jones, in 10 years, how much money has my FA made off me?

Post by neilpilot » Wed Jan 10, 2018 1:56 pm

I'm in no way defending or endorsing an account at EJ, or any other managed account. But why do so many posters here think that the FA pockets the entire ER? The FA's commission on each fund, and for that matter his share of the AUM, is a small fraction of the fees and expenses that the OP's parents are paying.

Maybe the OP really doesn't care "how much money has my FA made off me", but that is what he's asking. Of course the real answer is $0, unless you factor in his reduced inheritance.

Edit: what Bob said while I was typing

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Re: If I have a million with Edward Jones, in 10 years, how much money has my FA made off me?

Post by alpine_boglehead » Wed Jan 10, 2018 2:05 pm

The costs could be yet higher if the adviser actively switches funds, each time reducing principal by the front load. So a case worse than just the AUM fee plus high ER funds is an adviser that on top of that switches you through funds. E.g. 3 switches with a front load of 5% in that time frame would cost you another ~15% = 150k.

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Re: If I have a million with Edward Jones, in 10 years, how much money has my FA made off me?

Post by bondsr4me » Wed Jan 10, 2018 2:18 pm

You and/or your parents would be better served using an independent hourly "Fee-Only" CFP.
"Fee-Only" advisors cannot charge BOTH a "Fee" AND receive "commissions".
Check out the NAPFA website for more comprehensive information on this.
You should stay away from brokerage firms if at all possible.
Paying someone an "AUM" fee is going to be an ongoing, costly fee.

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Re: If I have a million with Edward Jones, in 10 years, how much money has my FA made off me?

Post by music_man » Wed Jan 10, 2018 2:26 pm

Assuming 1% AUM, Edwards Jones will bring in $10,000 revenue from your one account. Many firms pay their advisors based on a grid of how much revenue they bring into the firm. For example if an advisor brings in $0 - $200,000 of revenue, they might get 25% of that, for $201,000 - $500,000, 30% and so on. This might go up to 45% for top producers. So, assuming a top producer, your FA might make $10,000 x .45 = $4,500 for the entire year off your account alone or possibly as low as $2,500.

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Re: If I have a million with Edward Jones, in 10 years, how much money has my FA made off me?

Post by cinghiale » Wed Jan 10, 2018 2:41 pm

This might help. If the OP wants to help his/her parents, a single graphic might do the work of many paragraphs of text.

“The Cumulative Lag Caused By 2.5% Costs in an 8% Market”
https://www.vanguard.com/bogle_site/ima ... 0210_8.gif

From the text of John C. Bogle’s speech entitled “The Relentless Rules of Humble Arithmetic.”

Here’s the Executive Summary: It Ain’t Pretty.
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Re: If I have a million with Edward Jones, in 10 years, how much money has my FA made off me?

Post by oldcomputerguy » Wed Jan 10, 2018 2:44 pm

What funds does the EJ guy have your parents in? If those funds have loads or large 12b-1 fees, that's more money being shoveled back to EJ.
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Re: If I have a million with Edward Jones, in 10 years, how much money has my FA made off me?

Post by Meg77 » Wed Jan 10, 2018 2:47 pm

Edward Jones doesn't typically charge AUM fees, so the references to examples above using 1% fees (which is standard for advisors who do charge that) are not relevant here. Edward Jones charges commissions - front end loads on mutual fund purchases as well as fees to purchase individual securities. As such, fees can vary widely depending on what type of risk tolerance and account activity your parents have, as well as how long they've been there (front end loads are charged once upon purchase so the longer you hold the funds, the lower the average annual fee).

Note: EJ like most other financial mgmt firms has changed the way they charge on IRA accounts in conjunction with the new fiduciary rule that went into effect last year. Most IRA assets now will be in specific portfolios with "fee only" structures - no loaded funds and no individual stocks, but rather a bundle of mutual/index funds.

I've actually been doing this exact analysis for my mom who has just under $3 million with Edward Jones. 95% of her funds are in taxable brokerage, so they are under the typical/traditional EJ fee structure. Her two small IRAs were moved into "sharebuilder" portfolios last year and are dumped into a mix of cheaper funds.

I was surprised to find that my mom is only paying about $11,000 in fees on her $3M portfolio with EJ, which is comprised mostly of fund expense ratios (some of which are VERY high) as well as a few commissions when she buys or sells an individual stock or bond (rebalance activity occurs about once a year in July in her portfolio). In addition, she paid about $45,000 in front end loads 10 years ago to buy $770k in of mutual funds, so if you average that over the life of her portfolio that's another $4500 a year.

I don't know if her portfolio is typical, but she's got $325k in individual muni bonds and another almost $1m in individual stocks - none of which have any ongoing expenses or AUM fees. Her funds have grown to $1.5M, about 20% of which are in Vanguard index funds and the remainder in a handful of American Funds and Lord Abbott (international and value and dividend tilts).

All in all I'm happy with her portfolio, and she has way to many gains to sell much of anything anyway. I'm recommending she roll it all to VG since her EJ guy is retiring, but I was reassured after a week of digging through her portfolio history and tax returns that he does not appear to have ripped her off in any way.

And PS her 80/20 portfolio has averaged a return of 14% a year over the last 10 years.
Last edited by Meg77 on Wed Jan 10, 2018 2:52 pm, edited 1 time in total.
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Re: If I have a million with Edward Jones, in 10 years, how much money has my FA made off me?

Post by oldcomputerguy » Wed Jan 10, 2018 2:48 pm

randydimera wrote:
Wed Jan 10, 2018 1:13 pm
I did find this

https://www.edwardjones.com/images/ETY-1714E-A-MA.pdf

Look what happens to the people who have less than 6 grand with them. I dont even know what that means. Is that 2.50% squared 3 times or what? Thats nuts!!
No, that's not an exponent or a multiplier, it's a reference to a footnote.
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Re: If I have a million with Edward Jones, in 10 years, how much money has my FA made off me?

Post by Meg77 » Wed Jan 10, 2018 2:50 pm

alpine_boglehead wrote:
Wed Jan 10, 2018 2:05 pm
The costs could be yet higher if the adviser actively switches funds, each time reducing principal by the front load. So a case worse than just the AUM fee plus high ER funds is an adviser that on top of that switches you through funds. E.g. 3 switches with a front load of 5% in that time frame would cost you another ~15% = 150k.
This is false. When loaded funds are traded for other loaded funds, no additional load is charged. I verified this recently when I was appalled to see activity in my mom's account where several loaded funds were sold and others purchased. I complained to my dad who used to work for Edward Jones, and he said that is completely not allowed and borderline illegal. I looked further, and the trade confirmation on each one specifically said "no load charged" or something to that effect.

In addition, dividends reinvested are not charged a load.
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Re: If I have a million with Edward Jones, in 10 years, how much money has my FA made off me?

Post by bloom2708 » Wed Jan 10, 2018 2:54 pm

http://www.dinkytown.net/java/CompareFees.html

This tool can be "fun" to look at. Use .1 for Vanguard, 1.0 and 1.5 (or higher)

Simulate the effects starting now going forward for 10, 20 years as well.

Eye opening numbers. :arrow:
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Re: If I have a million with Edward Jones, in 10 years, how much money has my FA made off me?

Post by alex_686 » Wed Jan 10, 2018 3:02 pm

Meg77 wrote:
Wed Jan 10, 2018 2:47 pm
I was surprised to find that my mom is only paying about $11,000 in fees on her $3M portfolio with EJ, which is comprised mostly of fund expense ratios (some of which are VERY high) ...
To extend on this a bit, EJ would get the trailing 12b-1 fees, which are disclosed and are part of the expense ratio. The 12b-1 would then get split by the FA and EJ.

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Re: If I have a million with Edward Jones, in 10 years, how much money has my FA made off me?

Post by Grt2bOutdoors » Wed Jan 10, 2018 3:03 pm

Meg77 wrote:
Wed Jan 10, 2018 2:50 pm
alpine_boglehead wrote:
Wed Jan 10, 2018 2:05 pm
The costs could be yet higher if the adviser actively switches funds, each time reducing principal by the front load. So a case worse than just the AUM fee plus high ER funds is an adviser that on top of that switches you through funds. E.g. 3 switches with a front load of 5% in that time frame would cost you another ~15% = 150k.
This is false. When loaded funds are traded for other loaded funds, no additional load is charged. I verified this recently when I was appalled to see activity in my mom's account where several loaded funds were sold and others purchased. I complained to my dad who used to work for Edward Jones, and he said that is completely not allowed and borderline illegal. I looked further, and the trade confirmation on each one specifically said "no load charged" or something to that effect.

In addition, dividends reinvested are not charged a load.
Your father is correct, it is not allowed and borderline illegal - the term is called "churning". The broker is churning the account -a reportable offense for which numerous brokerage firms found out the hard way in arbitration what happens when you do it. As far as your mothers account only costing $11K - that is what you calculate, however many of these brokerage accounts holding securities are frequently lent out via securities lending arrangement to outside parties unbeknown to the person holding the account. While the account holder sees all the securities in the account, the firm EJ is most likely lending out those securities earning themselves a small fee which they keep for themselves. The annual fees from that activity may be small, but when you aggregate it against all customer accounts which do not have a securities lending restriction, now we are talking real $$$. These arrangements are common in the industry, pension funds do it all the time, as do endowments.
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Re: If I have a million with Edward Jones, in 10 years, how much money has my FA made off me?

Post by alex_686 » Wed Jan 10, 2018 3:08 pm

Grt2bOutdoors wrote:
Wed Jan 10, 2018 3:03 pm
As far as your mothers account only costing $11K - that is what you calculate, however many of these brokerage accounts holding securities are frequently lent out via securities lending arrangement to outside parties unbeknown to the person holding the account.
I doubt this. For individual accounts Brokerage firms can only lend out 150% of the margin balance. I doubt mom is using much leverage. Also, there is not much of a securities lending market for mutual funds.

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Re: If I have a million with Edward Jones, in 10 years, how much money has my FA made off me?

Post by Grt2bOutdoors » Wed Jan 10, 2018 3:16 pm

delete
Last edited by Grt2bOutdoors on Wed Jan 10, 2018 3:50 pm, edited 1 time in total.
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Re: If I have a million with Edward Jones, in 10 years, how much money has my FA made off me?

Post by Meg77 » Wed Jan 10, 2018 3:26 pm

alex_686 wrote:
Wed Jan 10, 2018 3:08 pm
Grt2bOutdoors wrote:
Wed Jan 10, 2018 3:03 pm
As far as your mothers account only costing $11K - that is what you calculate, however many of these brokerage accounts holding securities are frequently lent out via securities lending arrangement to outside parties unbeknown to the person holding the account.
I doubt this. For individual accounts Brokerage firms can only lend out 150% of the margin balance. I doubt mom is using much leverage. Also, there is not much of a securities lending market for mutual funds.
I don't think Grt2bOutdoors is talking about a margin account. It's true my mom is not using any leverage or borrowing on margin, but I don't doubt that arrangements such as the one described above may occur. Even if there are fees I can't see or missed though, the bottom line is that my mom is paying way less to EJ on $3,000,000 than she would to any advisor who charges AUM fees. 1% would be $30,000 and 0.50% would be $15,000.

Sure, at Vanguard she'd pay even less, but she has benefitted from her advisor and doesn't mind paying him something. In fact she wants to move to a new advisor her sister uses that they love and trust since her EJ guy is retiring. The new guy charges 0.50% AUM. I told her she'd probably pay more like 0.75% including expense ratios, and I explained that is $37,500 a year based on her whole portfolio. And she still is on the fence because she thinks that guy is probably worth that. :oops: My aunt has no problem paying that and says he's worth every dime. Fine by me - I reviewed my aunt's portfolio and the funds seem ok (0.20% expense ratios on average). And she is very high maintenance and he is ready at her beck and call. He helps her college age kids budget, enables her to say no to them, manages their trusts, does her taxes (he's a CPA too), tells her how much she can spend, and on and on. DIY isn't for everyone.
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Re: If I have a million with Edward Jones, in 10 years, how much money has my FA made off me?

Post by alex_686 » Wed Jan 10, 2018 3:33 pm

Grt2bOutdoors wrote:
Wed Jan 10, 2018 3:16 pm
You misunderstand. Brokerage Firm A - customer holds individual securities (Dow 30 equities) valued at $100,000.

The 150% margin balance only applies if the OP's mother is borrowing against her own portfolio value.
It has been 10 years but this used to be my day job. This is not how it works.

The client's securities are in a "Segregated Account". They are not available for securities lending. The are overlapping rules with the Fed, SEC, and SPIC. This stuff is audited by them, internal, and external auditors. It is a huge no-no to lend out client's securities. Lots of interesting stories about the abuse of this until they tighten up the rules back in the 1950s.

Firms can only lend securities in their general account. This includes their own securities and securities pledge from margin accounts (the 150% rule). Accredited investors, such as pension funds, can sign their rights away and lend out their own securities. But why would they want to do that? In every case I know it is because they were getting a slice of the securities lending fees.

As an exercise, go back to the Lehman Brothers collapse. The clients that did not have margin walked away with their securities. The clients who did have margin got cash equivalents a few weeks later after everything was sorted out.

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Re: If I have a million with Edward Jones, in 10 years, how much money has my FA made off me?

Post by Grt2bOutdoors » Wed Jan 10, 2018 3:50 pm

alex_686 wrote:
Wed Jan 10, 2018 3:33 pm
Grt2bOutdoors wrote:
Wed Jan 10, 2018 3:16 pm
You misunderstand. Brokerage Firm A - customer holds individual securities (Dow 30 equities) valued at $100,000.

The 150% margin balance only applies if the OP's mother is borrowing against her own portfolio value.
It has been 10 years but this used to be my day job. This is not how it works.

The client's securities are in a "Segregated Account". They are not available for securities lending. The are overlapping rules with the Fed, SEC, and SPIC. This stuff is audited by them, internal, and external auditors. It is a huge no-no to lend out client's securities. Lots of interesting stories about the abuse of this until they tighten up the rules back in the 1950s.

Firms can only lend securities in their general account. This includes their own securities and securities pledge from margin accounts (the 150% rule). Accredited investors, such as pension funds, can sign their rights away and lend out their own securities. But why would they want to do that? In every case I know it is because they were getting a slice of the securities lending fees.

As an exercise, go back to the Lehman Brothers collapse. The clients that did not have margin walked away with their securities. The clients who did have margin got cash equivalents a few weeks later after everything was sorted out.
I stand corrected.
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Re: If I have a million with Edward Jones, in 10 years, how much money has my FA made off me?

Post by randydimera » Wed Jan 10, 2018 5:20 pm

bloom2708 wrote:
Wed Jan 10, 2018 2:54 pm
http://www.dinkytown.net/java/CompareFees.html

This tool can be "fun" to look at. Use .1 for Vanguard, 1.0 and 1.5 (or higher)

Simulate the effects starting now going forward for 10, 20 years as well.

Eye opening numbers. :arrow:
This is interesting. I am not sure how to use it though, like there are 3 separate investment fees? I wonder what id put in for my parents situation

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Re: If I have a million with Edward Jones, in 10 years, how much money has my FA made off me?

Post by bloom2708 » Thu Jan 11, 2018 9:04 am

randydimera wrote:
Wed Jan 10, 2018 5:20 pm
bloom2708 wrote:
Wed Jan 10, 2018 2:54 pm
http://www.dinkytown.net/java/CompareFees.html

This tool can be "fun" to look at. Use .1 for Vanguard, 1.0 and 1.5 (or higher)

Simulate the effects starting now going forward for 10, 20 years as well.

Eye opening numbers. :arrow:
This is interesting. I am not sure how to use it though, like there are 3 separate investment fees? I wonder what id put in for my parents situation
You can compare 3 different fee levels.

At Vanguard, our 3 fund style portfolio is .07% across all our accounts.

Use .07%, 1.0% (typical amount charged) and 1.5% or 1.75% (Edward Jones style).

You put in the starting amount, what you think the investments will earn (4%, 5%, etc) and then get to see how fees impact over the time period selected.

You aren't talking $10k, you are looking at $100k, $200k, more. Tremendous impacts. That is why those tiny little 1% or 2% fees are killers. It is really the reason why Vanguard exists. And Bogleheads exists because Vanguard/Jack Bogle exists.
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Re: If I have a million with Edward Jones, in 10 years, how much money has my FA made off me?

Post by Jack FFR1846 » Thu Jan 11, 2018 10:41 am

"Only" $11,000 on a $3M account?

I'll keep the $800 fee I pay on my $2M account, thank you.
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Re: If I have a million with Edward Jones, in 10 years, how much money has my FA made off me?

Post by onourway » Thu Jan 11, 2018 10:45 am

Meg77 wrote:
Wed Jan 10, 2018 2:47 pm
Edward Jones doesn't typically charge AUM fees, so the references to examples above using 1% fees (which is standard for advisors who do charge that) are not relevant here. Edward Jones charges commissions - front end loads on mutual fund purchases as well as fees to purchase individual securities. As such, fees can vary widely depending on what type of risk tolerance and account activity your parents have, as well as how long they've been there (front end loads are charged once upon purchase so the longer you hold the funds, the lower the average annual fee).

Note: EJ like most other financial mgmt firms has changed the way they charge on IRA accounts in conjunction with the new fiduciary rule that went into effect last year. Most IRA assets now will be in specific portfolios with "fee only" structures - no loaded funds and no individual stocks, but rather a bundle of mutual/index funds.

I've actually been doing this exact analysis for my mom who has just under $3 million with Edward Jones. 95% of her funds are in taxable brokerage, so they are under the typical/traditional EJ fee structure. Her two small IRAs were moved into "sharebuilder" portfolios last year and are dumped into a mix of cheaper funds.

I was surprised to find that my mom is only paying about $11,000 in fees on her $3M portfolio with EJ, which is comprised mostly of fund expense ratios (some of which are VERY high) as well as a few commissions when she buys or sells an individual stock or bond (rebalance activity occurs about once a year in July in her portfolio). In addition, she paid about $45,000 in front end loads 10 years ago to buy $770k in of mutual funds, so if you average that over the life of her portfolio that's another $4500 a year.

I don't know if her portfolio is typical, but she's got $325k in individual muni bonds and another almost $1m in individual stocks - none of which have any ongoing expenses or AUM fees. Her funds have grown to $1.5M, about 20% of which are in Vanguard index funds and the remainder in a handful of American Funds and Lord Abbott (international and value and dividend tilts).

All in all I'm happy with her portfolio, and she has way to many gains to sell much of anything anyway. I'm recommending she roll it all to VG since her EJ guy is retiring, but I was reassured after a week of digging through her portfolio history and tax returns that he does not appear to have ripped her off in any way.

And PS her 80/20 portfolio has averaged a return of 14% a year over the last 10 years.
You should look at what she lost in opportunity costs though because that's where the real damage is done.

$45,000 taken off the top, plus say, $10k/year over Vanguard funds in fees, compounded over the last 10 years of market returns is something like $350,000 in actual cost by working with EJ -- in just 10 years! More than 10% of the value of the portfolio!

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Re: If I have a million with Edward Jones, in 10 years, how much money has my FA made off me?

Post by Sandtrap » Thu Jan 11, 2018 11:24 am

123 wrote:
Wed Jan 10, 2018 12:53 pm
If a financial adviser is paid 1% a year as an AUM fee for every $1 million the adviser gets $10,000 annually. Since the funds that are offered are usually high expense ratio fun (after all the customer knows little, why not?) you can usually figure another 1% in higher then necessary fund expense ratios. For each $1 million that comes out to something $20,000 annually versus a Vanguard alternative. Over $10 years that's $200,000 without any compounding. We're assuming the adviser is smart enough not to be putting it into his/her own Edward Jones account but you never know.

Edited to add:
Another discussion about Edward Jones fees: viewtopic.php?t=209742
Ouch!
I had past senior relatives with 8 and 9 figures with very friendly Merrill Lynch advisors. Based on the those figures, the "friendliness" was warranted.
Thanks for the link.
j

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Re: If I have a million with Edward Jones, in 10 years, how much money has my FA made off me?

Post by an_asker » Thu Jan 11, 2018 11:42 am

Grt2bOutdoors wrote:
Wed Jan 10, 2018 3:03 pm
Meg77 wrote:
Wed Jan 10, 2018 2:50 pm
alpine_boglehead wrote:
Wed Jan 10, 2018 2:05 pm
The costs could be yet higher if the adviser actively switches funds, each time reducing principal by the front load. So a case worse than just the AUM fee plus high ER funds is an adviser that on top of that switches you through funds. E.g. 3 switches with a front load of 5% in that time frame would cost you another ~15% = 150k.
This is false. When loaded funds are traded for other loaded funds, no additional load is charged. I verified this recently when I was appalled to see activity in my mom's account where several loaded funds were sold and others purchased. I complained to my dad who used to work for Edward Jones, and he said that is completely not allowed and borderline illegal. I looked further, and the trade confirmation on each one specifically said "no load charged" or something to that effect.

In addition, dividends reinvested are not charged a load.
[...]While the account holder sees all the securities in the account, the firm EJ is most likely lending out those securities earning themselves a small fee which they keep for themselves. The annual fees from that activity may be small, but when you aggregate it against all customer accounts which do not have a securities lending restriction, now we are talking real $$$. These arrangements are common in the industry, pension funds do it all the time, as do endowments.
Isn't that exactly how banks operate? Meg77 is probably the most qualified to answer that question :-)

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Re: If I have a million with Edward Jones, in 10 years, how much money has my FA made off me?

Post by pkcrafter » Thu Jan 11, 2018 11:47 am

Meg77
EJ doesn't charge AUM fees
EJ is moving all customers to Guided Solutions. Here is the fee schedule:
Value of Assets in Account, Annual Fee Rate
First$250,000 1.35%
Next$250,000 1.30%
Next $500,000 1.25%
Next $1,500,000 1.00%
Notice that if a client has 1M, the fee is not 1.25. The client still pays the higher fees pertaining to first, next, etc.

Meg, it appears you are getting information from your father, but the Guided Solutions trick is new. It is used to legally conform with the new fiduciary standards. Ask you mom is she has been moved to Guided Solutions. If not yet, she will be.

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Re: If I have a million with Edward Jones, in 10 years, how much money has my FA made off me?

Post by grabiner » Thu Jan 11, 2018 10:37 pm

If you invest a million all at once in a single fund family's load funds, then you may pay no load. More likely, you'll split among multiple companies and pay 1% or 2% in loads. (Smaller investors pay 5.75%.) You will also pay 0.25% annually in 12b(1) fees on the load funds. That's a total of about 4% of your portfolio which goes to the brokers.

In addition, the load funds have non-load expenses as well. If those are 1%, about average for a load fund, then you lose another 10% over 10 years. This goes not to the brokers but to the fund companies and their investment managers.

So in ten years, 14% of your portfolio has gone to others.

And if this is a taxable account, your load funds are unlikely to be index funds, so they will generate a lot of taxable gains if the stock market rises. That's another 1% per year lost to the IRS, for an overall loss of 23%.

If you put the million in low-cost index funds or ETFs, you pay nothing to brokers, about 0.05% annually to fund managers, and 0.3% to the IRS, so your loss is 0.35% annually, or 3.5% overall (and 0.5% in an IRA).
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Re: If I have a million with Edward Jones, in 10 years, how much money has my FA made off me?

Post by Finridge » Thu Jan 11, 2018 11:46 pm

How much they are making of your parents and how much it is costing them are two different things. What it is costing your parents is actually much higher than what they are making from them. Because they are not only losing amounts equal to the fees--they are also losing any future returns they could have have made on these amounts.

Vanguard has a very helpful calculator.

https://personal.vanguard.com/us/FundsCostCompare

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Re: If I have a million with Edward Jones, in 10 years, how much money has my FA made off me?

Post by deltaneutral83 » Fri Jan 12, 2018 10:43 am

Meg77 wrote:
Wed Jan 10, 2018 2:47 pm
And PS her 80/20 portfolio has averaged a return of 14% a year over the last 10 years.
Are we talking average or CAGR. CAGR would make this adviser Buffetesque for an entire ten year period.

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Re: If I have a million with Edward Jones, in 10 years, how much money has my FA made off me?

Post by Meg77 » Fri Jan 12, 2018 12:47 pm

deltaneutral83 wrote:
Fri Jan 12, 2018 10:43 am
Meg77 wrote:
Wed Jan 10, 2018 2:47 pm
And PS her 80/20 portfolio has averaged a return of 14% a year over the last 10 years.
Are we talking average or CAGR. CAGR would make this adviser Buffetesque for an entire ten year period.
Well she does hold a substantial amount of Berkshire Hathaway. :)

I just looked it up, and actually her returns are only since June 2013 - not a full 10 years as I said before. It looks like her holdings were all shifted to new accounts at that time (which makes sense as that is when my parents divorced) so the performance metrics online only go back to there. Her "personal rate of return" over that 4.6 year period has been as follows:

IRA - 13.78% ($150k balance - all stocks)
Brokerage - 11.87% ($2.8M balance - 80% stocks, 20% munis)

She does hold a few individual stocks that have been great performers, including FB (57% annualized return), AAPL (29%) and Amazon (55%). BRK has averaged 14.5% during her hold period. Of course she holds some underperforming stocks as well, including Ford and AT&T, but the FANGs more than made up for them. Her mutual funds have all averaged over 10% a year. Vanguard Primecap CORE was the highest at 17.7% and American Balanced Fund was the lowest at 10.04%. Her $325k in munis look to have averaged a total return of about 2%.
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Re: If I have a million with Edward Jones, in 10 years, how much money has my FA made off me?

Post by deltaneutral83 » Fri Jan 12, 2018 1:52 pm

Meg77 wrote:
Fri Jan 12, 2018 12:47 pm
[
She does hold a few individual stocks that have been great performers, including FB (57% annualized return), AAPL (29%) and Amazon (55%). BRK has averaged 14.5% during her hold period. Of course she holds some underperforming stocks as well, including Ford and AT&T, but the FANGs more than made up for them. Her mutual funds have all averaged over 10% a year. Vanguard Primecap CORE was the highest at 17.7% and American Balanced Fund was the lowest at 10.04%. Her $325k in munis look to have averaged a total return of about 2%.
Understood, but I wouldn't necessarily incorporate single stocks into my ROI, as that is speculating, not really investing. FAANG stocks have really done well and are a huge part of the indexes' gains as well though.

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Re: If I have a million with Edward Jones, in 10 years, how much money has my FA made off me?

Post by Meg77 » Fri Jan 12, 2018 2:13 pm

deltaneutral83 wrote:
Fri Jan 12, 2018 1:52 pm
Meg77 wrote:
Fri Jan 12, 2018 12:47 pm
[
She does hold a few individual stocks that have been great performers, including FB (57% annualized return), AAPL (29%) and Amazon (55%). BRK has averaged 14.5% during her hold period. Of course she holds some underperforming stocks as well, including Ford and AT&T, but the FANGs more than made up for them. Her mutual funds have all averaged over 10% a year. Vanguard Primecap CORE was the highest at 17.7% and American Balanced Fund was the lowest at 10.04%. Her $325k in munis look to have averaged a total return of about 2%.
Understood, but I wouldn't necessarily incorporate single stocks into my ROI, as that is speculating, not really investing. FAANG stocks have really done well and are a huge part of the indexes' gains as well though.
You can speculate or invest in any manner of things: individual stocks, real estate, ETFs or index funds. It is generally investing if you buy and hold for the long term. It's generally speculating if you engage in market timing and frequent trading. Are her individual muni bonds also speculative holdings? Indexing may be the most efficient way to invest, but it is not the only way.
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Re: If I have a million with Edward Jones, in 10 years, how much money has my FA made off me?

Post by deltaneutral83 » Fri Jan 12, 2018 2:39 pm

Meg77 wrote:
Fri Jan 12, 2018 2:13 pm

You can speculate or invest in any manner of things: individual stocks, real estate, ETFs or index funds. It is generally investing if you buy and hold for the long term. It's generally speculating if you engage in market timing and frequent trading. Are her individual muni bonds also speculative holdings? Indexing may be the most efficient way to invest, but it is not the only way.
More of my point was to compare the ROI of Passive indexes vs actively managed funds at the usual places like EJ/NWM/Ameriprise etc . We can't really use the performance of single stocks to make the comparisons between Passive/Active funds. Anytime I hear of an EJ/NWM/Ameriprise 80/20 portfolio beating the S&P over 5ish years, that's noteworthy to me, however, sizable positions in FAANG stocks included in the 80/20 would certainly explain beating the S&P. It's also a matter of opinion I guess on what category single stocks fall into, plenty of people smarter (and more published) than I refer to them as speculation.

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Re: If I have a million with Edward Jones, in 10 years, how much money has my FA made off me?

Post by mlebuf » Fri Jan 12, 2018 3:16 pm

Lest we forget, Bill Bernstein addresses this very topic on his website. I have sent this page to numerous investors with actively managed funds:

http://www.efficientfrontier.com/ef/996/broker.htm
Best wishes, | Michael | | Invest your time actively and your money passively.

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Re: If I have a million with Edward Jones, in 10 years, how much money has my FA made off me?

Post by Grt2bOutdoors » Fri Jan 12, 2018 3:38 pm

deltaneutral83 wrote:
Fri Jan 12, 2018 1:52 pm
Meg77 wrote:
Fri Jan 12, 2018 12:47 pm
[
She does hold a few individual stocks that have been great performers, including FB (57% annualized return), AAPL (29%) and Amazon (55%). BRK has averaged 14.5% during her hold period. Of course she holds some underperforming stocks as well, including Ford and AT&T, but the FANGs more than made up for them. Her mutual funds have all averaged over 10% a year. Vanguard Primecap CORE was the highest at 17.7% and American Balanced Fund was the lowest at 10.04%. Her $325k in munis look to have averaged a total return of about 2%.
Understood, but I wouldn't necessarily incorporate single stocks into my ROI, as that is speculating, not really investing. FAANG stocks have really done well and are a huge part of the indexes' gains as well though.
Tell Warren Buffett that.
Have owned individual equities for over twenty years, some of which I've owned for the same exact time. When does speculating become investing or vice versa? You think holding mutual funds makes it any different? Fixed income for money you don't want to lose, equities for money you don't mind losing. Equities = risk, proportion of risk dependent upon certain variables.
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Re: If I have a million with Edward Jones, in 10 years, how much money has my FA made off me?

Post by grabiner » Fri Jan 12, 2018 7:09 pm

Finridge wrote:
Thu Jan 11, 2018 11:46 pm
How much they are making of your parents and how much it is costing them are two different things. What it is costing your parents is actually much higher than what they are making from them. Because they are not only losing amounts equal to the fees--they are also losing any future returns they could have have made on these amounts.
This is why I prefer to look at percentage losses. If you lost 23% of your portfolio to fees and taxes, and you started with $1M and ended with $1.54M, you lost $460K compared to a fee-free and tax-free portfolio which would have doubled to $2M, and $390K compared to what you could reasonably have done in a taxable investment which lost 3.5%.

(The actual difference isn't quite this large because the IRS will probably take 15% of your capital gains when you sell, and those capital gains are larger in a low-cost, tax-efficient portfolio.)
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Re: If I have a million with Edward Jones, in 10 years, how much money has my FA made off me?

Post by FinancialDave » Fri Jan 12, 2018 8:18 pm

randydimera wrote:
Wed Jan 10, 2018 12:40 pm
Trying to gauge the general idea on how much the guy is making off of my parents, or how much he makes yearly off them.
That is really the wrong question to ask. The only relevant question to you is how much the fees are reducing your parents retirement nest egg, because that number is a compounded answer that is not just $10,000 to $20,000 annually, but is based on future events that are unknown, such as how long this fee structure will continue and how much the account goes up or down each year and if the advisor adds or subtracts Alpha from the account. Obviously as the account is spent down the fees will be less. In the asset building stage this compounding affect gets worse the more money you build.

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Re: If I have a million with Edward Jones, in 10 years, how much money has my FA made off me?

Post by nedsaid » Fri Jan 12, 2018 9:15 pm

Meg77 wrote:
Wed Jan 10, 2018 2:50 pm
alpine_boglehead wrote:
Wed Jan 10, 2018 2:05 pm
The costs could be yet higher if the adviser actively switches funds, each time reducing principal by the front load. So a case worse than just the AUM fee plus high ER funds is an adviser that on top of that switches you through funds. E.g. 3 switches with a front load of 5% in that time frame would cost you another ~15% = 150k.
This is false. When loaded funds are traded for other loaded funds, no additional load is charged. I verified this recently when I was appalled to see activity in my mom's account where several loaded funds were sold and others purchased. I complained to my dad who used to work for Edward Jones, and he said that is completely not allowed and borderline illegal. I looked further, and the trade confirmation on each one specifically said "no load charged" or something to that effect.

In addition, dividends reinvested are not charged a load.
Meg, I know you work in the industry so maybe you can shed some light on this. My understanding is that if you stay within the same fund family and switch funds, the load is not charged again. There might be a small fee, $10 or so to switch, but that is it. If you go from one fund family to another, my understanding is that you pay the load to buy into the new fund family, let's say going from from Franklin-Templeton to American. I hadn't thought about the role of compliance and maybe charging a load to switch fund companies is illegal but I don't think so. But again, you would know these things. Thanks.

I do know that an investor in an Assets Under Management arrangement doesn't pay loads, just the AUM fee and the embedded expense ratios of the funds and/or ETFs.
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Re: If I have a million with Edward Jones, in 10 years, how much money has my FA made off me?

Post by goblue100 » Sat Jan 13, 2018 11:51 am

I like this article from Vanguard, it doesn't answer the question directly but it can be eye opening for people that think fees don't matter:
https://vanguardblog.com/2011/10/28/sto ... f-returns/

"The table below computes this number and displays the impact on your wealth:

Cumulative impact of fees on ending wealth at various time horizons

Annual Fee Rate
Time Hori 0.10% 0.25% 0.50% 1.00% 2.00% 3.00%
3 years –0.3% –0.7% –1.5% –2.9% –5.8% –8.5%
5 years –0.5% –1.2% –2.5% –4.9% –9.4% –13.7%
10 years –1.0% –2.5% –4.9% –9.5% –18.0% –25.6%
20 years –2.0% –4.9% –9.5% –18.0% –32.7% –44.6%
30 years –3.0% –7.2% –13.9% –25.8% –44.8% –58.8%
40 years –3.9% –9.5% –18.1% –32.8% –54.7% –69.3%
The numbers above only make it more shocking to me that the average expense ratio for equity mutual funds remains above 1% per year."

It's hard to make the table look good in the post, but if the advisor and fund fee's are 2% above Vanguard and they get market returns they would have 18% less in their account over 10 years.
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