Ed Jones: Worse than you thought . . .

Monday, January 17, 2005 | 09:33 AM

Last month, Jim Cramer ripped Edward Jones a new one; While I agreed with what he said, I didn't bother to follow up because I assumed Ed Jones had come clean.

Apparently not.

From today's WSJ:

"Edward D. Jones & Co. received $82.4 million in secret payments from seven mutual-fund firms in the first 11 months of 2004, through a lopsided fee structure that in some cases gave the brokerage firm more compensation for selling poorly performing funds than for selling stellar performers.

The disclosures were posted yesterday, on Jones's Web site as required by its $75 million agreement to settle regulatory charges that it failed to adequately disclose the payments to investors. They are by far the most detailed figures ever made public on the industry practice of mutual-fund companies paying brokerage firms to induce them to sell their products, an arrangement known as revenue sharing. Unlike front-end sales commissions, which are widely disclosed to consumers, revenue sharing has been largely secret."

That's pretty egregious behavior. I used to think well of Edward Jones as a firm. Non mas. . .


Here's Cramer's comments:

Edward Jones' True Colors Aren't Pretty

So Edward D. Jones wasn't a conservative brokerage house with a boring recommended list meant to keep its clients in healthy shape. Edward Jones simply de-emphasized research entirely, paid little attention to it, and steered people toward funds for kickbacks.

During the vast bubble and its subsequent burst, I was impressed that Edward D. Jones seemed to have its feet on the ground, not suggesting wildly inappropriate stocks for its clients. I praised the firm on my radio show for seeming to have its clients' conservative sentiments at heart.

What a chucklehead I was. Instead of pushing inappropriate stocks on clients, Edward Jones could have pushed inappropriate funds on them. Stocks can't give kickbacks, but funds can. What Jones was doing was far worse than just recommending bad stocks.

Monday, this firm agreed to pay a gigantic fine, $75 million, and to stop this outrageous pay-to-play junk where preferred funds got tons of money in return for hefty fees on the back end. To think that this firm cloaked itself in conservative clothes is just outrageous. The company exhibited a stupefying two-facedness that makes me want to scream.

Of course, it will pay the fine and be allowed to stay in business. Everyone gets to stay in business. You would think it was in the Constitution or something, that it was written, that, no matter how outrageous the fiduciary violation, you still are good to go in the financial services business because once you are in, you are in.

When I started my radio show, I alleged that there were a lot of secret revenue-sharing agreements between brokers and funds because otherwise, the really crummy funds would have no customers. Who would deliberately stay with a crummy fund? Who is that stupid?

But I wasn't able to get the documents that told you who was paying to get money and who wasn't. We now have settled the problem when it comes to brokers. Next up? The kickbacks some of these human resources people have been taking to keep their companies with bad funds for the 401(k)s. Some of it will be kickbacks to the companies, others will be under the table. What else is new?

Would anyone mind taking a pledge with me to do what's best for the client over the long term, so both he and the client make big money? Is there anyone willing to raise his right hand and swear he will do his best for his client, not for his firm or himself?

From here, the silence sure seems deafening.

Geez. That says it all . . .

Edward Jones' True Colors Aren't Pretty
James J. Cramer
RealMoney.com, 12/21/2004 9:05 AM EST

Jones Discloses Secret Payments From Fund Firms
THE WALL STREET JOURNAL, January 14, 2005; Page C1

Monday, January 17, 2005 | 09:33 AM | Permalink | Comments (18) | TrackBack (0)
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What I don't get is if the company made $82.+million on the scheme, why is the fine only $75million?
And what is going to happen to this $75million? Are they going to return it all to the people who originally paid it (with interest)?

Cramer summed it up well. But he touted them as well at one point; he seems to be consistently late in pointing out fallacies like this.

Not only are so many of the "Wall Street practices" wrong, but the enforcement/punishment is of equal poor footing.

Posted by: DJ | Jan 18, 2005 8:19:03 AM

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