How financial advisors are dealing with economic uncertainty, with Edward Jones head Penny Pennington

Financial advisors have spent the months since the 2023 banking crisis fielding questions from clients about economic uncertainty, inflation, and what's next for the markets. Edward Jones Managing Partner Penny Pennington discusses what financial advisors are thinking about now and what the future of wealth management looks like with American Banker Editor-in-Chief Chana Schoenberger.

Transcription:

Chana Schoenberger (00:00):
So I have with me here today Penny Pennington, who is the managing partner of Edward Jones, the giant brokerage house. Welcome.

Penny Pennington (00:07):
Thank you. Great to be with you.

Chana Schoenberger (00:09):
Thanks for coming. So how are your financial advisors helping clients deal with economic uncertainty? We're at strange times right now. Yeah.

Penny Pennington (00:18):
Well, anytime anxiety's high, it means that our clients are concerned about how, whether, when they're going to be able to meet their long-term objectives. I say that the role of our financial advisors is to relieve anxiety. Our clients walk in the door or across the zoom screen and hand them the mantle of anxiety that they're feeling. And so our financial advisors, our branch teams, make sense of what's going on in the current environment. They also utilize a hundred years of experience that Edward Jones has had navigating these kinds of waters with our clients. In fact, when things are most anxious, we find clients have the most questions. We work really hard to keep our clients focused on their long-term goals and make sense of new things like inflation, which is a new thing after 40 years. The impact that that's having on our clients and the goals that they're setting is very real for them. We also keep them focused on multiple generations of the family that they care about where they want their money to go, and the possibilities that we're helping them plan for.



Chana Schoenberger (01:28):
So how are they dealing with inflation that is, as you say, sort of a new, it's an everything that's old is new again.

Penny Pennington (01:33):
Exactly. My financial advisors tell us that the three things that our clients want to talk about is inflation. Inflation and inflation. It is real, right? We feel it at the grocery store and we feel it at the gas pump. And so the question is, as prices are escalating, especially as I'm nearing retirement or in retirement, how long is this going to last? And so what kind of pivots do we need to make in the spending and goal setting planning that we have? We don't believe that this is going to become embedded inflation over a long period of time that the Federal Reserve is going to do its good work and that this is not a long-term element of our economy, but it is something that we have to navigate. It's a curve ball that our clients are having to navigate right now and the reason for great financial advice that's very tailored to the needs and the goals of that particular family.

Chana Schoenberger (02:32):
Tell me about the pin you're wearing. That's a chair?

Penny Pennington (02:35):
It is. Thank you so much for asking. This is the chair that our clients sit in. So we work with 8 million clients today, $1.7 trillion of their assets that they trust us to help them care for. And so I wear this on my lapel every day. I'd say I don't wear it on my pajamas, but I do wear it to work every day. And what it signifies for me and anyone who looks at me is this is who we're working for. The decisions that I make, anything that comes out of my mouth, everywhere I show up, I want our clients to be proud of that. And so this is the constant reminder.

Chana Schoenberger (03:12):
That's great. Okay. So there was a bit of a banking crisis this spring. It was fun. We all had a great time. What is the fallout from this crisis for the wealth management industry?

Penny Pennington (03:23):
Well, anytime times get turbulent, I think investors and consumers look at the institutions in financial services and say, can I trust the one I'm with? And what just happened? Is this something that's systemic? Is it something that's very specific to a particular part of the market or a particular bank in this case? So we go right back to making sense of all of that with our clients. Our view is that this is not a systemic issue, that this was a more localized issue, but the ripple effect certainly has been there, and that ripple effect has caused a tremendous amount of conversation among our clients and also movement of funds, of capital, of money. But it really does bring home to all of us trust and the importance of great leadership and management of our financial institutions.

Chana Schoenberger (04:16):
Did you get a lot of questions from clients while that was going on?

Penny Pennington (04:18):
Absolutely. We got a lot of questions and a fair amount of rotation and money. The interest in CDs and parking money and cash was quite elevated during that period of time, especially at a time when you can get four and 5% on your cash. Now, what we had to explain to clients was that's a negative 1% given inflation, but there was a certain amount of quietude that came during a pretty turbulent moment in taking a pause from the market. And again, you take a long turn pause from the market, you never know when it's going to turn back around again. It's very unpredictable. And so making sense of that with our clients, again, keeping them focused on their long term goals, understanding what's happening in the marketplace and how that might affect them, but keep them focused on the long term.

Chana Schoenberger (05:08):
So another thing that the banking crisis brought up was the importance of the Fed. Fed got very involved. So you were on the search committee for the new St. Louis Fed president.

Penny Pennington (05:18):
That's right.

Chana Schoenberger (05:19):
What do you see as the most important issues that the regional Fed banks are dealing with right now?

Penny Pennington (05:22):
Yes. Well, I am, I will say proudly that I am so proud to be a part of the Federal Reserve system. I am one of the board of directors for the St. Louis Federal Reserve, one of the 12 reserve banks. And what I love about the system is it is a distributed system. There are reserve banks all over our nation. That means in a number of different regional economies. Our job as directors is to give insight and information to our president who from time to time will be a voting member of FOMC. And so what's required then is a real understanding of monetary policy, but also the banking system, banking regulations, the payment system, a real understanding of a regional economy and how that fits into the context of the greater United States economy and the ability to be influential and provide leadership when they go to that FOMC table and work with the other presidents. So as we are in a search for our new president, we're looking across a wide array of backgrounds and talents and gifts and skills, but we're looking for the combo package of a person who can bring all of that to the table and really looking forward to meeting the people who are very interested in taking on that service role for our nation.

Chana Schoenberger (06:43):
That's great. How long have you been working with the St. Louis Fed?

Penny Pennington (06:46):
I am at the beginning of my second term. So these are three year terms. I'm a class B director and I'm at the beginning of my second term where we're able to serve for two terms.

Chana Schoenberger (06:59):
That's really exciting. So one of the big issues that we are covering all the time across banking and finance is AI. So generative AI sort of took the world by storm in the last year. It didn't exist last year. Now it's everywhere and everyone is using it for everything. How are you, or are you planning to use this technology and what are some of the risks that we are trying to avoid with AI and wealth management?

Penny Pennington (07:27):
I heard something recently, I've been learning mode, and our company is in learning mode about how, what is AI and how to use it responsibly. I heard recently in doing some study up that AI has been a great theory for about 20 years, but now with cloud computing and the amount of data out there and how cheap it is to do massive amounts of computation, that all of a sudden that theory can now be applied. So the learning journey that we're on is how to apply generative AI and other kinds of machine learning. We have about five R&D projects in motion right now, and those projects are all based on learning. There's a programming project, there's a learning and development project, there is a project around investment management. There's a project around helping our financial advisors more efficiently and effectively manage their practice.

(08:22):
And so these are the ways that we're thinking about applying AI, utilizing the great data and the environment that we have with 8 million clients and understanding more efficiently and effectively insights that come from the relationships that we have with them. The key will be to use this in a responsible way. We have penned a one page set of guidelines that will guide all of our learning and all of our application about how we want to use AI for good. The big issue is that it's moving so fast. We would all say that there is value to be captured by utilizing ai, and things are moving very, very quickly, regulation as well as the commercial application of ai. We want to do that in a very responsible way and in a way that our clients know how their data is being used for their benefit.

Chana Schoenberger (09:18):
It'll be interesting to see how these two things interact because of course, the whole value of wealth management is that somewhere there's a financial advisor, this person knows you, they know what you want. They've worked on your financial plan, and they're a human. And yet there are so many things that AI can do, and I wonder how financial advisors are going to figure out how to continue not just to provide value, but also to make that human connection in a way that makes it clear that they're not a computer.

Penny Pennington (09:46):
Exactly. We say that human financial advisors will not be replaced by AI, but human financial advisors with AI will replace human financial advisors who are not leveraging and capitalizing on things that make insights and data more efficiently available in order to provide more insights for those clients. But it is this human connection that really is the magic associated with helping people determine the goals and the possibilities they want for their lives, and then to work carefully and thoughtfully in ways that align with their values and their timeframes with a human financial advisor who can help them navigate that across the arc of their lives. That's a very human relationship.

Chana Schoenberger (10:35):
So what are the most exciting business opportunities you're looking at for the next year?

Penny Pennington (10:40):
Yeah. We are in the middle of a vast mobilization of our financial advisors and our branch teams, 19,000 financial advisors across North America who are being enabled through a tremendous tool set, great financial planning tools, and a new client relationship management desktop to help make them more efficient and effective. But what we're really doing is focusing our mindset and our skillset on being the best human financial advisors that we can be. I say the most client-centric, digitally enabled, relationship-focused advice firm for more people across North America than any other firm has committed to. So we are in the journey of this mobilization right now, and it's so exciting because we really are magnifying what's great about the human financial advisor, the human connection that we were talking about, but amplifying and magnifying that with tremendous tools and going deeper with our clients, serving more clients, more completely the act of discovery, discovering with our clients who they are, what makes them tick they're most excited about, and then doing life with them, building a financial plan that marries up with their life plan.

Chana Schoenberger (12:01):
Great. Well, thank you so much, Penny. I appreciate you being here.

Penny Pennington (12:04):
Such a pleasure to be with you and your audience.