Edward Jones Q1 earnings fall due to higher compensation costs

Edward Jones loses a net 150 financial advisors as attrition, profits slow

June 1, 2022 1:41 PM

Edward Jones paid the price for its higher overall business in the first quarter in the form of lower earnings, amid the continuing decline in its headcount of financial advisors.

Regardless, the attrition is slowing and the May 6 quarterly SEC filing of the firm’s parent partnership, The Jones Financial Companies, displays other signals that the firm’s recruiting may be turning a corner. For one, the net loss of advisors came in more than 200 below that of the previous quarter. And the company has expanded its footprint of corporate employees and branch offices. The higher costs and elevated revenue tied to pay cut into profit, though.

To see the most interesting takeaways for advisors, scroll down our slideshow. For a look at the results disclosed in its annual report for 2021, click here. To see where the company’s headcount stood after the third quarter, click here.

Note: Key metrics refer when possible to the company’s U.S. business rather than its combined results including those in Canada, where it had 851 advisors at the end of the first quarter. The company breaks out most, but not all, of its returns between the two countries.

Financial advisor headcount

The number of financial advisors dropped by a net 156 registered representatives, or 1% year over year, to 17,921 in the first quarter. Last year, Edward Jones’ headcount sustained a yearly loss for the first time in a decade, although the company has shared its plans to hire roughly 1,500 advisors in 2022. The results include at least one sign that the downward trend may be letting up. Across the firm, financial advisor attrition tumbled by nearly 300 basis points to 5.6%.

“In the first quarter of 2021, the partnership resumed hiring from the temporary pause on the recruitment of non-licensed financial advisors implemented in response to the COVID-19 pandemic, and since has focused on intentionally building the financial advisor pipeline with its strategy to grow and promote branch team success,” the company’s filing said in its discussion of the results. “This approach may continue to result in fewer financial advisors hired than historical levels.”

Client assets

Client assets under care surged by 8% from the year-ago period to $1.71 trillion in the first quarter, despite a 6% lower inflow of $18.2 billion in net new assets. Even though equity values have fallen off from their levels at the end of the previous quarter, they remained above their worth at the same time a year ago, and the albeit lower inflow helped offset losses in stocks and bonds as well, according to the firm. In fact, the firm’s advisory program asset values grew by 18% to $665.8 billion, even with the volatility during the period. New client households brought in higher amounts of assets, but the firm saw larger outflows than the “lower than average” ones in the first quarter of 2021, the filing said.

Estimated legal costs

After settling a race discrimination lawsuit filed by Black financial advisors for $34 million last year, Edward Jones now faces another potential class action accusing the firm of systematically favoring white male reps in its compensation decisions. The plaintiffs, brokers Katie Dixon and Jaime Gaona, filed an amended complaint on April 25 with new claims under Title VII of the Civil Rights Act alleging discrimination based on gender, sexual orientation and race or national origin, according to the company. Edward Jones and its parent company “deny the allegations and intend to vigorously defend this lawsuit,” the filing said. As of the end of the first quarter, the company’s “estimated aggregated range of additional possible loss” under all pending legal cases and regulatory contingencies comes to up to $40 million, according to the filing.

Rising expenses

Operating expenses jumped by 10% year over year to $2.13 billion in the first quarter, due to higher compensation and benefits costs. Pay for financial advisors, as well as corporate and branch employees, rose because of the impact of new hirings of associates and higher revenues that are tied to rep commission payments, according to the firm. Across the entire firm, corporate office associates increased 4% to 7,396, the number of branches ticked up 1% to 15,576 and branch office administrators climbed 3% to 17,646.

The bottom line

Advisory accounts drove up the firm’s revenue in the first quarter. Asset-based fees soared by 13% year over year to $2.44 billion on higher average equity values and continued movement of client assets into advisory programs, more than offsetting the lower bond yields. Still, the higher expenses linked to compensation for the higher revenue slashed the firm’s earnings. Net income before allocations to partners slipped by 7% to $355 million.