Edward D. Jones & Company L.P.

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Edward D. Jones & Company L.P.

P.O. Box 66906
St. Louis, Missouri 63166-6906
U.S.A.
Telephone: (314) 515-2000
Toll Free: (800) 343-8000
Fax: (314) 515-3269
Web site: http://www.edwardjones.com

Wholly Owned Subsidiary of The Jones Financial Companies
Incorporated: 1922
Employees: 8,500 (est.)
Total Assets: $3.47 billion (2003)
NAIC: 523120 Securities Brokerage; 523920 Portfolio Management; 524210 Insurance Agencies and Brokerages

Edward D. Jones & Company L.P. is one of the world's largest brokerage networks, with more than 8,000 offices across the United States, Canada, and England. Almost all Jones offices are one-person affairs, and the firm aims primarily at individual investors who have relatively small accounts. Until the 1980s, Edward Jones offices were found exclusively in rural areas, but the firm expanded into suburbs as well as into big cities, including Chicago and Detroit. Jones brokers specialize in low-risk investments, and its customers are usually in the market for the long haul. While the average mutual fund customer buys and sells a fund every three years, Jones customers on average hold on for 20 years. On several lists maintained by Forbes and other business publications, Edward Jones consistently ranks among the top companies to work for in the United States and Canada.

Early Years

Edward D. Jones of Edward D. Jones & Co. was not the same Edward D. Jones remembered on Wall Street as the Jones of Dow Jones. This Edward D. Jones was a broker in St. Louis, Missouri, who opened his own firm in 1922. In 1943 Jones's firm merged with an older investment firm, Whitaker & Co., founded in 1871. The brokerage was nothing out of the ordinary until Edward D. Jones's son Edward Jones, Jr., joined the company in 1948. Jones, Jr., known as Ted, studied agriculture at the University of Missouri, then worked for a while on Wall Street. He had always liked small towns, and was comfortable with farmers and rural people. Up to that point, Jones brokers worked rural territories only as so-called TNT brokers, looking for clients from Tuesday til Thursday, before heading back to the St. Louis office. Ted Jones decided that the brokerage would do well to branch into small towns directly, to offer investment services to people that big city firms usually overlooked. Jones, Sr., disagreed with his son, but Ted went ahead anyway, and opened the first Jones branch in 1955 in the tiny town of Mexico, Missouri. When Ted Jones took over as managing partner of the brokerage in 1968, he pressed ahead with his plans to infiltrate rural America. Most offices were in the Midwest, and from the start they followed the Jones pattern still used today: a one-man office, pushing conservative investments.

Even before Ted Jones took over as managing partner, he instituted a broker training program unique in the industry. Jones trained college graduates who had no specific background in the securities industry. While learning the ins and outs of the financial markets, Jones trainees also polished their people skills and learned to hone in on potential investors. Then they were sent to a town where they knew no one. The new broker was required to make 1,000 cold calls, knocking on doors like the storied Fuller brush man or encyclopedia salesman. To reach the quota often took many months of eight-to ten-hour days pounding the pavement. Only after this grueling initiation was completed was the new broker allowed to open an office. It took a particular kind of person, and not your typical broker, to go for the Jones approach. But the scheme apparently built intense company loyalty among Edward D. Jones's scattered crew. Ted Jones commented on his brokers' training in a June 12, 1986 article in the Wall Street Journal, "If it's beneath your dignity, then go work somewhere else." But for the brokers who could stand the isolation from co-workers, the small town atmosphere, and the exhausting cold calls, there was money to be made. Jones offices prospered, and the company grew.

The number of Jones brokerages expanded gradually through the 1970s, filling the Midwest. The Jones formula seemed to work in town after town, from Spearfish, South Dakota, to Paris, Illinois. One area Jones tried and failed to penetrate was Florida. The firm made a big push there in the mid-1970s, attempting to recruit brokers from other firms. This did not work, and Jones bowed out of the state. By 1978, Jones operated just over 200 brokerage offices. At that time, the offices were linked by a teletype system, which let them communicate with each other and also keep up with moving stock quotes. However, the network had grown too big for the teletype technology, and brokers had trouble getting their quotes because of tied-up lines. The company therefore switched to using Merrill Lynch's toll-free number for stock quotes for a time, and eventually upgraded to a sophisticated computer and satellite network.

Under New Leadership in the 1980s

Ted Jones stepped down from managing the firm in 1980, and he was succeeded by John W. Bachmann. Bachmann had begun working for the firm one summer when he was in college, and his first position in the head office is variously described as janitor or messenger. When he took over, Edward D. Jones & Co. had approximately 300 offices, still almost entirely in the Midwest. Bachmann launched the company into a rapid expansion. By the mid-1980s, the firm had close to a thousand offices spread across 36 states. The new managing partner did not deviate from the traditional Jones-style training, but was if anything more avid about it than his predecessor. Bachmann was a disciple of the management expert Peter Drucker, who is credited with turning management into an academic discipline. Bachmann engaged Drucker as a consultant in the early 1980s. Drucker apparently liked Jones's structure, which he saw as a strong center surrounded by the relatively autonomous satellites of the one-person offices. Bachmann's vision of the company, fueled by his work with Drucker, went beyond the small-town markets the company had already extensively cultivated. The new managing director realized that there were many Jones-type customers outside small towns—people with low amounts to invest, worried about retirement income, who would enjoy Jones's conservative investment advice and friendly, personal service. These investors were overlooked by the big investment houses like Merrill Lynch and Charles Schwab, who tended to go after wealthy clients first. Thus Bachmann began training new brokers and opening new offices at a furious pace. Beginning in 1981, Jones grew in terms of number of brokers at 15 percent a year all the way into the mid-1990s.

The company made money as it expanded, with a return on equity of typically close to 30 percent, considered quite high in the securities industry. Even as Jones moved into new geographic areas, penetrating big cities such as Atlanta and Chicago, the company clung to its basic strategy, pushing low-risk investments for individual investors. Jones brokers did well. Figures for the late 1980s asserted that many were making over $100,000 a year.

But there was some evidence that not all Jones's approved transactions were as low-risk as they should have been. The company was involved in a number of lawsuits and complaints in the mid-1980s, brought by customers who were angry at investments that went sour. In the early 1980s, Jones sold its customers debenture issues for Baldwin-United, an insurance carrier, and these bonds were in default within a year. Other troublesome transactions that Jones pushed were energy partnerships offered by a firm called Petro-Lewis and real estate partnerships offered by one Southmark Corporation. These and other ill-fated ventures aggressively pushed by Jones brokers led Matthew Schifrin of Forbes magazine to claim in an August 22, 1988 article that Jones made its money by "peddling a good proportion of overpriced junk." Schifrin's article also reported on a class-action suit brought against Jones by 24,600 investors who had lost money in 1983 on limited partnership shares in something called Natural Resource Management Corp. Customers claimed they had been led to expect a 15 percent minimum return. Instead, every $1,000 invested ended up worth only about $50. Jones management, including managing partner John Bachmann, had a big stake in Natural Resource Management, leading to allegations of conflict of interest. Jones settled these complaints out of court.

Another stumble in the mid-1980s was Jones's expansion into the home mortgage market. The firm started to offer its customers home mortgages in 1986, but over two years, the company lost money on these transactions because the one-person offices were overwhelmed with the required paperwork. The mortgage program was discontinued in 1988. In 1987 the firm organized itself as a limited partnership. This made it officially the Jones Financial Companies, L.P., which acted as a holding company for Edward D. Jones & Co. At the time of the reorganization, Jones posted its sales as $268 million.

Company Perspectives:

At Edward Jones our way of doing business is face-to-face. That means you'll not only find us online, you'll often find us right around the corner as well. Our investment representatives live and work alongside the investors they serve. Doing so has taught us a valuable lesson: Investing is not a one-sizefits-all proposition. Individual investors are real people, each with his or her own personal long-term financial needs and goals. At Edward Jones, we offer real solutions—solutions tailored specifically to your individual needs and goals.

Expansion Through the 1990s

By the early 1990s, Jones had over 1,500 offices in 45 states across the United States. While the company still had its biggest presence in the Midwest, Jones planned to push into territory where it was under-represented, including southern California, New England, and Florida. By 1991 Jones offices could be found in every state except Hawaii, Alaska, Delaware, and Massachusetts, and 40 percent of those offices were not in small towns but in suburbs. Managing principal John Bachmann reiterated for the Wall Street Journal on February 12, 1991 that "geography doesn't really matter, anyway." Jones was after a particular kind of customer, and that customer could be found just as well in suburban Connecticut as in Sandwich, Illinois. By this time, Jones was an interesting combination of high technology and old-fashioned style. Every Jones office was fitted with a satellite dish, and the isolated brokers tuned in frequently to videos broadcast from headquarters. Some of these leaked to the press in an embarrassing way, giving a glimpse of the seemingly low-key Jones behind the scenes. Just after the PersianGulf War a Jones principal dressed as "Stormin' Norman" Schwarzkopf, the successful general of that conflict, urged Jones brokers on the satellite broadcast to boost the firms sales with "Operation Bonus Bracket." The presentation stressed that brokers could make more money for themselves and the firm by pushing specific investments, which had added fees.

The satellite dishes were also sometimes controversial in small towns, where they represented an architectural anomaly. The Edward D. Jones office in Beaufort, South Carolina, was picketed in 1991 by demonstrators who thought the obtrusive satellite dish did not belong in the town's historic business district. Otherwise, the satellite dishes kept Jones brokers in constant touch with headquarters and enabled them to make transactions for their customers in mere seconds. Although the firm still presented an image of down-home conservative advice and one-on-one consultations, it was nevertheless completely modern in the way it did business, and increasingly branching out from its small-town customer base.

By 1994 Jones had penetrated every state except Alaska and Hawaii, with more than 2,600 offices. These offices were in small towns, in suburbs, and to a large extent in big cities, too. The company had over 80 brokerage offices in Chicago, for example. That year Jones also made its first move internationally, opening several offices in suburban Toronto, Ontario, Canada. The move across the border happened after five years of research showed that Canadians matched the Jones investor profile almost perfectly. Jones's typical customer in the mid-1990s was an individual in his or her mid-to late 50s, with grown children and a low or nonexistent mortgage. These people were concerned primarily with investing for retirement. They were baby-boomers—people born just after World War II, and now nearing the end of their working lives. The United States was not the only country that had experienced a postwar baby boom. Canada and Europe had them, too, and so Jones began aiming for customers there. In the mid-1990s Jones discussed extravagant plans, saying it would open 300 to 350 Canadian offices over the next five years, investigate Europe, and think about Mexico. Jones's leader Bachmann told the St. Louis Business Journal on July 25, 1994 that he had been approached by Japanese firms interested in a joint venture, but that he was not ready to go to Asia yet.

Jones paused its expansion a bit in 1995 and 1996 to make some internal changes. The firm invested $150 million to upgrade its computer and satellite technology. It had the largest satellite network in the securities industry. It also delved into the Internet, so that by 1997 it had one of the largest client/server systems on the web, and each Jones office had its own home page. Another improvement the company made was to shorten its name from Edward D. Jones & Co. to simply Edward Jones: this was easier to fit on storefront signs. In the mid-1990s Jones also took a second look at some urban markets that had not done as well as expected. Jones had wanted to build a strong presence in Detroit in the early 1990s, but had less than 30 offices in the Detroit metropolitan area by 1996. At the end of that year, Jones started over, announcing it would open over 200 brokerages there over the next several years. By 1997 Jones was back on its expansion tear, hoping to open 100 new offices a month. A large percentage of these new offices were in urban areas. John Bachmann told Fortune magazine on October 13, 1997 that his job now was "to see how large and how important we can become" without selling the limited partnership. As Jones became more and more a mass-marketer, it would make it easier to afford national advertising. Other brokerages were competing for Jones customers, so opening more offices made sense. Merrill Lynch planned in the late 1990s to move into the kinds of rural areas that had long been Jones's mainstay, and banks, too, were increasingly offering some of the investment services that only brokers had handled in the past. Bachmann's plan for Jones was to bring the number of brokerages up to 10,000 by the year 2004.

Edward Jones came to England in 1998, opening its first office in Norwich. A year later the firm had over 80 offices in England, mostly in small towns south of London and in the Midlands. Jones sent some of its most successful U.S. brokers over to England. Here, too, Jones brokers carried on as they did in the United States, beginning with cold calls, knocking on doors, leaving leaflets and business cards, inviting people to investment seminars. The following year, the firm established a foothold in Scotland.

Jones's rapid expansion seemed to pay off. Revenues grew 25 percent in 1998, up to $1.3 billion, and Jones's return on equity remained the envy of the securities industry.

Key Dates:

1955:: The first Edward Jones office opens in Missouri.
1960:: The company employs 60 brokers in nine offices.
1979:: Edward Jones installs computers and printers in its 200 branch offices.
1986:: The firm's 1,000th office opens in Stoughton, Wisconsin.
1994:: Offices in Canada are opened.
1997:: The firm begins operations in London.
2001:: Edward Jones branch offices number 8,000.

2000 and Beyond

By this time, Edward Jones was well-known for the attention it paid to the professional development and satisfaction of its work force. In 2000, Edward Jones dedicated the A.F. McKenzie Training Center in Ontario; some 400 Edward Jones investment representatives comprised the company's sales force in that country. The company was named the number one firm to work for in Canada by the magazine Investment Executive in a 2001 survey. Also that year, as the 8,000th Edward Jones branch worldwide opened for business, Fortune ranked the company first in its 2002 listing of "100 Best Companies to Work for in America" while Kiplinger's Personal Finance ranked the company first among full-service brokers. By 2003, when 600 Edward Jones offices were operating in Canada, Business Magazine had ranked Edward Jones high among the top 50 places to work in Canada. Canadian operations remained an important focus for the firm, and expansion was rapid. By 2004, Edward Jones served more than 150,000 Canadian clients. The company planned to have 3,000 offices in Canada, with 500 of these located in the Province of Quebec. The first five Quebec offices had opened in 2002, representing Edward Jones's first penetration of an English and French-speaking market.

The firm was also recognized for its customer service. A 2002 survey, by J.D. Powers and Associates, of customer satisfaction among full-service investors saw Edward Jones tie for first place. In a national research study in 2003 and 2004 by Forrester Research, Edward Jones was the highest-ranking brokerage named on this list, and placed second in the customer advocacy ranking.

Edward Jones was not immune to increased scrutiny from the U.S. Securities and Exchange Commission (SEC) in 2003 and 2004, as they investigated charges that many mutual fund companies were forming revenue sharing agreements, a practice dubbed "pay to play" in which brokerage houses took large payments from funds that they recommended highly to customers while the customers were not informed of such payments. In 2004 the SEC considered taking action against Edward Jones, based on such an inquiry. Edward Jones's 2003 revenue-sharing payments totaled almost $90 million in 2003.

Nevertheless, Edward Jones's reputation for customer and employee satisfaction remained strong. The firm's long-term investment track record was lauded by Barron's in 2004, a notable feat given the tough investment climate of the early 2000s. In addition to its investment offerings, Edward Jones offered credit card and life insurance products, continuing to focus on a clientele of individuals and small businesses.