September 9, 2018
Michelle Keating
Former Edward Jones Financial Advisor
at Edward Jones Branch Office
[address redacted]
Sent Via Email
September 9, 2018
Brent J. Fields
Secretary U.S. Securities and Exchange Commission
100 F Street
NE Washington, DC 20549-1090
Re: Comment on Standard of Conduct for Investment Advisers (File No. S7-09-18); Regulation Best Interest (File No. S7-07-18); and Form CRS Relationship Summary (File No. S7-08-18)
Dear Mr. Fields:
I'd like to share the perspective of a person who worked as a dually-registered Financial Advisor for Edward Jones in Massachusetts from 2001-2018. Edward Jones is the largest retail brokerage firm in the United States with over 16,000 dually registered Financial Advisors. Collectively these Financial Advisors affect the financial wellbeing of millions of customers as well as their families and beneficiaries.
Relationship Summary:
The Financial Services industry has evolved significantly over these past 17 years. Because more individuals are responsible for their own retirement savings now, the industry has responded by marketing heavily to consumers about services proclaiming to assist individuals with planning for retirement.
Financial Service companies including Edward Jones create national advertising campaigns showing how their financial service providers can not only calculate for consumers how much they'll need to save for retirement but also how to accomplish the goal. These advertising strategies set unrealistic expectations of what they should expect from a financial services provider without ever disclosing anything at all about how the service is provided, who provides the service, who pays for the service or how it is paid for, or even what qualifications the provider has or should have. Nor do they address how much of the consumers own time and money will need to be invested over what period of time to be both eligible and successful.
Financial Services companies including Edward Jones also use these same marketing strategies to recruit individuals to become financial service providers. Similarly, important factors are not disclosed clearly or are unilaterally changed over time by the Financial Services company. Financial Advisors are just as much customers of the brokerage firm as the end consumer is and these relationships need to be more clearly defined and disclosed to protect everyone involved.
Like most other dually-registered Financial Advisors' at Edward Jones I was originally hired without any previous experience in the financial services industry. Edward Jones generally recruits unlicensed individuals and provides them with the training needed to become licensed. As I started before 2006, I was hired and trained as an Investment Representative which was represented to me as a sales position as an Employee, which I believed meant in the common law sense of that term. I enrolled in the Edward Jones employee benefits program, contributed to their 401k plan, and my wages are reported on a W-2 Form.
I never questioned my role or had trouble explaining it to clients until after 2006 when things changed. Suddenly, Edward Jones mandated that all Investment Representatives obtain our Series 66 License and they changed our title to "Financial Advisor".
Yet from our perspective, our job never changed from sales to advice, our pay structure never changed, our products never changed and as far as we knew our employment status never changed. The only product exception was Advisory Solutions, which is marketed by the Financial Advisor, but is not managed by the Financial Advisor, we do not make investment decisions and we do not have discretion in any way, and importantly, we were never informed of having any fiduciary role.
This Advisory program is actually managed by a separate subsidiary of Edward Jones, and the rebalancing is done systematically. Our only role is the process is to explain the program to the prospective client. The system creates the objective automatically, the client decides whether and when to add or remove money, and we check in with the client at least annually to ask specific questions about whether the program is still appropriate for them or not. Based on their answers, the system determines the answer. My Financial Advisor Biography was created by someone else and is enclosed in the account authorization and disclosure documents which were also created by someone else. Evidently we were registered with the SEC as Investment Advisors as well, although I didn't know this until 2017.
I am not sure what the role of an Investment Advisor is, but it doesn't seem to match what we do. I do not think our actual allowable activities require that our titles be Financial Advisors because it is not an accurate representation and is misleading.
Furthermore, I did not register myself as an Investment Advisor, I was not notified I was registered, and just recently I was not notified that I was de-registered. I have never received any notices from the State of Massachusetts regarding securities regulations or laws and I wasn't even aware they were involved to be honest. This lack of notice to the Financial Advisor who is responsible for providing accurate explanations to clients about our role is entirely undermined and in fact impossible if we are notified in the first place.
I recently decided not to renew my securities licenses primarily due to these very issues. If I don't know what my role is then I shouldn't be in the role.
Fiduciary Rule & Conflicts of Interest:
The debate over sales quotas vs asset gathering quotas misdirects away from the real problem which is the conflict of interest between the financial services provider and the firm, the financial services provider and the client, and the firm and the client. There are three entities involved that I'm aware of, not just two.
I never heard of the term Fiduciary before the DOL Rule was being implemented, and even after the DOL fiduciary rule was implemented, it took me time and effort to determine what this meant. This should be explicitly defined by regulation and provided in writing for everyone involved.
It is no secret that firms put pressure on financial services employees to generate commissions and fees and this incentivizes the financial service employee to put pressure on the clients or worse.
Cleary, both generating commissions and bringing in assets do create conflicts of interests that motivate behavior and undermine trust. More assets mean more fees and more opportunity to generate commissions. Asset quotas create the motive to induce clients to move assets from one place to another which is an important consideration that may or may not be in the clients best interest due to a large variety of factors including but not limited to the cost of doing nothing, how the assets are currently registered, what protections are available at the current location, convenience of client, whether those assets can remain in the same form if transferred or whether they need to liquidated and reinvested, etc.
There is also a big difference between "sales contests" and "performance goals". The contests are definitely a conflict of interest and I don't mean to imply otherwise, however the performance goals which are in fact sales quotas are more insidious because they dictate the viability of continuing employment of the financial advisors and if ever there was a conflict of interest, avoiding the loss of employment is a very big motivator. This is exactly how Edward Jones manages all financial advisors so no matter what there is always a conflict of interest.
The only way to truly eliminate conflicts of interest is to change the relationship between the brokerage firm and the financial services provider. My limited understanding of the usual role of an Investment Advisor is that they are entirely independent of and not controlled by an employer where a Representative or Broker is an agent for the employer, and do no have any independence. These roles could not be more diametrically opposed and I can't imagine how someone with sales and/or asset goals could possibly not have conflicts of interest regardless of whether they are paid via fees or commissions.
I do not agree that someone should be a dually-registered person at all because it is ambiguous by definition. Just because one account is fee based and the other account is commission based does not remove the underlying conflicts of interest inherent in being controlled by an employer. People are not robots and cannot switch from one mindset to another and even if they could, the underlying performance goal conflict of interest still exists.
Best Interest Contract:
I have no idea what this is, what the purpose is, who's benefit it is for and again, Yet I have been required to "consent" electronically to this while opening accounts and I am strongly opposed to anything that does not provide full disclosure to everyone involved. Ambiguities cause unnecessary and otherwise avoidable problems. If a policy or process exists that needs to be hidden, it needs to be abolished.
Thank you very much for your time and consideration and I sincerely hope this provides added insight that benefits everyone involved.
Respectfully,
Michelle Keating