Edward Jones is being sued by four investor clients who allege the firms’ advisors have “unlawfully shift[ed] their commission-based accounts to a fee-based program” over the past five years in what they refer to as “a reverse-churning scheme.”
The class-action suit was filed last week in an Eastern District of California court by plaintiffs Edward Anderson, Raymond Keith Corum, Jesse Worthington and Colleen Worthington.
It notes that Edward Jones has “substantially increased client assets managed in its Advisory Programs every year since the introduction of Bridge Builder [which includes portfolios based on proprietary funds] in 2013.”
These assets stood at $265 billion in 2017 vs. $101 billion in 2013, according to company reports. During this period, the suit points out, Edward Jones generated $17.2 billion in revenue from asset-based fees; it also paid advisors and partners $272 billion in bonuses.
Edward Jones “made misleading statements and material omissions to [its] clients … about the amount of fees they would pay after their assets were moved into one of the Advisory Programs and about Edward Jones’ preference for investing in proprietary funds,” the suit claims.
Furthermore, the firm and associated parties named in the lawsuit allegedly “breached their fiduciary duties because clients who engaged in little to no trading activity paid more in fee-based accounts than they did in commission-based accounts and clients who were invested in a proprietary fund were entitled to know about [the] defendants’ competing interests that caused them to make self-interested investments on their clients’ behalf.”
According to the lawsuit, the plaintiffs’ investment details are as follows:
- Anderson agreed to the Advisory Solutions Fund Model Agreement in July 2015. About $61,000, or 60% of his total assets, were put into Bridge Builder mutual funds — for which he paid over $6,000 in fees.
- Corum’s advisor moved his assets into Advisory Solutions in 2015 “despite his instruction to her to keep his account as it was,” according to the suit. Some $22,000, or 32% of his assets, were put into Bridge Builder. He paid more than $671 a year in fees overall.
- Jesse Worthington’s assets were moved into Advisory Solutions in early 2014. In 2016, his living trust was moved into Guided Solutions, with about $4,500 of his assets invested in the Edward Jones Money Market Fund and over $38,000 put into Edward Jones preferred partners’ mutual funds. He paid over $792 in fees for the Guided Solutions account in 2016, and over $3,350 in fees during the period he was in Advisory Solutions.
- Collen Worthington’s account was switched to Advisory Solutions in early 2015. Some $53,000, or 38% of her assets were invested in Bridge Builder. She paid over $2,130 in fees.
The company said in a statement that it “has consistently offered both fee-based and commission-based client accounts that adhere to all regulatory requirements. We believe Edward Jones client accounts are among the best options in the industry, and we intend to vigorously defend this action.”
Edward Jones had 16,095 advisors as of Dec. 31 and some $1.12 trillion of client assets. Fee-based revenue was $5.7 billion, or 76%, of net revenues last year.
— Check out Edward Jones, Seeking Seasoned FAs, Gets a Recruiting Makeover on ThinkAdvisor.