After Kyle wrote about the best financial advisors in Canada a couple of weeks ago, we got several emails that asked some version of, “Should I use Edward Jones financial advisors?” or one of the other large financial advisory firms in Canada.
Since I have had several friends use their services, and many of their advisors often appear atop the Globe and Mail rankings every year, I decided to write an Edward Jones Review that details exactly why Kyle was pretty hard on them a couple of weeks ago.
I should note that I’ve only corresponded with readers and talked with friends about Edward Jones Canada – not their US or international wings, so my commentary will be focused on Canada-specific facts. The other thing to keep in mind is that Edward Jones is not alone in many of the fees and practices that you’ll read about below (in fact it is all too common) they’re just the biggest one, and the one we got the most questions about.
Edward Jones Fees and MER Explained
I’m not saying that Edward Jones doesn’t have good advisors working for them. Maybe some of them know their stuff. What I do know beyond a shadow of a doubt is that it is incredibly difficult to understand Edward Jones’ fees and costs.
You’re going to pay commissions to Edward Jones, further percentages to high-fee mutual fund providers, transaction fees, strategy fees, commissions for selling you insurance, commissions for selling you mortgages, etc. All of those fees and commissions stack on top of each other.
Here’s a look at the fees and costs involved versus Kyle’s pick for top financial advisory.
Edward Jones vs Advice-Only Financial Planner Fees Comparison
|Advice Only/Fee Only Financial Planners||Edward Jones|
|Is there an upfront quote that is easy to understand?||Yes!||Definitely Not. Many percentages and fees to calculate.|
|Percentage the financial advisor and company will take from your portfolio||0%||Somewhere in the 1-3% range – see below for details.|
|Are there several layers of additional fees suh cas markups when you buy securities, “strategy fees”, and account fees for every RRSP, TFSA, RESP and investing account that you have?||No!||Yes!|
|Are advisors paid commissions to recommend investments?||No||Yes|
|Are advisors paid commissions to recommend insurance products?||No||Yes|
|Are advisors paid commissions to recommend mortgages?||No||Yes|
|Does the advisory company charge fees for services/products such as account transfers, margin accounts (loans), foreign exchange, trading fees, markups on investments you buy, etc?||No||Yes|
*The above information was interpreted from the Edward Jones “Understanding how we are compensated for financial services” document found here. Please consult this document to fully understand the complexity of compensation involved.
Edwards Jones Alternatives
My preferred alternative to Edward Jones (and other commission-based financial advisors in Canada) is Objective Financial Partners.
Objective is run by Jason Heath. If you Google Jason’s name, you’ll find out that he is trusted to write for the most trusted publications in Canadian personal finance. He has decades of experience in the industry, and has built a great team of specialists that can take care of any financial planning curveball you throw their way.
When you go to them with a question or asking for a financial plan, they’ll tell you exactly what is needed to get you on the right track – and give you a quote for their time. It’s very simple and doesn’t require digging through pages of jargon-filled compensation fineprint.
Jason and his team don’t make a nickel off of any products that they recommend to you. They also don’t get paid more if you invest more of your money through their private platform (they don’t have a private trading platform to funnel investors into like the big wealth management companies do). Consequently, they are completely objective (hence the name) about the investments they recommend, and the financial planning tools they advise to use.
Objective Financial Partners is an independent entity and doesn’t have a bunch of overhead costs from paying rent in strip malls or buying the naming rights to a big stadium. You can easily schedule an appointment with them every six months – or if you just need help one time to make sure you’re on the right track, they’ll do that for you as well. I have yet to stump them with a financial quandary – let me know if you manage to do so!
In case you’re wondering if all of these small fees make a difference, let’s take a look at a hypothetical situation. Say you are 35-years-old and have saved $50,000 in your investment accounts. You hope to add $10,000 per year. Here’s a hypothetical look at how I personally think (based on publicly-available data) your money would be likely to grow:
|Using a fee-only, advice-only financial planning company like Objective||Using Edward Jones Portfolios|
|Description of all fees paid: Upfront pre-quoted dollar amount for the initial financial plan. Anytime you want a follow up meeting, you’ll pay a predetermined fee – just as you would for the time of any other professional.|
Then you would pay the .20% MER (rough estimate for diversified index ETFs that anyone in Canada can access).
|Approximation of fees paid:|
-Likely advisory fee of about *1.6%.
-Likely mutual fund fees and other investment fees of about *1.5%
-A wide variety of charges described above – averaging out to .2% of your portfolio.
|Total % taken out of your investments EVERY YEAR: .20%||Total % taken out of your investments EVERY YEAR: 3.3%|
*Note: I could not find the advisory fee for Edward Jones Guided Portfolios listed anywhere for Canadians. The 1.6% figure is a conservative approximation taken from averaging the 1.35% fee charged in the USA, and the 1.8% figure quoted in a Globe and Mail article from several years ago. Canada has some of the highest mutual fund fees in the world, which I describe here.
Your Portfolio With Fee-Only vs Edward Jones (assuming 8% return)
That’s almost a million dollars difference! By taking 3%+ out of your portfolio each year instead of the .20% in ETF fees that you would pay with a fee-only, advice-only adviser, you could be voluntarily paying what is basically a million dollar tax!
Edward Jones Investments
The above look at how Edward Jones’ fees can quickly eat up your portfolio assumes that you will earn the same overall market returns with Edward Jones’ investments as you would with basic low-cost index investing ETFs.
That assumption is almost assuredly incorrect, as it’s much more likely the investments chosen by your advisor will be worse than the market average due to active investing underperformance.
Here’s what Edward Jones Canada writes about their “strategy” for selecting investments on your behalf:
The issue is that there is no evidence that active investment can in any way predict which stocks, bonds, and mutual funds will perform well over time. It is my opinion that the rare handful of geniuses out there who can actually tell “what quality looks like” ahead of time – are working for massive hedge funds – certainly not as small-scale advisors.
It’s impossible to know what specific investments that your Edward Jones advisor will recommend to you. All of the company’s literature says that your investments will be based on getting to know you and developing an overall plan. Yet we see substantial evidence that the company misled investors from 2013 to 2018, and urged them to “churn” portfolios so that they would generate higher fees.
Three things we know for sure when it comes to Edward Jones investments.
1) They will be expensive.
2) The total fees that you’re paying will be difficult to understand.
3) Given the long-term statistics around active management, the investments are almost guaranteed to be below average.
Comparison of Financial Advice
Aside from investments, comparing a fee-only, advice-only financial planning company like Objective Financial to Edward Jones can be difficult on the surface. Much depends on the specific advisor that you choose. I thought Kyle’s take on how to choose the right person for you in his best financial advisors in Canada article was a great starting point.
That said, some broad generalizations can be made:
- Edward Jones’ advisors get paid more to recommend certain insurance products over others.
- Edward Jones’ advisors get paid to recommend products such as mortgages and lines of credit.
- Edward Jones’ advisors receive more bonuses and prizes the more they sell products and services to you. These even include programs like the Edward Jones Travel Awards Program.
- Fee-Only, Advice-Only financial planners such as Objective Financial or fellow Canadian writer Robb Engen DO NOT receive bonuses or any other type of payment for selling products to you.
So, in saying all that, which advisor will give you better advice?
The one who gets a bonus plus a free trip to Hawaii if they recommend a specific insurance plan or investment fund?
The one who gets paid to simply provide you with advice – and gets paid exactly the same no matter which products they recommend.
Obviously it’s impossible to say with 100% certainty which advisor is going to give the better advice, but I think it’s pretty clear why Kyle (and myself) are so partial to fee-only, advice-only financial planners.
Edward Jones Review: FAQ
Edward Jones Review – Final Verdict
Is it possible to get good advice from an Edward Jones advisor: Yes… it’s possible.
Personally, I can’t recommend any financial planning company that charges an impossible-to-define percentage of your overall portfolio every single year. You can see from my calculations above that making the wrong decision about your financial advisor could cost you hundreds of thousands of dollars by the time you reach retirement.
Remember that while meeting your financial advisor in person is a nice luxury, it also opens you up to all kinds of behavioural biases. NEWSFLASH: people who sell stuff for a living are generally pretty friendly and good at getting others to like them. That doesn’t make them bad people, but obviously a pleasant financial advisor who makes fun small talk with you once-a-year isn’t linked to putting more money in your pocket.
There are probably worse financial advisory firms out there than Edward Jones, but I personally don’t find any evidence that they are worth your consideration. The bottom line is that their fees are just WAY too high and WAY too difficult to fully understand – plus their advisors are paid more if they sell you more products.
Don’t just take my Edward Jones review as Gospel however – feel free to do your own research and report back in the comment section below.
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