Ranked as the No. 2 company to work for by Fortune magazine, St. Louis-based financial services firm Edward Jones, which has continued to expand during the economic downturn has no plans to slow growth anytime soon. In fact, with about 11,000 branches, serving more than 7 million individual investors primarily in the U.S., the privately held partnership is looking to grow nationwide.
Managing partner Jim Weddle spoke to DailyFinance about the company's growth, how Edward Jones has managed to avoid layoffs since the 1960s, and who they're hiring. He also offers a few year-end tax tips and shares his outlook on the U.S. economy.
DailyFinance: Has anything changed about Edward Jones' financial advice during the economic downturn?
Jim Weddle: We have a very longstanding investment philosophy that we believe wears well over time. And that has not changed. It has three prongs: You start with quality, you make sure that you're appropriately diversified, and then you also have to be very patient. In other words, we do not advocate a lot of trading and lots of risk taking.
If there is any lesson that all investors perhaps have learned, it's that diversification is absolutely, critically important. And we do believe in a patient kind of approach: Buy quality, diversify and hold on. People are definitely listening more. People are also saving more -- holding more in cash.
Our advice now as we move through what we believe is kind of the end of the recession -- the beginning of improvement -- is you've got to use long-term investments to meet your long-term financial goals. People are investing today like they wish they had prior to the market's decline. They're going to very short maturity fixed income -- very high quality -- holding a lot of cash will not get them to where they need to go. They won't participate in the recovery if that's what they do.
Edward Jones has avoided the layoff trend during the recession and actually added staff. What's your secret?
We haven't had layoffs since back in the 1960s. But we did put a cap on the number of folks we have in our home offices. What we did grow was the number of our financial advisors to be able to position ourselves to meet the needs of more of those individual investors that are out there. And heaven knows they need our help today. We will add this year about 750 financial advisors. And along with that, each one opens a new Edward Jones branch, and each branch has in it what we refer to as a branch office administrator. That's the dedicated service person that's in that branch to help that financial advisor service the clientele. So we would have added a good number of folks in the branch network portion of our firm.
We grew because we can. We have always grown organically. We don't acquire, we don't merge. We are looking for really good people who have been successful in their careers. But primarily those careers have been outside of the financial services industry. We have an amazingly good training program. We can train those people, we can get them through all of the test exams and requirements and we can take the time and spend the money to support them if they start businesses from scratch -- new convenient locations from scratch.
As 2009 winds down, there is a lot of talk about Wall Street bonuses. What's your view on big bonus payouts?
Compensation should be tied to both long-term, consistent results and also recognize your shorter-term performance. You've got to have a little bit of both to operate effectively. But I think the majority of your compensation should be tied to the long-term consistency of your results. Where people ran into problems was when they were incenting risky behavior.
When too much of your compensation is based on your short-term performance or short-term profitability measures, you're going to swing for the fences. And people that do that, they might hit the occasional home run, most of the time they strike out. Short-term incentives and big bonuses based on the last quarter or even the last year's performance will get you some behavior that is probably not going to be in the best interest of the client or the firm.
Companies that have great amounts of success need to compensate the people in their organization whose decisions that led to the profits but they also need to balance that by increasing payouts of dividends to their shareholders. In other words, share the wealth!
With tax season approaching, what advice would you offer to taxpayers?
People need to take a very careful look at their portfolio -- what they own and how they're invested to identify potential opportunities to save on taxes. By that I mean, even though the market has recovered by a significant amount, some asset classes have not. If you still have a loss, you may be able to realize the loss -- save yourself some taxes. And you also need to take a look -- and this is not just a tax season suggestion -- but you need to make sure that you are positioned in a way that does two things.
No. 1: Positioned in a way to reach your long-term financial goals. And No. 2: Positioned in way to participate in the recovery. If you're not, then you need to make those changes. Lots of people have been holding cash, and lots of people have been very conservative in terms of adding to their investments. But you've got to make your qualified plan contributions or they're not deductible for tax purposes. So fund your IRA, get your dollars into at least the amount of the match in your 401(k) and those kinds of plans, and make sure that you're taking advantage of every opportunity that's given to you.
If you've got a plan where you've got a match and you haven't maxed it out, you've got to do that. That's free money!
What is your outlook on stocks and the economy over the next six months to a year?
You have to realize that the stock market is a leading economic indicator. The market declines before the economy does and the market improves typically before the economy does. If you look at history, it's usually six to eight months before the economy goes up or down, the stock market goes up or down. The market bottomed in the first week in March. Here we are nine or 10 months later and the stock market has gone up a bunch, and we're now talking about a gradual, but an improving economy that we should actually see the measures of improvement very shortly going into the new year.
We think -- unemployment will continue to be a serious concern, but we're finding reasons to be optimistic with almost every passing day. Earnings reports: 80% of the earnings reports in the last quarter beat analysts' estimates. Most companies are now lean and mean and they are prepared to compete in this economy and going forward. We're also seeing the prices of homes stabilizing in certain markets and the number of existing homes that are being purchased right now is beginning to increase. This was kind of a housing-led recession and to see the improvement in the housing markets is very encouraging. We think that six to 12 months from now, people will be glad that they bought quality investments, diversified and then held on.
What's your investing game plan?View Course »