This memorandum addresses some of the key issues with Edward Jones, which includes the lack of an online presence, possible cannibalization from larger firms, and the inability to manage funds from institutional investors. I conclude that the most effective of all of the theorized strategies would be a combination of Edward Jones’ original business model with an online platform. This plan would allow Edward Jones to stay true to its fundamentals, as well as attract new clientele and provide better service to its existing clients.
Edward Jones has become the fourth largest brokerage firm in the United States. By holding on to a fundamental business ...view middle of the document...
Edward Jones built its business around meeting face to face with individuals in their homes and offices. This is a great model for an entrepreneur driven financial services firm. However, as the technology bubble began to burst in the mid 2000’s, online brokerages such as E-Trade began to draw customers away from Edward Jones. The lack of an online presence on Edward Jones’ part made companies that offered this service more appealing due to lower fees (OBR, 2008). When examining Exhibit 5 (HBR,2007) , you can see that Edward Jones derived over 83% of its revenues from commissions and revenue from fees. Whereas, E-Trade generated only about 34% of its revenues from these categories. This shows that, online brokerage was advantageous to clients given that they could avoid expenses that were used to pay brokers, making it a significant problem for Edward Jones.
The last major issue was that they were not suited to manage institutional funds. Despite building an excellent company around working with blue-collar individuals and families, it is clear that Edward Jones’ focus on the individual investor might have been a significant problem. By only working with individuals and not selling large amounts of stock and bonds to institutional investors, Edward Jones passed up significant amounts of manageable assets and subsequently, revenue. Exhibit 5 shows firms that were managing institutional investments such as pension funds had significantly higher profit margins than Edward Jones. In 2005 Edward Jones’ profit margin was 1.05%, while Merrill Lynch and Morgan Stanley, were 27.8% and 26.33%, respectively. This also shows the average amount of assets in dollars per account at each firm. Edward Jones’ average assets per account were $45,556 while Merrill Lynch & Morgan Stanley was $163,667 and $137,111 respectively. Edward Jones leaves revenue on the table by not managing higher net worth institutional accounts.
Available Strategic Options
Edward Jones’ strategic direction in 2006 had to respond to competitors like Merrill Lynch if the partnership wanted to maintain its exceptional performance and growth. The first option focuses on staying true to Edward Jones’ small-town roots and demonstrating the value of strong personal relationships with one’s financial advisor in planning for the distribution phase of life (Faux, 2014). FAs can take advantage of face-to-face interactions and close relationships to communicate to clients the importance of planning for the distribution phase as soon as possible and hopefully encourage client referrals. Also, a professional advisor who personally knows the clients and their needs...