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FDAzar > Edward Jones Sued Over Alleged “Reverse Churning” Scheme

Edward Jones Securities Class Action

Reverse churning is the improper practice of a financial advisor placing a client’s funds into a fee-based account for no reason other than to collect the fee. These fee-based accounts require the client to pay a regular, fixed fee to the advisor, but the client often receives very little actual advice, trading, or account activity in exchange.

FDAzar filed a class action lawsuit on March 30, 2018, In re Edward D. Jones & Co., L.P. Securities Litigation, Case No. 18-cv-00714-JAM-AC, alleging that Defendants engaged in a concerted effort to improperly compel Edward Jones’ clients to move their commission-based accounts into a fee-based program, including Edward Jones Advisory Solutions (“Advisory Solutions”) and Edward Jones Guided Solutions (“Guided Solutions”). The Complaint further alleges that in coercing its clients to move into these fee-based programs, Edward Jones abused their trust by forcing them to pay substantially increased fees without providing much more in services than what they had been receiving. As a result of this improper conduct, Edward Jones has avoided new regulations on commission-based accounts, and was able to grow its own bottom line at the expense of its clients.

On July 25, 2018, FDAzar and Garner & Associates were appointed Lead Counsel for the class by the Honorable John A. Mendez in the United States District Court for the Eastern District of California. On September 24, 2018, FDAzar and Garner & Associates filed an Amended Complaint, providing further details about the alleged fraud against Edward Jones. Currently, FDAzar is preparing to oppose Defendants’ motion to dismiss.

You may have a claim against Edward Jones if your commission-based account was moved into a fee-based program, such as Advisory Solutions or Guided Solutions, between March 30, 2013 and March 30, 2018, inclusive (the “Class Period”). CONTACT FDAZAR IMMEDIATELY.

NATURE OF THE CLAIMS AGAINST EDWARD JONES

From its inception, Edward Jones has been known, and has marketed itself, as an investment firm that offers individually tailored solutions for investors who want to have a personal relationship with the person investing their money. Edward Jones has prided itself on its “knock-on-the-door” approach to offering financial services to mainly middle-income individuals in small communities. Edward Jones’ business model of one-broker-per-office has helped it obtain a stronghold among working-class individuals in small communities across the country, purporting to offer professional investment guidance from someone they could also have a personal relationship with. To succeed in its goal of individually tailored investment advice, Edward Jones has historically focused on offering commission-based accounts.

Instead of further cementing the trust and goodwill it had fostered for decades in small communities, when the Department of Labor announced additional required disclosures for fiduciaries offering commission-based accounts, Edward Jones abused that trust by compelling clients into one of its fee-based programs even when they typically executed little to no trades. Even though moving such clients into a more expensive fee-based program like Advisory Solutions and Guided Solutions was not in their best interest, Edward Jones proceeded to do so in order to avoid the additional disclosure requirements, and generate revenue on what had been essentially dead assets.

Within these fee-based programs, Edward Jones has generated additional revenue by investing clients’ assets in either its own mutual fund families, or those of its preferred partners, with whom it had a revenue sharing relationship. Due to this preference, Edward Jones had an inherent conflict of interest in its decisions regarding the allocation of clients’ funds. Edward Jones has previously already been charged with failing to properly disclose its preference to invest clients’ funds with its preferred partners by the Securities and Exchange Commission, which resulted in the Company paying a $75 million settlement for its conduct. See https://www.sec.gov/news/press/2004-177.htm.

While Edward Jones’ clients suffered personal financial losses resulting from the unnecessary and misleading fees the Company charged in these fee-based programs, Defendants reaped a handsome reward for their improper conduct. During the Class Period, Edward Jones generated $17.2 billion in revenue specifically from asset-based fees, helping to push its earnings to record highs. Edward Jones’ unlawful conduct became even more aggressive as the Class Period progressed, churning out an increasing amount of asset-based revenue each year. As Edward Jones admitted in its Form 10-K for fiscal year ending December 31, 2017, Edward Jones’ 14% increase in net revenue in 2017 was driven by “a 36% increase in asset-based fee revenue due to the increased investment of client assets into advisory programs.” Edward Jones used this money to line the pockets of its complicit financial advisors and partners – to the tune of at least $272 million in bonuses to Edward Jones’ general partner and managing partners. This financial gain was at the expense of clients who were improperly moved into an Edward Jones’ fee-based program.

The Complaint alleges that in orchestrating this reverse churning scheme, Defendants made misleading statements and material omissions to their clients about the amount of fees the clients would pay after their assets were moved into Advisory Solutions or Guided Solutions, and about Edward Jones’ preference for investing in proprietary funds only available through Advisory Solutions or in preferred partners’ mutual funds. In addition, Defendants breached their fiduciary duties because clients who engaged in little to no trading activity paid more in the fee-based programs than they did in their commission-based accounts and clients who were invested in a proprietary fund were entitled to know about Defendants’ competing interests that caused them to make self-interested investments on their clients’ behalf.

Class members may be entitled to damages caused by the actions of Edward Jones in improperly moving them into fee-based accounts. If your Edward Jones commission-based account was moved into a fee-based account, such as Advisory Solutions or Guided Solutions, contact FDAzar HERE. We will fight to get you the recovery you deserve.

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