Edward Jones (Reverse Churning)

Overview

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.

Frank Azar and Associates 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, Franklin D. Azar and Associates P.C. 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, Frank Azar and Associates and Garner & Associates filed an Amended Complaint, providing further details about the alleged fraud against Edward Jones. Currently, Frank Azar and Associates 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.

While Edward Jones’ clients suffered personal financial losses resulting from the unnecessary and misleading fees the Company charged in these fee-based accounts, 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 account.

The Second Amended Complaint alleges that in orchestrating this reverse churning scheme, Defendants omitted material information, including that: (1) Edward Jones was required as fiduciaries and under FINRA regulations to perform a suitability analysis when determining whether to transfer the clients from commission-based accounts to fee-based accounts; (2) Edward Jones did not provide Edward Jones financial advisors with the means to conduct a suitability analysis to assess whether a fee-based account was suitable or otherwise in the best interests of clients, prior to transferring the clients from commission-based accounts to fee-based accounts; (3) Edward Jones financial advisors did not conduct a suitability analysis to assess whether a fee-based account was suitable or otherwise in the best interests of clients, prior to transferring the clients from commission-based accounts to fee-based accounts; (4) the DOL had adopted a Fiduciary Rule; and (5) the DOL Fiduciary Rule did not require Edward Jones to transfer clients’ assets from commission-based to fee-based accounts.

In addition, Defendants breached their fiduciary duties because Defendants did not conduct any analysis to determine whether the fee-based accounts, including Advisory Solutions and Guided Solutions, were suitable for Edward Jones clients prior to moving clients from commission-based accounts into fee-based accounts.

The Complaint further alleges Edward Jones breached its contracts with clients by forcing them to pay substantial fees without providing any additional, substantive services beyond what they had been receiving in their commission-based accounts.

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.

Related Media

Edward Jones success may lead to trouble (Investment News)

Edward Jones Really Likes Those Fees (Bloomberg Gadfly)

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