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Case Submission

1) Why has Edward jones survived the financial services crisis when so many other
brokerage firms have fallen by the way?
Edward Jones had a very different strategy compared to its competitors in the industry and was
focused on "serving the individual investor with a personal relationship." Edward Jones' structure
was very much client focused. Being able to access databases on the distribution of household net
financial assets by neighborhood, Jones brokers directly targeted prospective clients on their own.
The company differentiated itself by establishing personal relationships with its clients. Financial
Advisors (FA) were given high degree of independence. Due to this owner mentality and
entrepreneurial spirit inculcated amongst the financial advisors, they acted in the best interest of the
clients. Edward Jones' core strategy was a down-to-earth conservative investing philosophy, which
emphasized in long-term, low-turnover investing and focused on the average American investors
(account size < $70,000) unlike the high net-worth households targeted by most brokerage firms.
Edward Jones also entered into revenue-sharing arrangements with preferred product partners, such
as American Funds, which offered best-performing mutual funds that matched its own investing
Edward Jones' success arise from a well- constructed business model. Edward Jones has nailed a
niche market. Edward Jones caters to household investing and helping individuals rather than taking
part in corporate functions or investment banking, which most of the other brokerage firms have
been heavily catering to. To look it in a different way, Edward Jones serves the risk averse and
money conscious; those who will not be ok if their money is lost. Unlike many competitors, it had
virtually no tiering of services for different levels of household income or net worth, and FAs
actively sought accounts of all sizes. Most of their clients wanted a good balance between spending
too much money so that they finished up all their worth before death; and spending too less so that
a considerable sum is left after their death. Edward Jones' FAs built personal relationships with
customers face-to-face, in local branches that employ a single financial adviser to aid with financial
advice. Each client irrespective of their investment were dealt personally by the FAs. Pricing and bill
rates also did not vary much across customers whether it is an account of a few thousand dollars or
a multi-billion dollar account. Successful FAs were able to convince their clients to place a larger
share of their net financial assets with Edward Jones. Instead of prospecting for new customers they
shifted their focus to mining their existing customer base.

On the other hand, other brokerage firms like Lynch, had a tiering of the service provided to clients.
Customers with less than $100,000 in investable assets would contact the firm through a call center,
those with assets up to $500,000 could speak to a broker but did not have an individual broker to
represent their account while only clients with assets over $500,000 with the firm would have the
traditional personal relationship with a single broker. Fees also varied by value of assets managed,
resulting in the largest clients receiving the most favorable pricing. While this created much
discontent and substantial losses for smaller accounts, most brokerages followed this approach as
those losses were compensated by the heavy investments coming from targeting high-net-worth
individuals in the good times. But the same strategy acted heavily against them during the financial
Edward Jones' also aimed to take a long-term conservative approach. Clients were strongly advised
to buy quality products, diversify investments and invest from a long term perspective. The holding
period for a mutual fund bought by an Edward Jones investor averaged 13.1 years compared to the
industry average holding period of 5.1 years. Edward Jones discouraged aggressive trading for short
term gain and riskier market tools such as penny stocks, commodities, options and hedge funds.
These are the very products that led to the bankruptcy of many brokerage firms during the recession
period. Edward Jones in 2009 even came up with an article for handling the recession to be passed
along to customers. It featured recommendations to investors on not to cut back on 401(k),
diversify investments, think of the long term, not to reach for risky and high yielding investments
and keep looking for opportunities.

All these factors helped Edward Jones maintain a strong and formidable position even in times of
the financial crisis as they had stayed away from risky sectors that crashed. On the contrary, a steady
client base and long term relationships contributed a constant flow to capital and funding to fire the
growth of the company even in those harsh times.

2) What are the trade-offs Edward Jones has made in its strategic choices over the years?

“Steady as she goes”
~Case Study quotes
Firm was accepting payments based on the volume of the business placed with companies providing
mutual funds. In a way the firm was influencing brokers to recommend certain firms and not
adequately disclosed investors.
As a compromise the firm paid $202 million to settle the regulatory suits.

“It’s time in the market, not timing the market that counts”
~Case Study quotes
One of the major trade-off was to rely on the long term investments. The firm believed and
encouraged the clients to not to sell the stocks in down turn rather hold those stocks for long term
as they would recover the money in long term. In case of the short term aggressive trading is
strongly not recommended one.
This step had been backed by the research on firms past year’s income from revenue sharing
arrangements. Let’s take the example of the mutual firm investment; Edward jones found out
companies having returned growth more than average industry standard in last 10 years. In a way
they compromise the short term investors. Customer seeking short term investments switch to
competitors to fulfil their needs.

All customers were treated in the same way. Smaller account holder and the large account holder
paid the same monthly bill charge, whereas the competitors differentiate their customers and their
services according to their investments in the bank.

The geographical expansion is the one of its kind. The rural expansion is 72% compared to the
metro locations of 25%. The firms challenged the fact that had been followed by the all traditional
banks to expand only in the urban metropolitan areas where the population density is much more.

The huge investment in IT infrastructure to provide diversified product base, increase customer
traffic is one of the major trade off by the firm as the IT investment came up with huge capital
Unlike all retail brokerage firms the Edward Jones remained as partnership. The partners are
guaranteed a 7.5% base return on the capital.

3) What are the implications of these trade-offs for the competitive advantage (if any)
possessed by Edward Jones?

Talking about the competitive advantage means is more or less about the cost leadership and the
differentiate factors. If we go through the major tradeoffs of the firm you may find that the product
range differentiation is one of the major advantage over its competitor. The differentiation came up
with the various link factors that we can linked with the tradeoffs outcomes. Such an involvement in
IT innovation and research in the information infrastructure the services become more and more
attractive to the client. The client’s segregation along their classes enjoy the services according to
their needs.
Thinking about only client with equality treatment may incur losses in short time but we have the
example of the campaign called Good knight program in the other hand where the new potential
investors turned up between low margin customers. The whole new concept of the customer service
like financial planning, innovation of asset management tool and advisory services enhance the
customer base.
The partnership model still act as a catalyst to the FAs as a part of the incentivize scheme of the
firm. The FAs are the backbone of the company and the focal point of dealing with customer’s
business perspective. So business has been driven by their decision taking and financial planning of
Firm’s right choice of expansion strategy act as one of the competitive advantage of the firm. The
concentration of not only in the metro area but also with the rural sub urban area; seeking of the
new market opportunity enhance the national presence as well as new customer base inclusion.

4) What are the implications of these trade-offs for addressing opportunities in the changing
The changing environment in this particular industry is very hard to predict. The firm’s ultimate
challenge was to cope up with the factors that helps to drive the industry fast. Theirs all tradeoffs
not became helpful for addressing opportunities, but some were proven as success.
Not concentration of metro centric geo expansion approach help the firm to find no competition
zone in rural areas, where the competition was with local banks whose product differentiation was
low enough to compete. So that helped them to increase the market share.
Secondly, the partnership incentivize scheme for the FAs helped the firm to encourage the
competitive mood of the each and individual FAs in this industry and also to increase the internal
funding of the investors (FAs). The attrition rates (15%) are really low compare to the industry rate.
Thirdly, treating customers with equality helps to seek new opportune customers who had the
potential to reach the $1 million asset investment customer cluster. This way seems like the taking
the opposite side of the tide. Customer services becomes more and more efficient and more services
are offered. Customers has low average broker ship (1.5).
Fourthly, the IT innovation and the central service shapes the usage and product offers to the
customer. The change was not only capture the dynamic nature of the industry environment but also
helped to increase the customer base to huge extent.

5) What flaws, if any, do you find in the strategy of Edward Jones?

“Steady as she goes”
This strategy is one of the fail strategy what the case data suggests. As it violated the regulations of
influencing certain funds only.
Treating each customer as equal abolish the scope to charge premium to certain customers whose
investment is higher than the average customer. These kind of customer naturally pay high
irrespective of transactions. They premium segment may be neglected.
Considering the long term agenda always may diminish the traffic of the short term investors. They
avoid risk factor and concentrated on the firms having good average return in last 10-15 years
Partnership may be criticized in the front of the discount based incentive scheme. The discount
brokers were the hot cake at that very moment with deepening the relationship with the client using
May be FA centric view can charge them up as time passes the FAs became the industry hot spots
of financial planning and asset management.
Instead of IT investment the firm can outsource the technology to cope up with the new emerging
technology up gradation.
The organizational structure was centralized, with market expansion and geo location expansion
decentralization is the strategic-fit.