Transcription
[music] Welcome everyone to another edition of the Tony Serriani podcast. I am thrilled to have our good friend Penny Pennington, who's the managing partner at Edward Jones, here with us today. Thanks for being with us, Penny.
>> Pleasure to be with you and your audience, Tony.
>> Well, it's good to have you. So, there's been a few changes since we last talked. A matter of fact, I I found this behind me. So, it's been it's been a few years. Um, and there's been a lot going on in our industry, right? And and in the marketplace, and a lot's been going on with Edward Jones. So, um, let's talk a little bit about, uh, sort of the new news that came up, which is, you know, partnership is such a big thing today, Penny, I think even different than it was, you know, four or five years ago. Advisers are looking at ownership and equity and the enterprise value of their own practices. And at the same time, Edward Jones is sort of expanding its its the the availability of the partnership, which sounds pretty neat to me.
>> Yeah. Right on. Well, he just made a very big announcement about our partnership. Our partnership is 50 years old, Tony. Um, started in 1974 and today we have almost 34,000 limited partners as part of our organization. We believe strongly the insight is that owners um really act differently than employees and we have 34 almost 34,000 owners. We just made an announcement that we're going to have our largest limited partnership offering in history. Uh we've filed for $1.4 billion offering that we will initiate next year. What that enables us to do is to offer more limited partnership offering to financial advisors, client support teammates, home office associates who are doing the good work of serving our clients. It also gives us the opportunity to offer some other compensation options for our financial adviserss and leaders in the field. We are very very excited about this and we need the capital because we are consistently investing over a billion dollars a year in our change agenda to ensure that our clients and our practice teams have everything they need to grow and prosper.
>> Well, you know, it's a big deal and um you know, it's one of the oldest partnerships and it's one of the last leftover of an of an old school, you know, way of doing business. But it's funny because the way the business has developed, Penny, on the independent side, I think, you know, the firms think, hey, we're the first people to think about partnerships or giving equity, right? And and you could easily, hey, we did this 50 years ago or we've been here for the last 10 years doing this.
>> Yeah. Everything old is new again, right? And what we're what we're doing is leveraging the the mighty idea of a private partnership to ensure that we reward those who do the work. Uh to ensure that we're consistently able to invest in that work and then to create an environment really a culture of interdependence. You know our our industry is talking a lot about independence. We like talking about interdependence. That means we're dependent with each other uh on providing insight uh peer-to-peer support capital to invest in our practices so that we can continue to serve our clients needs. And we've uh we we've got a lot of exciting things that have happened this year as it relates to serving our clients needs. And you know also you know I think that's you bring up a good point about independence versus you know interdependence or the the fact is that a lot of independent firms don't have the scale or capital to sort of help invest in their in their people and that's one of the challen I I've started independent firms so I you know I get what what we're doing over there but at the same time if you if you don't have a balance sheet it's really hard especially with all the changes on the horizon right all the things that are going on just makes it difficult.
>> Yeah. So what you're pointing to is the assets of a of a large firm like Edward Jones. And by assets, I will talk about it in in two respects. First, the capital to invest in that change agenda. Clients needs are changing so rapidly. The integration of human and technology um I is required in order to meet the needs of our clients. We're expanding the types of ways that we serve our clients through workplace plans, um through our generations experience for high-net-worth clients, um for financial planning, uh enabling all of our financial advisors to offer financial planning to our clients. So the assets that we can expend in order to grow the experiences and the set of capabilities to benefit of our our clients and our practice teams is one of those assets. Another one of those assets frankly is the knowledge and insight that comes from serving 9 million clients in two countries in every county in the United States in four or five generations being served at a time. We meet with or engage with clients a hundred thousand times a day. And so when we're able to to take those insights and feed them back to our financial advisors in real time to help them serve clients today and grow their practices in the future. That's another asset that comes from from our kind of interdependence.
>> Well, there's a lot to unpack there. So, one is and and you're sort of hitting on it, which I think is a real challenge for our industry is uh you know, you're able to invest in things like succession, right? Things that advisors are worried about, but also you you know, people are having a hard time finding uh teammates or getting young people interested in the business. You and I have talked before about, you know, getting women or reaching out to different parts of of our culture so we can get more people in the business. But that's that's a challenge. NextGen stuff is is very difficult to do. And you know, Merrill Lynch stopped its training program. They're not doing that anymore. So, it's hard to find uh you know, young talent to come on in. And you kind of need scale for that, too.
>> It's such a great point. You know, you're you're pointing to the fact that this is a growth industry.
>> It's a growth industry because more clients, more investors say they want financial advice than ever before. At the same time, our industry is aging. We've got a 100,000 financial adviserss who are going to be retiring over the next 10 years or so. We understand that we're going to be about 550,000 50,000 financial adviserss short for the amount of advice that's desired by multiple generations. Edward Jones is known as a as a growth opportunity. Over the past 10 years, we've accounted for 108% of the growth of financial advisors in our industry. And this is something that we continue to invest in. So s what sits alongside that is that we are no longer making our financial adviserss fit in a particular box about how they practice. In fact, we're giving them more autonomy, flexibility, and choice than ever before. So thousands of our financial adviserss are now practicing as members of teams initiating teams or having multiple financial advisors come together co in collocated practices. And so when we have the the heritage and the capability that we do to continue to grow the next gen of financial advisors, we're supporting our financial adviserss in putting together teams so that their practices become destination practices, not departure practices. That they are legacy practices that can even outlive them and carry on to serve generations of the families that they've come to serve.
>> And that that requires effort on your part though. I mean, you you have to really reach out and find the new people who want to come into the business. You'll be happy with this. The other night, I was having dinner with somebody whose daughter just married somebody in Utah, and that young man is starting at Edward Jones. So, it was just, you know, to start a family, start a life with I thought it was great. And
>> that's legacy.
>> Yeah. It's just good stuff. Um, so let's talk a little bit about uh you mentioned technology and one of the things that advisers, you know, I'd say it's a concern. And I don't know if it's a worry, but for some of them it is AI and what's going to happen with that. Is is that something that could replace? Is it a tool? I mean, it's certainly it's certainly getting to a point where you could see clients, you know, typing in give me the best ETF. And then uh I want to talk to you about what some of the challenges, you know, around AI might be and what you guys are doing.
>> Well, AI has helped our business for a number of years and it will continue to. It will be a helpmate for practitioners as they serve more clients more deeply. I don't think it's a replacement. In fact, I don't think human investors are looking for a replacement.
>> Yeah.
>> For their human financial advisor, but I do believe that human financial advisors that are utilizing artificial intelligence will replace those who aren't. We are plugging AI into our investment management engine, into our fraud detection engine, into all kinds of ways then that also help a financial advisor run a more efficient and effective practice. Uh Microsoft co-pilot chat is going to be available to all of our practice teams within just a few months. We've already got it out there to about a thousand folks now. what we call EJ help, Edward Jones help uh enables a practice team to get the help and support and answers they need quickly inside our our company. And then finally, pre-appointment and post-appointment summary helpmates that can set up an appointment quickly that can come out of an appointment, capture notes, filter those notes for action items, and send the systems uh to work on those action items. All those things together are saving our practice teams up to 10 hours a week.
>> Yeah. Yeah. Well, you can certainly see where it has application, especially with compliance and with, you know, uh scheduling and things like that. I I guess my my concerns around it are are are sort of in your area, which is, you know, regulation. When you deal with Washington, I mean, I I could see somebody on the finance committee saying, well, hey, you know, this wasn't good. You didn't run this this these recommendations for the 401k through AI. Or I could see them saying, well, this isn't good. You did run those recommendations through AI. Shouldn't AI get the commission? I mean, where do you see the they're usually a little behind regulatory uh issues. So, where do you think that's going?
>> Well, I won't uh I I won't make editorials about our regulators. I think all of us when we're at our best are looking to do the best job for our clients that we possibly can. And we've had helpmates to our industry for decades. So, we're going to use this helpmate in a in a well-regulated, well-governed way. and frankly be able to uh ascertain what the human brings and what the machine brings and that we are holding ourselves accountable for bringing the best of both of those enablers.
>> Yeah. And I think also it speaks to you know a firm that's scaled and has the resources versus somebody out there on their own trying to figure this out which could is pretty challenging I think. Um when you talk you mentioned before when you said uh it's rolled out to a thousand advisors first. Is that something you typically do? You run you have a group of advisors that you you trust and you you get on committees and say hey we're thinking about this technology or even these practices. What do you think?
>> Exactly right. We call them trailblazers. And so for anything new uh we look to a group of trailblazers many of whom raise their hand in this case and say I I want to I want to be on the bleeding edge of this at Edward Jones. I really want to want to try this out. Uh we do the same thing with our technology rollouts with new practice management rollouts. I'll give you an example. We've just invited a hundred of our uh of our financial advisors into an elite cohort um for special training and development as it relates to growing their practices with clients with the most complex needs. And with the establishment of Generations, Edward Jones Generations for affluent clients with those kinds of uh of more highly complex needs, we want to have a peer cohort of of exceeding financial advisors, exceptionally talented financial advisorss to help grow this brand and uh and at the same time grow their practice in growing these capabilities at Edward Jones.
>> Yeah. Well, that's interesting. Uh because look if if someone says oh well you know Edward Jones they don't have the same you know ultra high net worth you know clients products and services you know I'm not going to be able to do that business there and you're you've made the investments uh in doing that and and the other thing I saw was something with Voya with business owners which is a key part of that demographic.
>> Exactly right. So so think about it Tony you know we we have a client in every county in the United States. We are everywhere across America. And
>> the beautiful thing about our country is there are people who have who are growing phenomenal businesses all over our country. Our financial advisors get to know them as they're growing their businesses as they're uh looking to attract and retain great talent into their businesses. And so as we advise those business owners growing their business, whether we advise those business owners in developing uh their own retirement plans for themselves and for their employees, we're we are help we're helping to grow prosperity all across the United States. Um we have just uh established a deeper relationship with Nationwide and Voya to help us provide those retirement plans into those businesses. We've also invested in two technology platforms. One called a Boon. It's a digital forward TPA where we can take the time to design and establish a retirement plan in a business from months to literally hours. And then an or organization called Addition Wealth, which is a digital financial benefits, financial wellness tool that can be plugged into those retirement plans, all the while helping a a business owner ensure that their business continues to succeed and prosper. I just got back from Salt Lake City and had the opportunity to meet with a group of business owners there who we advise, who we've worked with for years. Just to hear them talk about how Edward Jones has helped them grow that business many times now um to a point where they are looking at a at a liquidation event or potentially selling that business to their employees. It really is just a virtuous circle of uh of advice and guidance. But you know a lot a lot of times the advisor is left out of that. You know what I mean? So you really do need a firm with some expertise and some help and guidance to be in there because you have a liquidity event and you move on to you know another advisor or you think you have to graduate from it. Same thing with sort of nextgen stuff right? Advisors need to sort of have structure around the people who are going to inherit wealth next so that you don't lose it. So you really do need that sort of you need to be surrounded.
>> It it's all multi-generational. You're really pointing to the multi-generational aspects of what our clients need, three or four generations of their families that are planning together today and then what our practices need. No longer is it okay for a financial advisor to grow their practice and then sunset their practice without without an idea for how those families are going to continue to be cared for. And that really is what we're focusing our attention on is the multi-generational nature of the client needs and the multi-generational needs of our of our practice teams.
>> Yeah. And I think people, you know, when they when they give a knock to advisors, it's they don't think about that, but you and I know better that they're most concerned about their clients and they're most concerned that next generation that this is, you know, they they have to make those, you know, calls sometimes, god forbid something happens, you know, they're the only person there with a plan sometimes. So they they're very concerned about what happens to their clients in the future. Yeah. Um markets. So believe it or not, we're through 20 minutes here or so, but uh what do you see happening, you know, sort of next? I mean, everyone's talking about there's a bubble, there's this, there's that. Um obviously, we're we're all addressing AI, but is too much investment over there? You know, what are you all telling clients?
>> Here's where we should put the premium, Tony. We should put the premium in advising clients to have the right expectations and disciplined risk management. The market is still very concentrated. We're at we'll we'll end this year three years running of the S&P up 15%. Valuations are higher than they were five years ago. We as adviserss need to be setting the right expectations for clients and we need to help them with risk management for their portfolios. We need to make sure that their investment management, their financial plan, and their life plan are all congruent and knowing that somebody is watching it all the time.
>> Yeah. Not not a machine, a person. That's the the beauty of it, too. [laughter] Well, Penny, we'll leave it at that. That's a high note for me and I really appreciate you being here and uh thanks for all you do for the industry. We're we're we're proud of you.
>> Thank you, Tony. All the best to your listeners.
>> Thank you.
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