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Comparing an Edward Jones Advisor to a Robo-Advisor

Author: Michael Davis

When it comes to money management, there are no lack of choices. For investors interested in rock-bottom fees and automated platforms, there are many robo-advisors or digital advisors from which to choose. If you're looking for the traditional financial advisory relationship with a dedicated financial planner to assist with your money management, there are also an abundance of choices.

Comparing a financial advisor employed by popular financial services behemoth Edward Jones with a robo-advisor is in some ways comparing apples to oranges. The traditional Edward Jones advisor stands tall in stark contrast to the robo-advisory type of automated investment management.

Here's why. (For related reading, see: What Advisors Can Learn from Robo-Advisors.)

What Investors Like About Edward Jones

Headquartered in Missouri, the company has 11,000 offices throughout the U.S. and 550 Canadian offices through its Edward Jones Canada affiliate. Unlike many of its competitors who service institutions and corporations, Edward Jones zeroes in on individual clients. Each of its 13,500 financial advisors provides one-on-one personalized service to clients. Up until 2013, Edward Jones guided investors toward publicly available stocks, bonds, and mutual funds. In 2013, Edward Jones created its first proprietary mutual fund, which is available to clients that participate in the Jones' fee-based Advisory Solutions platform.

Edward Jones' approach begins with a personal meeting between client and advisor with the advisor's goal of getting to know you. The Jones advisor looks to understand why you're investing as well as tries to grasp your short, medium, and long range goals. The advisor learns your risk tolerance, helps you set goals, and develops a personalized plan. The Jones advisor then recommends investments and tactics that he or she hopes fit with your goals.

Edward Jones advisors are generally compensated in a variety of ways. Advisors receive commissions when you buy and sell a security and they are compensated through a product mark-up — like when you buy a bond. In the advisor programs, the Edward Jones professional is compensated with a percent fee of assets under management. Finally, there are additional third-party arrangements which pay the advisor when he or she sells a particular investment product. (For related reading, see: Why Advisors Should Team Up.)

Jones vs. a Robo-Advisor

The robo-advisor model has taken the financial industry and turned it on its head. The overriding robo-platform gives investors access to high-level tech algorithms that allegedly manage your investments better for higher returns and lower fees. Underneath the robo-advisor umbrella, there are variations with some services like Personal Capital offering access to financial advisors — assets under management must reach above a certain amount — and a computer-assisted program. In general, a robo-advisor does a quick assessment of an individual's time horizon and comfort with risk. From that data, it creates a menu of mutual funds — and occasionally individual stocks — for the investor.

Other robo-advisor distinctions: Most control the consumers' investments through regulated clearinghouses, although a few, such as SigFig and Jemstep (which also offers its white-listed service to financial advisors), allow the investor to keep his or her existing accounts. Most robos offer regular portfolio rebalancing and many practice tax loss harvesting in an effort to reduce taxes and boost returns. The robo-advisors generally levy fees based upon assets under management, and some advisors will manage the first $10,000 for free. Robos have a limited number of investment solutions for the consumer. (For related reading, see: Managing a Cash Windfall.)

Edward Jones is a traditional financial advisory service that tailors client-driven investment portfolios. In contrast, a robo-advisor will funnel a user into a particular category based on the initial questionnaire. The Edward Jones approach will generally cost the consumer much more than a robo's low fee. There is also a possibility that a Jones advisor might be tempted to invest in a product based on the advisor's commission without considering if the particular product is the best available for his or her client.

There's debate regarding returns. Robos promise that due to their low fees and computerized investment programs, the investor will obtain the best returns for the lowest fees. Additionally, through rebalancing and proprietary algorithms, robos pledge less investment volatility or risk. Traditional advisory firms justify fee structures with the personal touch they offer to clients.

Robos are attractive to younger investors who likely have fewer dollars to place into financial markets. With their low required minimum investments, robo-advisors give smaller investors access to top level investing guidance.

The Bottom Line

Edward Jones is comprised of thousands of advisors. For individuals who want a personal touch, the right Jones advisor may very well be a good choice. On the other hand, low fees and tested investment strategies of robos give investors more net dollars to deploy into the markets. It all depends on what type of relationship an investor is looking to forge with an advisor. (For related reading, see: Why Healthcare Planning is Vital to Retirement.)

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