Conflicts of interest
Understanding conflicts of interest
The investment industry has launched a new set of regulations called Client Focused Reforms. One key requirement relates to how advisors and firms deal with conflicts of interest. In particular, firms must implement policies, procedures and controls to demonstrate that they have addressed these material conflicts of interest in the best interest of the client. This communication highlights how Edward Jones addresses these items, ensuring that we continue to put your interests first.
Conflicts of interest exist in all lines of business. In the investment industry, conflicts of interest or potential conflicts of interest arise when the interests of a client differ from those of a financial advisor or firm. Conflicts of interest represent potential risks to clients because conflicts may influence the firm or financial advisor to put their own interests ahead of clients’ interests.
At Edward Jones, our first core value is “our clients' interests come first.” Accordingly, we address all conflicts of interest in the best interest of the client. Where we cannot address a conflict of interest in the best interest of the client, we avoid the conflict entirely.
For financial advisors and firms, some of the most common potential conflicts of interest stem from compensation and incentive programs, personal financial dealings, outside activities, and referral arrangements.
Compensation and incentive programs
Potential risk to clients: A recommended action such as purchasing certain mutual funds is motivated by compensation.
Edward Jones' strategy to address these types of conflicts:
- We make it our priority to understand our client's goals, objectives, needs and investment profile
- We make sure that any recommendation or action is in the client's interests
- We do not manufacture our own proprietary products, nor do we have any securities that are related or connected to us
- Our compensation structure does not incentivize one product or service over another
- We impose limits on the gifts and entertainment that can be exchanged with mutual fund and insurance companies
- We encourage and incent our financial advisors to increase assets rather than solely incenting on commissions
- All client and account activity is supervised by qualified individuals who do not receive commissions generated.
Furthermore, third party compensation, such as trailing commissions provided by mutual fund companies, are addressed by the same policies and controls.
Personal financial dealings
Potential risk to clients: A branch associate puts their own interests over the interests of the client.
Edward Jones’ strategy to address these types of conflicts:
- Personal financial dealings between branch associates and clients is strictly prohibited at Edward Jones
- We prohibit personal loans between clients and branch associates except between immediate family members
- We prohibit branch associates from being a power of attorney, trading authority, executor or trustee for a client, except where the client is an immediate family member
- We generally do not permit branch associates to be beneficiaries on client accounts except where the client is an immediate family member
- We have gifts and entertainment limits between branch associates and clients
- Personal financial dealings requests for scenarios involving family members are reviewed and supervised by qualified individuals
Outside activities
Potential risk to clients: An outside activity could negatively impact the financial advisor's ability to service clients or motivate the advisor to recommend certain products over others.
An “outside activity” is a non-Edward Jones activity or association in which a financial advisor is involved.
Edward Jones's strategy to address this type of conflict:
- We limit the types of outside activities in which financial advisors are able to engage
- All permissible outside activities must be approved by a qualified supervisor
- All approved activities are reviewed and reassessed annually
Referral arrangements
Potential risk to clients: A referral is given or received solely for monetary gain, and not because of any benefit to the client.
Referral arrangements exist where Edward Jones and/or an associate of Edward Jones pays or receives a fee for referring a client to a third-party company or individual.
Edward Jones's strategy to address this type of conflict:
- All referral arrangements are reviewed and approved at the head office to ensure clients’ interests are the primary reason for the arrangement
- The details of any referral arrangement must be disclosed to the client
For additional information pertaining to Conflicts of Interest please refer to the Relationship Disclosure Information that was included with your Account Agreement when you opened your account.
Please contact your financial advisor if you have any questions or concerns.