Edward Jones is an investment company with more than a century of experience and nearly 19,000 financial advisors nationwide available to assist clients with their portfolios. Robo-advisors are digital programs that can help you invest automatically, they have grown popular in recent years, giving people the choice between getting a human financial advisor or letting an automated, algorithmic programmed financial tool help them invest.
Key Takeaways
- Edward Jones and robo-advisors both assist investors with creating and managing a portfolios.
- Edward Jones lets people work with a human advisor while robo-advisors are computer programs.
- Edward Jones tends to charge a higher fee than a robo-advisor.
- Despite that higher cost, some investors prefer the personalized touch and empathy that comes from a human advisor.
What Investors Like About Edward Jones
Edward Jones offers a personalized, hands-on experience for people seeking investing advice. Many investors appreciate the opportunity to work with a human advisor, and Edward Jones boasts a team of more than 20,000 financial advisors who can provide that one-on-one personalized service.
Many customers also appreciate the company's wide availability. It has over 15,000 offices throughout the United States and Canada.That means that its advisors are highly accessible to investors, whether you live in a city, suburb, or more rural area.
The company also has a long history. It was founded in 1922, giving it a century of experience with assisting everyday investors. For many investors, it is comforting to work with a company that has a long track record.
How Does Edward Jones Work?
Edward Jones' approach begins with a personal meeting between client and advisor. The goal of the advisor during this initial meeting, is to get to know you. The Jones advisor looks to understand why you’re investingand also tries to understand your short, medium, and long-range goals.
The advisor uses this meeting to learn about your risk tolerance, help you set goals, and develop a personalized plan for your investing. The Jones advisor then recommends investments and tactics that they hope fit with your goals.
When you start working with Edward Jones, you can choose from a variety of account types. Which account works best for you will depend on your goals and investing needs.
The Edward Jones Select Account, for example, takes a hands-on approach, building a portfolio of stocks, bonds, CDs, mutual funds, ETFs, and annuities. Your advisor helps you choose when and how to invest. The Guided Solutions Fund Account focuses on mutual funds and ETFs, and comes with built-in rebalancing for your portfolio.
You'll meet with your advisor regularly to make sure you're making progress toward your goals and they will help to adjust your portfolio as needed.
What Investors Like About Robo-Advisors
Robo-advisors are a much newer entrant to the finance industry than brick and mortar firms like Edward Jones. Wealthfront and Betterment are two of the first robo-advisor firms offering services to retail investors. Both began operations in 2008 and started offering financial services to retail customers in 2010. Robo-advisors have continued to grow throughout the 2000s. In the last decade, robo-advisors have gained significant popularity, with estimates that robo-advisors will be managing more than $59,344.5 million by 2028 which is an anticipated Compound Annual Growth Rate (CAGR) of 39.9% from 2021.
Robo-advisory services offer investment assistance, typically at a much lower cost than human advisors. Many investors appreciate the hands-off nature of working with a robo-advisor. Once you've opened an account and provided information on your goals, the robo-advisor handles everything else. All you have to do is make deposits and withdrawals from the account.
How Does a Robo-Advisor Work?
A robo-advisor is a program that helps people manage their investment portfolio. Just like the initial meeting with an Edward Jones advisor, the process starts with answering a series of questions posed by the robo-advisor. It will ask you about things like your financial situation, financial goals, age, income, debt, and for other details about yourself.
Based on the answers you provide, the robo-advisor will build a portfolio for you. Usually, this portfolio is constructed using a variety of mutual funds and ETFs. It then handles the day-to-day aspects of investing on your behalf, rebalancing your portfolio as needed.
A commonly advertised feature of many of the best robo-advisors is tax-loss harvesting. This strategy involves selling underperforming investments for a loss to help reduce your tax bill. Robo-advisors claim that this can significantly increase returns.
Jones vs. a Robo-Advisor: Differences and Similarities
To understand whether Edward Jones or a robo-advisor is right for you, you need to understand how they are similar and different.
Edward Jones
Higher Fees
Can have Higher Minimum Balance Requirements and Higher Fees
Often Can Utilize a Wider Range of Securities than Mutual Funds and ETFs
Strategies May Not Be Automated
Ability to Exert More Direct Control Over Your Portfolio
Can Offer a Wider Selection of Services
Robo-Advisor
Lower fees
Often Very Low Minimum Balance Requirements and Lower Fees
Often Will Only Use Mutual Funds and ETFs in Portfolio Construction
Automated Strategies Like Tax Loss Harvesting
Very Little Ability to Exert Personal Control Over Portfolio
Offer Very Limited Services
Fees
Edward Jones advisors are generally compensated in a variety of ways. Advisors receive commissions when you buy and sell a securityandthey are compensated through a product mark-up, when you buy a security like a bond.
For Edward Jones Select Accounts, commissions when you buy and sell investments typically range from 0.99% to 4.5%. Some investments may also have third-party expenses.
In the advisor programs, the Edward Jones professional is compensated with a percentage fee of assets under management. These fees can be up to 1.00% of the value of a client's assets and may decrease as your balance with Edward Jones grows.
By contrast, robo-advisors typically charge a management fee equal to a percentage of your invested assets. A typical fee is 0.25%, which is what popular robo-advisors Betterment and Wealthfront both charge.
Investors using either service will also pay the expense ratios of any mutual funds they invest in.
Account Minimums
Edward Jones has no minimum balance requirement for its Select Account, though some of its other accounts have minimum balance requirements as high as $300,000. However, to reduce the management fee for the Edward Jones Guided Solutions account to under 1% an investor will need $2.5 million.
Different robo-advisors have different minimum balance requirements, but they're usually relatively low. Wealthfront requires $500 while Betterment has no minimum, though you'll need $100,000 to sign up for Betterment Premium.
Portfolio Construction
Robo-advisors typically build their customers portfolios using a combination of different mutual funds and ETFs. While they can adjust the weighting of each fund in your portfolio based on your goals and risk tolerance, they cannot customize your portfolios to the same extent as a human advisor. Edward Jones' human financial advisor may be better equipped to create a truly personalized portfolio for you.
Portfolio Management
A major advertising point for many robo-advisors is that they can use advanaced techniques to manage your investments. A common one is tax-loss harvesting, which involves selling underperforming investments for a loss to reduce tax liability. Robo-advisors claim this can improve returns by as much as 1.8%.
Edward Jones advisors don't use the same algorithms tools as robo-advisors and can't automate processes like tax-loss harvesting in the same way.
Personal Control
Both robo-advisors and an Edward Jones advisor will let you exercise some control over your investments, but an Edward Jones advisor will give you more control than a robo-advisor. With a robo-advisor, you can give it inputs to adjust your target portfolio, but can't make major decisions or changes easily. With an Edward Jones advisor, you'll be able to exert more direct control over your portfolio if you feel the need to do so.
Scope of Services
Robo-advisors are designed for one specific goal: helping people build and manage investment portfolios. Some have some goal-tracking tools or ways to help you work toward specific financial goals, but they can't help with some things, like building and managing a budget.
A human advisor from Edward Jones can look at your financial situation more holisticly and help with more than just investing, such as deciding how to manage and pay off debt.
How Risky are Robo-Advisors
Robo-advisors are not necessarily any riskier than investing in general. They have a track record going back to 2008 and the custody of your assets are protected by the Securities Investor Protection Corporation (SIPC). If the robo-advisor fails, goes bankrupt or assets are missing from account, SIPC protection will cover up to $500,000 in losses.
How Does the Performance of a Robo-Advisor Compare with Edward Jones?
Comparing the performance of robo-advisors and Edward Jones is difficult because of the very different portfolios that you can invest in when using either service. One thing to consider is the much higher fee that Edward Jones charges compared to a robo-advisor. To match a robo-advisors' performance, Edward Jones would need to produce higher returns before fees, which does not always happen.
Do You Pay More Taxes with Robo-Advisors?
Robo-advisors claim to help investors reduce their tax bills through the use of frequent tax-loss harvesting. This strategy invovles selling securities at a loss to offset capital gains taxes owed on other investments.
Are Financial Advisors Better Than Robo-Advisors?
Neither financial advisors nor robo-advisors are strictly better than the other. Each fulfills a different need. Financial advisors can be more expensive, but offer more hands-on personalized service and are better equipped for complex financial situations. Robo-advisors are cheaper and are a good fit for people who have simpler portfolios or who don't want or need the hands-on assistance from a human advisor.
The Bottom Line
Edward Jones is comprised of thousands of financial advisors. For individuals who want a personal touch, the right Edward Jones advisor may very well be a good choice. On the other hand, low fees and tested investment strategies of robo-advisors give investors more net dollars to deploy into the markets. Which option is better, depends on what type of relationship an investor is looking to forge with an advisor.
