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Mutual Fund News

Edward Jones takes suburban approach

Firm's Canadian operations build on communities, neighbourhoods, KEITH DAMSELL writes

MUTUAL FUNDS REPORTER

If Gary Reamey has his way, the future wealth of Canadians will be decided far, far away from the glass and steel corridor that is Bay Street.

The front line for brokerage Edward Jones & Co. LP is in the neighbourhoods, bedroom communities and suburbs where investors live, play and fret about their investments, said Mr. Reamey, the head of Canadian operations. Not surprisingly, the company's head office in this country is in suburban Mississauga, about 30 minutes west of downtown Toronto.

"We want that new investment representative in your community to go out and meet 1,000 people face-to-face," said the 49-year-old executive. "They are not trying to sell you anything. They just want to let you know there is a new office down on Fourth and Main and they have become involved in the community. They've got family and kids that go to school there."

Edward Jones has been in Canada since 1994 and the mission of providing sound financial advice nationwide hasn't changed much at all. Mr. Reamey has been there from the beginning and his easy-going manner has won him many fans in the industry.

"An inspirational leader who has built a truly fine business . . . ethical and grounded" is the quick assessment of Blake Goldring, president and chief executive officer of Toronto's AGF Management Ltd.

"Gary . . . came up to Canada more than a decade ago and told everyone what he wanted the firm to accomplish and how they were going to get there. He and his team then went out and did exactly that," said David Feather, president of Mackenzie Financial Services Inc. in Toronto.

But Edward Jones, manager of $325-billion internationally, has had to tweak and revise its goals in Canada. The firm had a target of 1,500 offices in this country by 2003; it now has 540.

Operational issues, from satellite communications to building the right team of advisers, have slowed growth. The new target is a network of 1,100 brokerage offices by 2008.

"When you are coming into a new country or any new venture, sometimes you are more optimistic than you should be and sometimes you learn some lessons," Mr. Reamey said.

Observers suggest recent woes in the United States have added some distraction, too. In December, the St. Louis, Mo., parent agreed to pay regulators $75-million (U.S.) in fines for failing to disclose lucrative revenue-sharing arrangements with seven mutual fund families. Earlier this month, U.S. regulators expected to levy a second fine of $1.7-million over the inappropriate sale of mutual fund shares. Mr. Reamey said U.S. regulatory concerns have had no impact here.

Nevertheless, operations in this country have close ties to the corporate parent. For example, brokerage research of Canadian equity and mutual funds is generated in the United States; e-mail communications in this country pass through the U.S. computer network. Mr. Reamey said operations are centralized to keep costs down, savings that are passed on to customers.

"If it doesn't add value to have it done in Canada, I would just as well have it done somewhere else," he said.

It's hard to question the executive's patriotism. He is an avid hockey player and office desk knick-knacks include signed hockey pucks from legends Gordie Howe and Marcel Dionne. The California native became a Canadian citizen in 2000.

"I used to joke some day our Canadian division is going to be run by a Canadian. I just wanted to make sure it was me."

Ex-planner fined $200,000

The B.C. Securities Commission has ordered a former financial planner to pay about $250,000 in fees and penalties for bilking three elderly investors out of their retirement savings.

From 1995 to October, 2000, Paul O'Connor was a salesman with DPM Securities Inc. in Parksville, B.C. DPM was sold to Assante Corp. in 2000 and Mr. O'Connor fired with cause in June, 2001.

Mutual fund redemption records show that Mr. O'Connor "knowingly deceived" three DPM clients, Gordon Halls, Edith Smithers and Eileen Townsley, over a four-year period, the BCSC said.

The commission estimates that between 1998 and 2001, Mr. O'Connor defrauded the group out of a total of $163,500. The financial planner had each client redeem mutual fund savings and then write cheques payable to his own private company.

In a March 31 decision, the BCSC noted that Mr. O'Connor's clients "were particularly vulnerable (because of their age and lack of knowledge and experience); they trusted him (so much that he was able to avoid documenting the transactions); they relied substantially on his judgment and advice. O'Connor violated the trust placed in him by targeting and exploiting the clients." The commission has permanently banned Mr. O'Connor from the B.C. securities market, fined him $200,000 and assessed $48,368 in costs.

Mutual fund expense myths

Some myths surrounding mutual fund management expense ratios, according to Rebecca Cowdery, the former head of the investment funds team at the Ontario Securities Commission:

MERs tell the complete picture of fund fees. Nope -- they don't include trading costs.

It's always best to choose a fund with the lowest MER. Wrong again. Long-term performance is the best gauge of success.

Regulators should set MER fees. Bad idea -- leave it to the competitive market place.

Fund managers should be compensated based on performance. Nope. This can create a conflict of interest and prompt managers to take excessive risks.

It's difficult to get information about a fund's cost structure. Another myth. Every fund prospectus will include a breakdown of fund fees. Disclosure is improving too. As of June, fund companies must provide greater detail about fees and charges paid by each fund. kdamsell@globeandmail.ca

© 2007 The Globe and Mail. All rights reserved.

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