Edward Jones' proprietary funds are outselling nearly all active managers

Firm has raised $8.1 billion for its seven funds this year as it moves money from its fee-based platform into Bridge Builder products

Jul 16, 2015 @ 11:25 am

By Trevor Hunnicutt

When it comes to formidable stock-and-bond pickers, DoubleLine, T. Rowe Price Group Inc., J.P. Morgan Asset Management are easily in the top echelon when it comes to winning money from investors.

But this year each of them, and scores others, are being outsold by an upstart called Bridge Builder.

The proprietary fund lineup Edward D. Jones & Co. once said it wasn't planning to build is winning more assets into active funds, $8.1 billion, than all but three U.S. mutual fund brands, according to Morningstar Inc.

Beneath the numbers is a continuing pivot for St. Louis-based Edward Jones toward selling more of its own funds. The firm has been migrating funds in its mutual-fund advisory program, the industry's second largest, in an effort to simplify trading and lower costs, according to Bill Fiala, principal for investment advisory at Edward Jones.

Jones, known for its one-man shops and mass of trainees, has long used outside money managers, including American Funds, which along with the Vanguard Group Inc. and Metropolitan West Asset Management are the top sellers of actively managed funds this year. Jones last year earned $49.4 million in revenue sharing from sales of American Funds mutual funds, according to the firm's website.

With Bridge Builder, Jones is using those managers as sub-advisers. As with many so-called wrap programs, the fees for servicing, trading and managing funds are grouped together with the fee collected by the financial adviser. That's driving the costs of managing the actual money lower, though it's not clear the benefits are always being passed to investors.


Using managers as sub-advisers on its funds may make it easier to fire them for poor performance, as doing so wouldn't entail a potentially taxable event when they are replaced as a manager instead of being sold off. And the firm said trading has become easier. But perhaps the most important benefit is cost. Mr. Fiala said the firm doesn't build in the levels of profit that usually come with investment management.

“It improved efficiency, and it's driving down cost to our clients because we've embedded no manager profit in the Bridge Builder funds,” said Mr. Fiala.

The firm's first effort on its own, the Bridge Builder Bond Fund (BBTBX), is up 2.2% over the last year, ahead of all but 13% of its competitors. The underlying investments are managed by Robert W. Baird & Co. Inc., J.P. Morgan Investment Management Inc., Loomis Sayles & Co. and Prudential Investment Management Inc.

The fund's 0.21% annual expense ratio is much lower than the average fund of its kind, which charge 0.87% annually. But the investor is getting that as part of a wrap program that charges up to 1.5% to participate in the program and 0.09% in administrative fees to access the funds.

After rolling that first fund out in 2013, the firm followed with six more this year, including several stock-picking funds. On Monday, it opened its Core Plus Bond Fund (BBCPX), which has already raised $354 million. In all, the funds now include $16.8 billion. It's also planning a tax-free municipal bond fund, according to Mr. Fiala.


The funds are sold exclusively through Jones' platform used by financial advisers whose compensation comes through fees paid by investors, not commissions. Jones has more than 14,000 advisers.

The number of funds available through the firm's managed accounts will likely decrease to make way for the firm's preferred Bridge Builder funds. Mr. Fiala said the average investor would likely be exposed to more managers because the firm is using several sub-advisers on each of its funds.


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