I nearly drove off the road when I saw that yet one more Edward Jones location opened up in my town in a high-end retail location that I estimate leases for over $150k per year. How can they afford to blow that kind of cash on one retail location, year after year?
Brokerages with retail locations are essentially paying for “shelf space,” like Kellogg pays for premium shelf space for sugar-coated Frosted Flakes, to capture your attention and lure you in.
Likewise, hidden in the fine print of your agreement with your brokerage is language that allows mutual funds and other asset managers to pay for “shelf space,” crowding out less expensive products.
From an article by Jason Zweig in the WSJ:
“Edward Jones says the payments create “an additional financial incentive and financial benefit” to the firm and its advisers. Merrill Lynch points out that funds that don’t enter into such arrangements “are generally not offered to clients.” Morgan Stanley says the firm may “promote and recommend” funds that pay higher revenue sharing.”
Yes, we the muppets pay for shelf space not once but TWICE. Once for expensive retail office space from which we are sold expensive funds, which then raid our accounts to pay the retail brokerage for “shelf space” to crowd out the products we should actually own.