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Edward Jones Margin Issues – Fined $200,000 by Regulators

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Edward Jones was fined $200,000 by regulators for encouraging stockbrokers to encourage customers to use margin loans in their accounts. Edward Jones had a bonus plan for its stockbrokers where they received bonus payments based on the profitability of the office, which included very profitable margin loans. Edward Jones failed to establish and maintain a supervisory system, including written procedures, reasonably designed to deter and prevent stockbrokers from making unsuitable recommendations involving the use of margin loans in an account. (C07040070).

Margin is one of the most profitable areas for firms. Few customers that we know ever wanted margin. Often, firms like Edward Jones put a margin agreement into the account opening forms. People are signing anyway, and the broker definitely is instructed to get it signed and opened. Margin, the Wall Street term for a loan, secured by your own name and shares in your account, is very tricky for customers and very profitable for firms. Typically, margin gives the customer more “buying power” so they buy more–which is usually better for the firms. It magnifies the risk to the customer though, and can be very dangerous in a market that drops rapidly. For all customers, it becomes another cost eating away at the account value, and which must be overcome before an account is moderately profitable. That is the typical goal of most ordinary customers.


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