ITEM 1.  BUSINESS

The Jones Financial Companies, L.L.L.P. (the "Partnership") is organized under the Revised Uniform Limited Partnership Act of the State of Missouri.  Unless expressly stated otherwise or the context otherwise requires, the terms "Registrant" and "Partnership" refer to The Jones Financial Companies, L.L.L.P. and any or all of its consolidated subsidiaries.  The Partnership is the successor to Whitaker & Co., which was established in 1871 and dissolved on October 1, 1943, the organization date of Edward D. Jones & Co., L.P. ("Edward Jones"), the Partnership's principal operating subsidiary.  Edward Jones was reorganized on August 28, 1987, which was the organization date of The Jones Financial Companies, L.L.L.P.

The Partnership's principal operating subsidiary, Edward Jones, is a registered broker-dealer primarily serving individual investors.  As the ultimate parent company of Edward Jones, the Partnership is a holding company with no direct operations.  Edward Jones primarily derives its revenues from the retail brokerage business through the sale of listed and unlisted securities and insurance products, investment banking, principal transactions and as a distributor of mutual fund shares, and revenue related to assets held by and account services provided to its customers.  Edward Jones conducts business in the United States of America ("U.S.") and Canada, with its customers, various brokers, dealers, clearing organizations, depositories and banks.  As of December 31, 2009, the Partnership operates in two geographic operating segments, the U.S. and Canada.  For financial information related to these two operating segments for the years ended December 31, 2009, 2008 and 2007, see Note 18 to the Consolidated Financial Statements.  In addition, the Partnership conducted business in the United Kingdom ("U.K.") through November 12, 2009 when its U.K. subsidiary was sold.  See Note 2 to the Consolidated Financial Statements for further details on this sale.

Edward Jones is a registered broker-dealer with the Financial Industry Regulatory Authority, Inc. ("FINRA") and its Canadian subsidiary, Edward Jones, an Ontario, Canada limited partnership ("Edward Jones Canada") is a registered broker-dealer with the Investment Industry Regulatory Organization of Canada ("IIROC").  As of February 26, 2010, the Partnership was composed of 348 general partners, 10,385 limited partners and 230 subordinated limited partners.

 

ORGANIZATIONAL STRUCTURE

At December 31, 2009, the Partnership was organized as follows:

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In addition to the entities in the above organizational chart, Edward Jones owns 7% of the Customer Account Protection Company Holdings, Inc. (“CAPCO”), a captive insurance group. For additional information about the Partnership's other subsidiaries and affiliates, see Exhibit 21.

During 2006, the Edward Jones affiliates, Unison Investment Trusts, L.P., d/b/a Unison Investment Trusts, Ltd. and Unison Capital Corp., Inc. were dissolved.  Also in 2006, the Partnership sold the banking related assets and liabilities of its subsidiary Boone National Savings and Loan Association F.A.  The remaining entity was renamed Edward Jones Trust Company ("EJTC") and continues the trust business that was conducted by Edward Jones Trust Company, formerly a division of Boone National Savings and Loan Association F.A.

Governance . The Partnership is a Missouri limited liability limited partnership.  Unlike a corporation, the Partnership is not governed by a board of directors and has no individuals who are designated as officers or directors.  Moreover, none of its securities are listed on a securities exchange and therefore the governance requirements that apply to many Securities and Exchange Commission ("SEC") reporting companies do not apply to it.  Under the terms of the Partnership Agreement, the Managing Partner has primary responsibility for administering the Partnership’s business, determining its policies and controlling the management and conduct of the Partnership’s business, and has the power to appoint and dismiss general partners of the Partnership and to fix the proportion of their respective interests in the Partnership.  Subject to the foregoing, the Partnership is managed by its 348 general partners.  See Item 10 - Directors, Executive Officers and Corporate Governance for a description of the governance structure of the Partnership.

Revenues by Source. The following table sets forth on a continuing operations basis, for the past three years, the sources of the Partnership's revenues by dollar amounts (all amounts in thousands).  Due to the interdependence of the activities and departments of the Partnership's investment business and the arbitrary assumptions required to allocate overhead, it is impractical to identify and specify expenses applicable to each aspect of the Partnership's operations.  Further information on revenue related to the Partnership's reportable segments is provided in Note 18 to the Consolidated Financial Statements and Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations.

 

Commissions

Commissions revenue is primarily comprised of charges to customers for the purchase or sale of securities, mutual fund shares and insurance products.  The following briefly describes the Partnership’s sources of commissions revenue.

 

Listed Securities Transactions.   The Partnership receives a commission when it acts as an agent for a customer in the purchase or sale of listed corporate securities.  These securities include common and preferred stocks and corporate debt securities traded on and off the securities exchanges.  The commission is based on the value of the securities purchased or sold.

Insurance.   Edward Jones sells life insurance, long-term care insurance, fixed and variable annuities and other types of insurance products of unaffiliated insurance companies to its customers through its financial advisors who hold insurance sales licenses.  As an agent for the insurance companies, the Partnership receives commissions on the purchase price of the policies.

Over-the-Counter Securities Transactions.   Partnership activities in unlisted (over-the-counter) securities transactions are essentially similar to its activities as a broker in listed securities.  In connection with customer orders to buy or sell securities, the Partnership charges a commission for agency transactions.

Asset Fees

The Partnership earns service fees on its customers' assets which are held by the mutual fund companies and insurance companies.  The fees generally range from 15 to 25 basis points (0.15% to 0.25%) of the value of the customer assets so held.

The Partnership also earns revenue sharing from certain mutual fund and insurance vendors.  The revenue sharing agreements vary, with the investment advisors or distributors of some products paying a percentage of average assets held by the Partnership’s customers while others may pay the Partnership a fixed dollar amount or an amount based on the overall amount of sales with a given vendor.

The Partnership does not manage any mutual funds, although it is a 49.5% limited partner of Passport Research, Ltd., the advisor to certain money market funds made available to Edward Jones customers.  Revenue from this source is primarily based on customer assets in the funds.  The Partnership has registered an investment advisory program with the SEC under the Investment Advisers Act of 1940.  The registered investment advisory service is a Managed Account Program that offers a single comprehensive fee structure to qualifying customers through independent investment managers.  In addition, the Partnership introduced a new program in 2008, Advisory Solutions © , which provides investment advisory services to its customers for a monthly fee based upon their monthly asset values in the program.  This advisory program consists of an Edward Jones managed account invested in mutual funds, exchange-traded funds (ETFs) and money market funds.  Edward Jones assumes full investment discretion on accounts in which a customer elects a Research Model, of which there are 24 different models that are developed and managed by the Mutual Fund Research Department at Edward Jones, and limited investment discretion on accounts in which a customer elects to build a Custom Model, a model which is developed by the customer and the financial advisor for the account.

 

Principal Transactions

The Partnership makes a market in over-the-counter corporate securities, municipal obligations (including general obligation and revenue bonds), U.S. government obligations, unit investment trusts, mortgage-backed securities and certificates of deposit.  The Partnership's market-making activities are conducted with other dealers in the "wholesale" and "retail" markets where the Partnership acts as a dealer buying from and selling to its customers.  In making markets in securities, the Partnership exposes its capital to the risk of fluctuation in the fair value of its security positions.  The Partnership maintains securities positions solely to support its business of buying and selling securities to its retail customers and does not seek to profit by engaging in proprietary trading for its own account.

Account and Activity Fees

Revenue sources include sub-transfer agent accounting services, Individual Retirement Account ("IRA") custodial services fees, and other product fees.

The Partnership charges fees to certain mutual funds for sub-transfer agent accounting services, including maintaining customer account information and providing other administrative services for the mutual funds.  Edward Jones is also the custodian for its IRA accounts and charges customers an annual fee for its services.  Account and activity fees also include sales based revenue sharing fees pursuant to arrangements with certain mutual fund and insurance vendors, which are based on a specified number of basis points on the Partnership’s current year fund sales.  The Partnership receives revenue from offering mortgage loans to its customers through a joint venture and through a co-branded credit card with a major credit card company.  In addition, the Partnership earns transaction fee revenue relating to customer purchases and sales of securities.

Interest and Dividends

Interest and dividend income is earned primarily on margin account balances, cash equivalents, cash and investments segregated under federal regulations, securities purchased under agreement to resell, inventory securities and investment securities.  Loans secured by securities held in customer margin accounts provide a source of income to the Partnership.  The Partnership is permitted to use securities owned by margin customers having an aggregate market value generally up to 140% of the debit balance in margin accounts as collateral for the borrowings.  The Partnership may also use funds provided by free credit balances in customer accounts to finance customer margin account borrowings.

The Partnership is exposed to market risk for changes in interest rates and market prices on its inventory and investment securities.  The Partnership's interest income is impacted by the level of interest rates it charges its customers, the interest rate earned on overnight investments and the level of customers' loan balances and credit balances.

 

Investment banking revenues are derived from the Partnership's underwriting and distribution of securities on behalf of issuers.  The Partnership's investment banking activities are performed primarily by its Syndicate and Investment Banking departments.  The principal service which the Partnership renders as an investment banker is the underwriting and distribution of securities, either in a primary distribution on behalf of the issuer of such securities or in a secondary distribution on behalf of a holder of such securities.  The distributions of corporate and municipal securities are, in most cases, underwritten by a group or syndicate of underwriters.  Each underwriter has a participation in the offering.

Unlike many larger firms against which the Partnership competes, the Partnership historically has not, and does not presently engage in other investment banking activities, such as assisting in mergers and acquisitions, arranging private placement of securities issues with institutions, or providing consulting and financial advisory services to corporations.

In the case of an underwritten offering managed by the Partnership, the Syndicate and Investment Banking departments may form underwriting syndicates and work with the branch office network for sales of the Partnership's own participation and with other members of the syndicate in the pricing and negotiation of other terms.  In offerings managed by others in which the Partnership participates as a syndicate member, these departments serve as active coordinators between the managing underwriter and the Partnership's branch office network.

The underwriting activity of the Partnership involves substantial risks.  An underwriter may incur losses if it is unable to resell the securities it is committed to purchase or if it is forced to liquidate all or part of its commitment at less than the agreed upon purchase price.  Furthermore, the commitment of capital to an underwriting may adversely affect the Partnership's capital position and, as such, its participation in an underwriting may be limited by the requirement that it must at all times be in compliance with the SEC's Uniform Net Capital Rule.

Significant Revenue Source

As of December 31, 2009, Edward Jones distributed mutual funds for approximately 75 mutual fund sponsors, including American Funds Distributors, Inc. which represents 25% of the Partnership's total revenue for the year ended December 31, 2009.  This revenue consisted of commissions, asset fees and account and activity fees, which are described above.  All of the revenue generated from this vendor relates to business conducted with the Partnership's U.S. segment.

BUSINESS OPERATIONS

Research Department.   The Partnership maintains a Research Department to provide specific investment recommendations and market information for retail customers.  The Department supplements its own research with the services of an independent research service.  In addition, the Research Department provides recommendations for asset allocation, portfolio rebalancing and investment selections for Advisory Solutions customer accounts.

Customer Account Administration and Operations.   Operations associates are responsible for activities relating to customer securities and the processing of transactions with other broker-dealers, exchanges and clearing organizations.  These activities include receipt, identification,

 

 

During 2009, the Canadian broker-dealer began self-clearing and terminated its introducing/carrying agreement with National Bank Correspondent Network ("NBCN") and National Bank Financial ("NBF").  The Partnership has an agreement with Broadridge Financial Solutions, Inc. ("Broadridge") to provide the securities processing systems formerly provided by NBCN.  The Partnership also has an agreement with Computershare Trust Company of Canada to act as trustee for cash balances held by customers in their individual retirement accounts.  Except for the facilitation of a Managed Account Program, the Partnership no longer relies on NBCN and NBF for processing customer transactions or maintaining the related customer books and records.  The Partnership is the custodian for customer securities and manages all related securities and cash processing, such as trades, dividends, corporate actions, customer cash receipts and disbursements, customer tax reporting and statements.

The Partnership, as a self-clearing broker-dealer in Canada, handles the routing and settlement of customer transactions.  The Partnership became a member of the Canadian Depository of Securities ("CDS") and FundServ for clearing and settlement of transactions.  CDS effects clearing of securities on the Toronto, Montreal and Toronto Stock Exchange ("TSX") Venture stock exchanges.  Customer securities on deposit are also held with CDS.

It is important that the Partnership maintain current and accurate books and records for financial reporting as well as regulatory compliance.  To expedite the processing of orders, the Partnership's branch office system is linked to a headquarters office through an extensive communications network.  Orders for securities are generally captured at the branch electronically, routed to headquarters and forwarded to the appropriate market for execution.  The Partnership's processing of paperwork following the execution of a security transaction is automated and operations are generally on a current basis.

There is considerable fluctuation during any one year and from year to year in the volume of transactions the Partnership processes.  The Partnership records transactions and posts its books on a daily basis.  The Partnership has a computerized branch office communication system which is principally utilized for entry of security orders, quotations, messages between offices, research of various customer account information, and cash and security receipts functions.  Headquarters personnel including operations and compliance personnel monitor day-to-day operations to determine compliance with applicable laws, rules and regulations.  Failure to keep current and accurate books and records can render the Partnership liable to disciplinary action by governmental and self-regulatory organizations ("SROs").

The Partnership clears and settles virtually all of its listed and over-the-counter equities, municipal bond, corporate bond, mutual fund and annuity transactions for its U.S. broker-dealer through the National Securities Clearing Corporation ("NSCC"), Fixed Income Clearing Corporation ("FICC") and Depository Trust Company ("DTC"), which are all subsidiaries of the Depository Trust and Clearing Corporation and are located in New York, New York.

In conjunction with clearing and settling transactions with NSCC, the Partnership holds customer securities on deposit with the DTC in lieu of maintaining physical custody of the certificates.  The Partnership also uses a major bank for custody and settlement of treasury securities and Government National Mortgage Association (“GNMA”), Federal National

 

The Partnership is substantially dependent upon the operational capacity and ability of NSCC, DTC, FICC, and CDS.  Any serious delays in the processing of securities transactions encountered by these clearing and depository companies may result in delays of delivery of cash or securities to the Partnership's customers.

Broadridge, along with its U.S. business, Securities Processing Solutions, U.S., and its international business, Securities Processing Solutions, International, provide automated data processing services for customer account activity and related records for the U.S. and Canada, respectively.  The Partnership does not employ its own floor broker for transactions on exchanges.  The Partnership has arrangements with other brokers to execute the Partnership's transactions in return for a commission based on the size and type of trade.  If, for any reason, any of the Partnership's clearing, settling or executing agents were to fail, the Partnership and its customers would be subject to possible loss.  To the extent that the Partnership would not be able to meet the obligations to the customers, such customers might experience delays in obtaining the protections afforded them.

In the event of Partnership insolvency, customers are protected from the loss of securities and cash held by Edward Jones through the Securities Investors Protection Corporation ("SIPC") in the U.S. and Canadian Investor Protection Fund ("CIPF") in Canada.  For customers in the U.S., SIPC provides $500,000 of coverage for securities, including $100,000 for claims of cash awaiting investment.  For customers in Canada, CIPF limits coverage to CAD$1,000,000 in total, which can be any combination of securities and cash.

Throughout 2009, the Partnership maintained additional protection for U.S. customers provided by Underwriters at Lloyd's.  The additional protection contract provided by Underwriters at Lloyd's protects customers' accounts in excess of the SIPC coverage subject to specified limits.  This policy covers theft, misplacement, destruction, burglary, embezzlement or abstraction of customer securities up to an aggregate limit of $1 billion for covered claims of all customers of Edward Jones.  Market losses are not covered by SIPC or the additional protection.  Effective in February 2010, the aggregate protection limit for all claims changed from $1 billion to $900 million.

The Partnership believes that its internal controls and safeguards concerning the risks of securities thefts are adequate.  The possibility of securities thefts is an industry-wide risk.  The Partnership has not had, to date, a significant problem with such thefts, other than in connection with the Tennessee matter described in Item 3 – Legal Proceedings.  The Partnership maintains fidelity bonding insurance which, in the opinion of management, provides adequate coverage.

Employees.   The Partnership has approximately 40,500 full and part-time employees, including its 348 general partners and 12,662 financial advisors as of February 26, 2010.  The Partnership's financial advisors are generally compensated on a commission basis and may, in addition, be entitled to bonus compensation based on their respective branch office profitability and the profitability of the Partnership.  The Partnership has in the past paid bonuses to its non-registered employees on a discretionary basis, but there can be no assurance that such bonuses will be paid for any given period or will be within any specific range of amounts.

The Partnership maintains an initial training program for prospective financial advisors that spans nearly four months which includes preparation for regulatory exams, concentrated instruction in the classroom and on-the-job training in a branch office.  During the first phase, the U.S. trainee spends nearly two months studying Series 7 and Series 66 examination materials and taking the examinations.  In Canada, financial advisors have the requisite examinations completed prior to being hired.  After passing the requisite examinations, trainees spend one week in a comprehensive training program in one of the Partnership's headquarter training facilities followed by seven weeks of on-the-job training in their market and in a nearby branch location.  This training includes reviewing investments, compliance requirements, office procedures and understanding customer needs, plus establishing a base of potential customers.  One final week is then spent in a headquarter training facility to complete the initial training program.  Five months later, the financial advisor attends an additional training class in a headquarter location, and subsequently, the Partnership offers periodic continuing training to its experienced financial advisors for the entirety of their career.  Training programs for the more experienced financial advisors focus on meeting customer needs and effective management of the branch office.

The Partnership considers its employee relations to be good and believes that its compensation and employee benefits, which include medical, life and disability insurance plans and profit sharing and deferred compensation retirement plans, are competitive with those offered by other firms principally engaged in the securities business.

Branch Office Network.   The Partnership operated 11,207 branch offices as of February 26, 2010, primarily staffed by a single financial advisor and a branch office assistant.  Of this total, the Partnership operated 10,584 offices in the U.S. (located in all 50 states, predominantly in communities with populations of under 50,000 and metropolitan suburbs) and operated 623 offices in Canada.

Competition.   The Partnership is subject to intense competition in all phases of its business from other securities firms, many of which are substantially larger than the Partnership in terms of capital, brokerage volume and underwriting activities.  In addition, the Partnership encounters competition from other organizations such as banks, insurance companies, and others offering financial services and advice.  The Partnership also competes with a number of firms offering discount brokerage services, usually with lower levels of personalized service to individual customers.  With minor exceptions, customers are free to transfer their business to competing organizations at any time, although a fee may be charged to do so.  There is intense competition among firms for financial advisors with good production records.  In recent periods, the Partnership has experienced increasing efforts by competing firms to hire away its financial advisors, although the Partnership believes that its rate of turnover of financial advisors is not higher than that of other comparable firms.

Regulation.   The securities industry in the U.S. is subject to extensive regulation under both federal and state laws.  The SEC is the federal agency responsible for the administration of the federal securities laws.  The Partnership's principal subsidiary is registered as a broker-dealer and investment advisor with the SEC.  Much of the regulation of broker-dealers has been delegated to SROs, principally FINRA.  FINRA is the securities industry's self-regulated body as a result of the consolidation of the NASD and NYSE Member Regulation effective July 30, 2007,

 

Broker-dealers are subject to regulations which cover all aspects of the securities business, including sales methods, trade practices among broker-dealers, use and safekeeping of customer funds and securities, customer payment and margin requirements, capital structure of securities firms, record-keeping and the conduct of directors, officers and employees.  Additional legislation, changes in rules promulgated by the SEC and SROs, and/or changes in the interpretation or enforcement of existing laws and rules, may directly affect the operations and profitability of broker-dealers.  Given recent market activity, there is a substantial likelihood that the U.S. government will enact changes in regulation for the financial services industry which may affect Edward Jones.  The SEC, SROs and state securities commissions may conduct administrative proceedings which can result in censure, fine, suspension or expulsion of a broker-dealer, its officers or employees.  The principal purpose of regulation and discipline of broker-dealers is the protection of customers and the securities markets, rather than protection of the creditors and stockholders of broker-dealers.  In recent years, the Partnership has been the subject of significant regulatory actions by various agencies that have the authority to regulate its activities (see Item 3 – Legal Proceedings for more information).

Uniform Net Capital Rule.   As a broker-dealer and a member firm of FINRA, Edward Jones is subject to the Uniform Net Capital Rule promulgated by the SEC.  The Uniform Net Capital Rule is designed to measure the general financial integrity and liquidity of a broker-dealer and the minimum net capital deemed necessary to meet the broker-dealer's continuing commitments to its customers.  The Uniform Net Capital Rule provides for two methods of computing net capital and Edward Jones has adopted what is generally referred to as the alternative method.  Minimum required net capital under the alternative method is equal to the greater of $0.25 million or 2% of the aggregate debit items, as defined.  The Uniform Net Capital Rule prohibits withdrawal of equity capital whether by payment of dividends, repurchase of stock or other means, if net capital would thereafter be less than 5% of aggregate debit items.  Additionally, certain withdrawals require the consent of the SEC to the extent they exceed defined levels even though such withdrawals would not cause net capital to be less than 5% of aggregate debit items.  In computing net capital, various adjustments are made to exclude assets which are not readily convertible into cash and to provide a conservative valuation of other assets, such as a company's securities owned.  Failure to maintain the required net capital may subject a firm to suspension or expulsion by FINRA, the SEC and other regulatory bodies and/or exchanges and may ultimately require its liquidation.  Edward Jones has, at all times, been in compliance with the Uniform Net Capital Rule.

The Partnership has other operating subsidiaries, including EJTC and Edward Jones Canada.  These wholly-owned subsidiaries are required to maintain specified levels of regulatory capital.  Each subsidiary was in compliance with the applicable capital requirements in the jurisdictions in which they operate during the years ended December 31, 2009 and 2008.

 

ITEM 1A.  RISK FACTORS

The Partnership is subject to a number of risks potentially impacting its business, financial condition, results of operations and cash flows.  In addition to the risks and uncertainties discussed elsewhere in this Annual Report on Form 10-K, or in the Partnership's other filings with the SEC, the following are some important factors that could cause the Partnership's actual results to differ materially from results experienced in the past or those projected in any forward-looking statement.  The risks and uncertainties described below are not the only ones facing the Partnership.  Additional risks and uncertainties not presently known to the Partnership or that the Partnership currently deems immaterial could also have a material adverse effect on the Partnership's business and operations.  If any of the matters included in the following risks were to occur, the Partnership's business, financial condition, results of operations and cash flows could be materially adversely affected.

Market Conditions — The Partnership is in the securities industry, and a downturn in the U.S. and global securities markets has in the past had, and could in the future have, a significant negative effect on revenues and could significantly reduce or eliminate profitability.

General political and economic conditions such as an economic recession, natural disasters, terrorist attacks, war, local economic and political conditions, regulatory changes or changes in the law or interest rate or currency rate fluctuations could create a downturn in the U.S and global securities markets.  In addition, another terrorist attack in the U.S. could have a disproportionate effect on the domestic securities industry in which the Partnership operates.

 

The securities industry, and therefore the Partnership, is highly dependent upon market prices and volumes which are highly unpredictable and volatile in nature.  Events over the last eighteen months including the global recession, frozen credit markets, institutional failures and government-sponsored bailouts of a number of large financial services companies have made the capital markets increasingly volatile.  The Partnership has been affected by the weakened global economic conditions and the ongoing unsettled nature of the financial markets.  The Partnership's results could decline further in the event the recovery from the recent market downturn continues to stretch out at a labored pace or in the event of a further economic downturn.

 

Due to the acceleration of economic turmoil in late 2008 and 2009, and its very negative impact on the securities markets, the Partnership experienced significant declines in its net revenues which adversely impacted its overall financial results.  In response to these events, the Partnership implemented significant cost reduction and cost savings measures.  There is no assurance that in future periods of economic downturn or reduced revenue such measures will be sufficient to offset revenue declines or that the Partnership can implement further cost reductions to sustain profitable operations.

 

As the Partnership has experienced over the past year, a material reduction in volume and lower securities prices results in lower commission revenue, reduced fees due to lower average value of client assets and losses in dealer inventory accounts and syndicate positions, which have reduced and could eliminate the profitability of its operations.  Furthermore, in an economic recession, the Partnership, principally through Edward Jones, is subject to an increased risk of customers being unable to meet their commitments (such as margin obligations).  If customers are unable to meet their commitments (including margin obligations),

 

 

the Partnership has an increased risk of losing money on margin transactions and incurring additional expenses defending or pursuing claims.  Developments such as lower revenues and declining profit margins could reduce or eliminate the Partnership's profitability.

 

Transaction Volume Volatility — Significant increases in the number of transactions by the Partnership’s customers can have a material negative effect on the Partnership’s revenues and profitability.

 

Significantly increased customer transaction volume may result in operational problems such as a higher incidence of failures to deliver and receive securities and errors in processing transactions, and may also result in increased personnel and related processing costs.  In past periods, Edward Jones has experienced adverse effects on profitability resulting from significant reductions in securities sales and, likewise, has encountered operations problems arising from unanticipated high volume.  Edward Jones is not able to control such occurrences, and there is no assurance that it will not encounter such problems and resulting losses in future periods.

 

In addition, if Edward Jones fails to keep current and accurate books and records it would be exposed to disciplinary action by governmental agencies and SROs.

 

Interest Rate Changes — The Partnership's profitability could be impacted by significant interest rate changes.

 

The Partnership is exposed to market risk from changes in interest rates.  Such changes impact the interest income earned from customers' margin loans, the investment of excess funds, and securities owned.  Any changes in interest rates may also have an impact on the expense related to liabilities that finance these assets, such as amounts payable to customers and other interest and non-interest bearing liabilities.  In addition, such changes can impact the fees earned by the Partnership through its minority ownership in the advisor to the Edward Jones Money Market Funds (see further discussion in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations).  A decrease in short-term interest rates such as that experienced since late 2007 significantly negatively impacts net interest income.  The Partnership’s interest bearing liabilities are less sensitive to changes in short-term interest rates compared to its interest earning assets, resulting in interest income being more sensitive to rate changes than interest expense.

 

Risk of Inflation — An increase in inflation could affect securities prices and as a result, profitability and capital.

 

Monetary net assets are primarily liquid in nature and would not be significantly affected by inflation.  Inflation and future expectations of inflation can negatively influence securities prices, as well as activity levels in the securities markets.  As a result, the Partnership's profitability and capital may be impacted by inflation and inflationary expectations.  Additionally, the impact of inflation on the Partnership's operating expenses may affect profitability to the extent that additional costs are not recoverable through increased prices of services offered by the Partnership.

 

Impact of Cyclical Nature of Business on the Partnership's Growth Rate — The instability of the securities markets has made it difficult to fully achieve the Partnership's hiring and training goals and attrition rates of its financial advisors remains a concern, all of which makes it difficult for the Partnership to consistently meet its planned growth rates.

 

 

PART I

It has been and may continue to be more difficult to attract qualified applicants for financial advisor positions due to recent market downturns.  In addition, the Partnership relies heavily on referrals from current financial advisors in recruiting new financial advisors.  During an economic downturn, the Partnership's financial advisors can be less effective in recruiting potential new financial advisors through referrals.

For example, in 2009 the Partnership was below its hiring and training objectives.  The Partnership ended 2009 with 12,615 financial advisors, while the Partnership's goal was to have 12,745 financial advisors by December 31, 2009.  There can be no assurance that the Partnership will be able to hire at desired rates in future periods or that it will be able to attract sufficient numbers of quality applicants in the future.

During market downturns, the Partnership has experienced higher rates of financial advisor attrition due to difficulties that less experienced financial advisors encounter in developing or expanding their business.

Either the failure to achieve hiring and training goals or an attrition rate higher than anticipated may result in a decline in the revenue the Partnership receives from commissions and other securities related revenues.  As a result, the Partnership may not be able to achieve the level of net growth upon which the Partnership's business model is based and its revenues and results of operations may be adversely impacted.  For further information of the Partnership's attrition rates, see the overview table in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations.

Capital Limitations; Uniform Net Capital Rule — The Uniform Net Capital Rule imposes minimum net capital requirements and could limit the Partnership's ability to engage in certain activities which are crucial to its business.

Adequacy of capital is vitally important to broker-dealers, and lack of sufficient capital may limit Edward Jones' ability to compete effectively.  In particular, lack of sufficient capital or compliance with the Uniform Net Capital Rule may limit Edward Jones' ability to commit to certain securities activities such as underwriting and trading, which use significant amounts of capital, its ability to expand margin account balances, as well as its commitment to new activities requiring an investment of capital.  FINRA regulations and the Net Capital Rule may restrict Edward Jones' ability to expand its business operations, including opening new branch offices or hiring additional financial advisors.  Consequently, a significant operating loss or an extraordinary charge against net capital could adversely affect Edward Jones’ ability to expand or even maintain its present levels of business.  Further, many of Edward Jones' competitors have substantially greater capital and other resources than it does.

 

In addition to this regulatory requirement of the U.S. broker-dealer, Edward Jones Canada and EJTC are subject to regulatory capital requirements in Canada and the U.S., respectively.   Failure by the Partnership to maintain the required net capital for any of its subsidiaries may subject it to disciplinary actions by the SEC, FINRA, IIROC or other regulatory bodies, which could ultimately require its liquidation.  In the U.S., Edward Jones may be unable to expand its business and may be required to restrict its withdrawal of subordinated debt and equity capital in order to meet the Net Capital requirements.  For more information, see Item 1 – Business – Business Operations – Uniform Net Capital Rule.

 

 

Liquidity —   The Partnership's business in the securities industry requires that sufficient liquidity be available to maintain business activities.  

Liquidity, or ready access to funds, is essential to the Partnership's business.  The current credit market environment could have a negative impact on the Partnership's ability to maintain sufficient liquidity to meet its working capital needs.  Short term and long term financing are two sources of liquidity that could be affected by the current credit market.  As a result of the concerns about the stability of the markets in general, some lenders have reduced their lending to borrowers, including the Partnership.  There is no assurance that financing will be available at attractive terms, or at all, in the future.

In addition, many individual partners have financed the initial or subsequent purchases of their partnership interest by obtaining personal bank loans.  Any such bank loan agreement is between the individual partner and the bank.  The Partnership does not guarantee the bank loans nor can the individual partner pledge their partnership interest as collateral for the bank loan.  Individual partners who finance all or a portion of their partnership interest with bank financing may be more likely to request the withdrawal of capital to meet bank financing repayment requirements should the individual partners experience a period of reduced earnings from the Partnership including the elimination of partner's earnings due to potential operating losses of the Partnership.  As a partnership, any withdrawals by general partners, subordinated limited partners or limited partners would reduce the Partnership's available liquidity and capital.  Furthermore, many of the same banks which provide financing to individual limited and general partners also provide various forms of financing to the Partnership.   To the extent banks maintain or increase credit available to individual partners, financing available to the Partnership may be reduced.  See Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity, for further information.

Lack of Capital Permanency — Since the Partnership's capital is subject to mandatory liquidation either upon the death or upon the withdrawal request of an individual partner, the capital is not permanent and a significant mandatory liquidation could lead to a substantial reduction in the Partnership's capital.

Under the terms of the Partnership Agreement, an individual partner's capital balance is liquidated upon death.  In addition, individual partners may request withdrawals of their Partnership capital, subject to certain limitations on the timing of those withdrawals. Accordingly, capital of the Partnership is not permanent and is dependent upon current and future partners to both maintain their existing capital investment and make additional capital investments in the Partnership.  Any withdrawal requests by general partners, subordinated limited partners or limited partners would reduce the Partnership's available liquidity and capital.

The Partnership has withdrawal restrictions in place limiting the amount of capital that can be withdrawn at the discretion of the individual partner.  Limited partners who request the withdrawal of their capital are repaid their capital in three equal annual installments beginning the month after their withdrawal request.  The capital of general partners requesting the withdrawal of capital from the Partnership is converted to subordinated limited partnership capital.  The withdrawal of subordinated limited partner capital is repaid in six equal annual installments beginning the month after their request for withdrawal.  Liquidations upon the death of a partner are generally required to be made within six months of the date of death.  The Partnership’s managing partner has the discretion to waive the withdrawal restrictions.  Due to the nature of the liquidation requirements of the capital, the Partnership accounts for its capital

 

as a liability, in accordance with the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") No. 480, Distinguishing Liabilities from Capital .

Canadian Operations — The Partnership is focusing heavily on efforts to support the potential profitability of its Canadian operation.

The Partnership plans to expand its branch system in Canada.  The Partnership's Canadian operation has operated at a substantial deficit from its inception and the Partnership plans to make additional investments which may be substantial.  There is no assurance the Canadian operations will ultimately attain profitability.  For further information on the Partnership's Canadian operations, see Note 18 to the Consolidated Financial Statements.

Actions By Regulatory Agencies —   The securities industry is highly regulated, and the Partnership is subject to various regulatory inquiries and investigations, which could lead to formal proceedings, and if adversely determined, could materially affect the business.

From time to time the Partnership has received and may in the future receive information requests or subpoenas from various regulatory and enforcement authorities.  These inquiries or requests for information have in the past, and may in the future result in additional inquiries by the regulators or more specific investigation of the Partnership.

Edward Jones is from time to time subject to examinations and investigations of which it may not be presently aware and such matters could lead to formal actions which may impact Edward Jones' business.  In view of the inherent difficulty of predicting the outcome of the matters, particularly in cases in which agencies may seek substantial or indeterminate fines or penalties, or actions which are in very preliminary stages, Edward Jones cannot predict with certainty the eventual loss or range of loss, if any, related to such matters.

Although the Partnership believes that the outcome of these actions will not have a material adverse effect on its consolidated financial condition, the outcome could be material to its future operating results for a particular period or periods.  See Item 3 – Legal Proceedings for more information.

Legislative and Regulatory Initiatives — There is pending federal legislation intended to reform the financial services industry which, if enacted into law, could significantly impact the regulation and operation of the Partnership and its subsidiaries, its revenue and its profitability.  In addition, recently proposed laws and regulations may significantly alter or restrict the Partnership's historic business practices, which could negatively affect its operating results.

The Partnership is subject to extensive regulation by federal and state regulatory agencies and by SROs within the industry.  The Partnership operates in a regulatory environment that is subject to ongoing change and has seen significant increased regulation in recent years.  The Partnership may be adversely affected as a result of new or revised legislation or regulations, changes in federal, state or foreign tax laws and regulations, or by changes in the interpretation or enforcement of existing laws and regulations.

During 2009, significant financial services industry regulatory reform has been proposed and is currently being debated by the federal government.  This proposed regulatory reform includes creating a new consumer financial protection agency, adding new fiduciary standards for broker-

 

dealers, and other provisions that could potentially impact the Partnership's operations.

 

In addition to these legislative proposals, there are regulatory proposals being considered by FINRA and the SEC. These regulatory proposals include proposals to increase the disclosure obligations of broker/dealers with respect to mutual funds, annuity products and retirement accounts as well as proposals that could result in the restriction or elimination of compensation the firm receives concerning mutual fund and annuity products.  Significant reductions in the revenues from mutual fund sources could have a material impact on the Partnership's results of operations.

These legislative and regulatory initiatives have not been enacted and the Partnership cannot predict with any certainty whether or which of these proposals will be enacted in their current form, enacted subject to further revisions or not enacted at all. If enacted, these proposals could significantly and adversely impact the Partnership's operating costs, its structure, its ability to generate revenue and its overall profitability.

International Financial Reporting Standards.   The International Accounting Standards Board (“IASB”) developed a core set of accounting standards to act as a framework for financial reporting known as the International Financial Reporting Standards ("IFRS").   By 2007, the majority of listed European Union companies, including banks and insurance companies, began using IFRS to prepare financial statements.  In contrast, the majority of public companies in the U.S. prepare financial statements under the general accepted accounting principles in the U.S. ("GAAP").

The SEC has proposed a mandatory adoption of IFRS starting in 2015 with early adoption permitted before that date.  It is unclear at this time how the SEC will propose GAAP and IFRS be harmonized if the proposed change is adopted.  In addition, Canadian Accounting Standards Board has announced a mandatory adoption of IFRS in Canada starting in 2011.  The Partnership is currently unable to determine what impact, if any, IFRS would have on its financial position or results of operations.  When adopted IFRS could significantly impact the way the Partnership determines income before allocations to partners, allocations to partners, or returns on partnership capital.

In addition, switching to IFRS will be a complex endeavor for the Partnership.  The Partnership will need to develop new systems and controls around the principles of IFRS.  Since this is a new endeavor, the specific costs associated with this conversion are uncertain, but are not expected to be material.

Rule 12b-1 Fees.   The Partnership receives various payments in connection with the purchase, sale and holding of mutual fund shares by its customers.  Those payments include "Rule 12b-1 fees" and expense reimbursements.  Rule 12b-1 allows a mutual fund to pay distribution and marketing expenses out of the fund’s assets.  Although the SEC does not limit the size of Rule 12b-1 fees that funds may pay, FINRA does impose such limitations.

 

In February 2005, the SEC reopened for comment proposed rules that would require broker-dealers to provide their customers with information regarding the costs and conflicts of interest that arise from the sales of mutual fund shares, including point-of-sale disclosures in both written and oral form.  In 2007, the SEC solicited additional public comments and held public forums and discussions on the issues as they relate to Rule 12b-1 fees.  Similarly, a Congressional subcommittee held hearings in July 2007 centered on Rule 12b-1 fees.  While no proposals have come out of this activity as yet, the Chairman of the SEC has expressed a

 

 

concern about these fees and has requested that the SEC staff prepare a recommendation to address the issue in 2010.  If the SEC, FINRA or any state regulatory agencies limit or eliminate such fees, it could have a material adverse effect on the Partnership's operating results for future periods, including reducing or eliminating its income before allocations to partners, general and limited partnership returns, and compensation to its financial advisors (including bonuses and profit sharing).  This could negatively affect the Partnership's ability to recruit and retain financial advisors.  See Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, for further discussion and the amount of Rule 12b-1 fees (i.e., service fees) earned by the Partnership.

 

Fiduciary Obligations as a Financial Advisor.   There is continued uncertainty in the industry as to the status of regulations affecting whether an individual financial advisor is acting in certain circumstances as a broker as opposed to an investment advisor.  The Partnership currently requires all financial advisors be registered both as general securities representatives and as investment advisor representatives (“IARs”) in states where the IAR registration is required and if the financial advisor engages in offering services where the IAR registration is necessary.  An IAR is considered a fiduciary and could subject the Partnership and its financial advisors to more stringent standards, inhibit proprietary transactions, fees and/or commissions, increase disclosure requirements and increase potential liability for such financial advisors and the Partnership.

Any of the foregoing regulatory initiatives could adversely affect the Partnership's business operations and business model by reducing or eliminating certain fees that are significant components of its revenues.

Branch Office System — The Partnership's continued growth will depend on its ability to expand its branch office system; however, its system of one-financial advisor branch offices may expose the Partnership to a greater risk of loss or liability from the activities of the financial advisors than if a more traditional office system is maintained .

Pursuant to the Partnership's business plan, it has been increasing its number of branch offices and financial advisors, along with the home office and branch office staff and equipment to support them.  The business plan is dependent upon the ability to grow the number of branch offices and financial advisors.

Most securities firms typically staff several financial advisors and one or more managers or other supervisory personnel in each of their branch offices.  In contrast, most of the Partnership's branch offices are staffed by a single financial advisor and a branch office assistant with primary supervisory activity being conducted from its headquarters offices; a method of supervision which is designed to comply with all applicable industry and regulatory requirements.  However, as a result of such method of supervision it is possible that the Partnership is exposed to a risk of loss arising from alleged imprudent or illegal actions of its financial advisors due to the lack of on site supervision within each office.  Furthermore, more time may elapse for the Partnership's supervisory personnel to detect problem activity than if managers were located within each office, which may expose the Partnership to further losses.

In addition, the Partnership maintains personal financial and account information and other documents and instruments for its customers at its branch offices, both physically and in electronic format.  Because the branch offices are relatively small and some are in remote locations, the security systems at these branch offices may not be adequate in all cases to

 

 

prevent theft of such information.  If it is unable to maintain the security of this personal financial and account information, the Partnership and its customers may suffer financial harm.  The Partnership could also suffer reputational damage and regulatory issues if any personal financial and account information is stolen.

Litigation — Litigation involving civil plaintiffs seeking substantial damages from securities firms, including the Partnership, has increased over time, and it is expected to continue to increase even as global market conditions improve.

Many aspects of the Partnership's business involve substantial litigation risk.  The Partnership is from time to time subject to examinations and informal inquiries.  Such matters have in the past, and could in the future, lead to formal actions, which may impact the Partnership's business.  Over time, there has been increasing litigation involving the securities industry in general and the Partnership in particular, including class action suits that generally seek substantial damages.

 

The Partnership incurred significant expenses to defend and/or settle claims over the last few years, and anticipates the number of claims against the Partnership will increase in light of the current economic recession.  In view of the inherent difficulty of predicting the outcome of such matters, particularly in cases in which claimants seek substantial or indeterminate damages or in actions which are at very preliminary stages, the Partnership cannot predict with certainty the eventual loss or range of loss related to such matters.  Due to the uncertainty related to litigation, the Partnership cannot determine if future litigation will have a material adverse effect on its consolidated financial condition. Such legal actions may be material to future operating results for a particular period or periods.  See Item 3 – Legal Proceedings for more information regarding unresolved claims.

Upgrade of Technological Systems —   The Partnership may engage in significant technology initiatives in the future which may be costly and could lead to disruptions.

From time to time, the Partnership has engaged in significant technology initiatives and expects to continue to do so in the future.  With any major system replacement, there will be a period of education and adjustment for the branch and home office associates utilizing the system.  Following any upgrade or replacement, if the Partnership's systems or equipment do not operate properly, are disabled or fail to perform due to increased demand (which might occur during market upswings or downturns), or if a new system or system upgrade contains a major problem, the Partnership could experience unanticipated disruptions in service, including interrupted trading, slower response times, decreased customer service and customer satisfaction and delays in the introduction of new products and services, any of which could result in financial losses, liability to customers, regulatory intervention or reputational damage.  Further, the inability of the Partnership's systems to accommodate a significant increase in volume of transactions could also constrain its ability to expand its business.

 

Interruption of Technological Systems — Any substantial disruption to the Partnership's information systems could lead to financial loss and harm relations with its customers.

 

The Partnership's existing computer system and network, including its backup systems, are also vulnerable to damage or interruption from human error, natural disasters, power loss, sabotage, computer viruses, intentional acts of vandalism and similar events.  The Partnership has established a second data center in Tempe, Arizona which operates as a secondary data center

 

 

to its own primary data center located in St. Louis, Missouri and expects to be able to maintain service during a system disruption contained to St. Louis with a short-term interruption in service.  However, the staff at the Partnership's Tempe facility would likely not be sufficient to operate the systems in the event of a prolonged disruption to the St. Louis data center and office facilities as well as the geographic region, which would prevent staff from working from either in the St. Louis headquarters or from home.  In such event, the Partnership would need to re-locate staff to the Tempe facility, which might result in a delay in service during the transition and substantial additional costs and expenses.

 

Operational Systems — The Partnership's Canadian operations became self-clearing, which entails the Partnership taking on increased risk and responsibilities previously performed by a third party clearing firm.

 

During the second quarter of 2009, Edward Jones Canada became self-clearing.  As a result Edward Jones Canada has become the custodian for customer securities and manages all related securities and cash processing.  Clearing and execution services include the confirmation, receipt, settlement and delivery functions involved in securities transactions.  Self-clearing securities firms are subject to substantially more regulatory examination than firms that rely on others to perform clearing functions.  Errors in performing clearing functions, including clerical and other errors related to the handling of funds and securities held by Edward Jones Canada on behalf of its customers, could lead to losses and liability in related lawsuits brought by customers and others, and proceedings and investigations by regulators.

 

The Partnership has been exposed to similar risks in the U.S. for many years, as noted above in the Business Operations section.

Reliance on Organizations — The Partnership's dependence on third-party organizations exposes the Partnership to disruption if its products and services are no longer offered, supported or develop defects.

The Partnership incurs obligations to its customers which are supported by obligations from firms within the industry, especially those firms with which the Partnership maintains relationships by which securities transactions are executed.  The inability of an organization, or to a lesser extent, any securities firm with which the Partnership does a large volume of business, to promptly meet its obligations could result in substantial losses to the Partnership.

The Partnership is particularly dependent on Broadridge, which acts as the Partnership's primary vendor for providing customer accounting and record-keeping in both the U.S. and Canada. The Partnership's communications and information systems are integrated with the information systems of Broadridge.  There are relatively few alternative providers to Broadridge and although the Partnership has analyzed the feasibility of performing Broadridge’s functions internally, the Partnership may not be able to do it in a cost-effective manner or otherwise.  Consequently, any new computer systems or software packages implemented by Broadridge which are not compatible with the Partnership's systems, or any other interruption or the cessation of service by Broadridge as a result of systems limitations or failures, could cause unanticipated disruptions in the Partnership's business which may result in financial losses and/or disciplinary action by governmental agencies and/or SROs.

 

It is unclear what, if any, impact the current economic downturn, particularly in the financial services industry, will have on Broadridge, and its ability to meet its service level commitments to the Partnership.

The Partnership is substantially dependent upon the operational capacity and ability of NSCC, DTC, FICC, and CDS.  Any serious delays in the processing of securities transactions encountered by these clearing and depository companies may result in delays of delivery of cash or securities to the Partnership's customers.  If for any reason, any of the Partnership's clearing, settling or executing agents were to fail, the Partnership and its customers would be subject to possible loss.

The Partnership also uses a bank for custody and settlement of treasury securities for custody and settlement of treasury securities and GNMA, FNMA and FHLMC issues.  If this bank experiences any disruption in service, the Partnership may suffer financial, regulatory or reputational harm.

Edward Jones does not employ its own floor brokers for transactions on exchanges in either the U.S. or Canada.  Edward Jones has arrangements with other brokers to execute its transactions in return for a commission based on the size and type of trade.  If, for any reason, any of these clearing, settling, or executing agents were to fail, Edward Jones and its customers would be subject to possible loss.  To the extent that Edward Jones would not be able to meet the obligations of its customers, such customers might experience delays in obtaining the protections afforded them.

In addition, the Partnership derived 25% of its total revenue for 2009 from one mutual fund vendor.  Significant reductions in the revenues from this mutual fund source could have a material impact on the Partnerships results of operations.

Credit Risk — The Partnership is subject to credit risk due to the very nature of the transactions it processes for its customers.

 

The Partnership is exposed to the risk that third parties that owe it money, securities or other assets will not meet their obligations.  Many of the transactions in which the Partnership engages expose it to credit risk in the event of default by its counterparty or customer.  In addition, the Partnership's credit risk may be increased when the collateral it holds cannot be realized or is liquidated at prices insufficient to recover the full amount of the obligation due to the Partnership.  See Item 7 – Management's Discussion and Analysis of Financial Condition and Results of Operations for more information about the Partnership's credit risk.

 

Underwriting, Syndicate and Trading Position Risks — The Partnership engages in underwriting activities, which can expose the Partnership to material losses and liability.

Participation as a manager or syndicate member in the underwriting of fixed income and equity securities subjects the Partnership to substantial risk.  As an underwriter, the Partnership is subject to risk of substantial liability, expense and adverse publicity resulting from possible claims against it as an underwriter under federal and state securities laws.  The Securities Act of 1933 and other applicable laws and regulations impose substantial potential liabilities on underwriters for material misstatements or omissions in the prospectus used to describe the offered securities.  In addition, there exists a potential for possible conflict of interest between an underwriter's desire to sell its securities and its obligation to its customers not to recommend unsuitable securities.  In recent years, there has been an increasing incidence of litigation in these areas.  These lawsuits are frequently brought by large classes of purchasers of underwritten securities.  Such lawsuits often name underwriters as defendants and typically seek substantial amounts in damages.

Further, as an underwriter, the Partnership may incur losses, if it is unable to resell the securities it is committed to purchase or if it is forced to liquidate all or part of its commitment at less than the agreed upon purchase price.  Furthermore, the commitment of capital to an underwriting may adversely affect the Partnership's capital position and, as such, the Partnership's participation in an underwriting may be limited by the requirement that it must at all times be in compliance with the SEC's Uniform Net Capital Rule.  In maintaining inventory in fixed income and equity securities, the Partnership is exposed to a substantial risk of loss, depending upon the nature and extent of fluctuations in market prices.

Competition — The Partnership is subject to intense competition for customers and personnel, and many of its competitors have greater resources.

All aspects of the Partnership's business are highly competitive.  The Partnership competes directly with other securities firms and increasingly with other types of organizations and other businesses offering financial services, such as banks, insurance companies, and others offering financial services.  Many of these organizations have substantially greater capital and additional resources, and some entities offer a wider range of financial services.  Over the past several years, there has been significant consolidation of firms in the financial services industry, forcing the Partnership to compete with larger firms with greater capital and resources, brokerage volume and underwriting activities, and more competitive pricing.  Also, the Partnership continues to compete with a number of firms offering discount brokerage services, usually with lower levels of personalized service to individual customers.  With minor exceptions, customers are free to transfer their business to competing organizations at any time, although there may be a fee to do so.

Competition among financial services firms also exists for financial advisors and other personnel.  The Partnership's continued ability to expand its business and to compete effectively depends on the ability of the Partnership to attract qualified employees and to retain and motivate current employees.  If the profitability of the Partnership decreases, then bonuses paid to financial advisors and other personnel, along with profit-sharing contributions, may be decreased or eliminated, increasing the risk that personnel could be hired away by competitors.  In addition, the Partnership has recently faced increased competition from larger firms in its non-urban markets, and from a broad range of firms in the urban and suburban markets in which it competes.

 

 

The competitive pressure the Partnership experiences could have an adverse effect on its business, results of operations, financial condition and cash flow.  See Item 1 – Business Operations – Competition for additional information.