One North Jefferson
In a field dominated and often warped by the glamour of New York's Wall Street, A.G. Edwards, Inc., owes its success as an investment brokerage to the traditional midwestern virtues of hard work, thrift, and pragmatism. Founded in St. Louis, Missouri, more than 100 years ago, Edwards is the United States' largest brokerage firm headquartered outside New York and the fifth-largest overall, as measured by number of retail offices.
Retail investment brokerage is the heart and soul of A.G. Edwards. Benjamin Franklin Edwards III, the company's president and a fourth-generation member of its founding family has maintained the firm's longstanding commitment to serve the small investor while shunning both the latest Wall Street fads and the marketing of in-house investment packages. A.G. Edwards, Inc., does not trade stocks on its own or offer cut-rate services or search the globe for the next potential merger of corporate giants; it advises individual investors on what to do with their money, and very little else. The reward for this single-minded conservatism has been steady growth and virtual immunity from the bloodshed and panic that periodically overwhelm the high fliers on Wall Street.
Benjamin Franklin Edwards is the great-grandson of Albert Gallatin Edwards, the founder of A.G. Edwards and himself the son of Ninian W. Edwards, an important figure in the early history of the state of Illinois. Born October 15, 1812, Albert Gallatin Edwards was named (with remarkable prescience, as events proved) after U.S. Secretary of the Treasury Albert Gallatin, an influential advocate of fiscal conservatism in Washington, D.C. Young Edwards was born in Kentucky and grew up in Illinois, of which his father was territorial governor and later state governor and senator after its admission to the Union in 1818. After graduating from West Point in 1832, A. G. Edwards served briefly with the U.S. Army's first permanent cavalry unit, based south of St. Louis. There he met and in 1835 married Louise Cabanne, a member of one of the oldest St. Louis families. He subsequently resigned from the Army to work for the local wholesaling firm of William L. Ewing.
With ties to leading families in Missouri, Illinois, and Kentucky, Edwards, not surprisingly, prospered in the world of trade. William Ewing specialized in the supply of goods to stores throughout the southwestern United States, a role for which its St. Louis location rendered the company well suited. Albert Edwards brought to the firm a number of important political connections, most notably with a rising Illinois attorney named Abraham Lincoln. Edwards's older brother, Ninian Wirt Edwards, had followed his father into Illinois politics, where he enjoyed little success but became a fixture in the capital city's social and political circles. Ninian's wife, Elizabeth, was a member of the powerful Todd family of Kentucky, and her cousin, John Todd Stuart, became the law partner of Abraham Lincoln in 1839. The Edwardses were soon close friends of Lincoln--so close, in fact, that the future president married the sister of Elizabeth Todd in the home of Ninian Edwards in 1842. Whether Mary Todd was a good love match for Abe Lincoln has long been a subject of debate, but she was certainly a political asset, as Lincoln would later be of great help economically to the Edwards family.
When the Civil War erupted in 1861, Albert Edwards proved loyal to the party of his in-law President Lincoln, staunchly defending the Union cause in a state torn between factions of both parties. Edwards was involved in the defeat of Confederate troops at St. Louis early in the war, and in 1861 he was made a brigadier general in the Missouri State Militia and later bank examiner for the state of Missouri. On April 9, 1865, Edwards was appointed assistant Secretary of the Treasury by Lincoln, who was assassinated six days later. Edwards's job was to oversee the Sub-Treasury Bank in St. Louis, a regional depository similar to today's Federal Reserve Banks. He would continue as assistant secretary throughout the administrations of four subsequent presidents, retiring in 1887 at the age of 75 with a solid reputation in the financial community of St. Louis.
Edwards's retirement was brief, however. Less than a year later he formed a partnership with his eldest son, Benjamin Franklin Edwards, to buy and sell stocks, bonds, and similar investment instruments. Because banks were then among the heaviest traders in securities, Albert Edwards's strong ties with the St. Louis banking community would be invaluable to the new brokerage house of A.G. Edwards & Sons (AGE). The company soon announced that it would become the first St. Louis broker to handle transactions on the New York Stock Exchange (NYSE) for local banks. By thus allying itself more closely with banking interests and the NYSE, AGE escaped involvement with the briefly fashionable St. Louis Mining and Stock Exchange, where heavily leveraged mining stocks were traded like poker chips until the markets' sudden collapse in the early 1890s. When the Exchange closed for good during the depression of 1893, it took with it many local brokerage companies, but AGE suffered only minor losses. This was the first of many occasions on which AGE's conservative investment policy would save it from the worst of the markets' cyclical downturns.
Albert G. Edwards died in 1892 at age 80, leaving the brokerage business in the hands of George Lane Edwards, the founder's second son, who was born in 1869. George Edwards would serve as managing partner of the firm from 1891 to 1919, at which time his brother Albert Ninian Edwards took over. With the recovery of the St. Louis economy in the late 1890s, AGE increased its trading on the NYSE, buying a seat on the exchange for $29,500 in 1898 and two years later opening its first New York office. A year later, AGE was instrumental in the creation of the St. Louis Stock Exchange, which enjoyed immediate popularity; trade volume reached a peak in 1902 of $44 million that would not be exceeded until the salad days of the late 1920s. Federal regulation of the wilder financial schemes cooled market activity in the intervening years, during which time AGE built on its blue chip reputation and quietly prospered.
The nature of the investment business changed radically after World War I. The widespread sale during the war of govern-ment "Liberty Bonds" introduced the concept of financial markets to millions of private citizens who previously had been content to leave their savings in bank accounts or hold it as hard cash. In the booming 1920s this trend was greatly accelerated and brokers like AGE adjusted accordingly, shifting an increasing amount of their attention from banks and wealthy speculators to the mass retail market of small investors. Under the direction of managing partner Albert N. Edwards, AGE added its first brokers devoted solely to the soliciting of new individual investors, of whom the firm gained countless numbers as the bull market of the 1920s roared toward its catastrophic conclusion. Stock speculation became a hobby and passion for millions of Americans who ten years before did not know Wall Street from Main Street, many of them trading stocks for which they paid margins as low as ten percent of the current price.
Fortunately for AGE, St. Louis brokerage houses kept their margin requirements higher than the New York firms, thus softening the pain of October 24, 1929, when the stock market crash wiped out many investors and began ten years of national depression. AGE came through the crisis of 1929 in relatively good condition, its largest single loss only $5,000 (on an account of $1 million), but the years following were bleak. Not only had the great crash soured a whole generation of Americans on the notion of stock investments, it brought the entire securities industry under a cloud of suspicion for its role in the calamity. Again, the brunt of this criticism was felt in New York, while regional firms such as AGE were correctly perceived as having acted more responsibly toward their customers. Indeed, when the NYSE reorganized its governing body in the late 1930s in an effort to convince the U.S. Securities and Exchange Commission (SEC) that it had addressed past regulatory lapses, it named AGE's own William McChesney Martin, Jr., as its first president. Martin was AGE's first floor broker and only 31 at the time, but his status as an outsider and a man of integrity combined to make him the ideal candidate. He remained president of the Exchange until 1941, when he joined the Army.
In St. Louis, meanwhile, AGE was now led by Presley W. Edwards, son of Benjamin Edwards and grandson of founder Albert Edwards. This latest Edwards faced a brutal business environment in the 1930s--"Every day you went home exhausted from doing nothing," he was quoted as saying in AGE's official company history--but the lean years forced AGE to adopt the thrift and assiduity that later made the company's fortunes. Presley Edwards foresaw that AGE's future lay in the direction of small branch offices, but his plans were blocked by America's entry into World War II in 1941. A boon for most American businesses, the war only continued the Depression's long freeze in the securities markets, and AGE's retail expansion did not get underway until the 1950s.
Renewed investor confidence and the strong postwar economy allowed AGE to increase its number of branch offices to 11 in five states by 1957, which jumped to 19 by 1960 and then quickly to 44 only five years later. AGE had been the first brokerage house outside New York to install a computer back in the 1940s, and its sophisticated approach to data management helped the company coordinate the activities of its widely scattered and generally small branch offices. At the head of this 300-man brokerage force was Benjamin Franklin Edwards III, who joined his great-grandfather's company in 1956 and ten years later was its president at the age of 33. Rather surprisingly, the combined handicaps of youth, great responsibility, and family expectations did not deter Benjamin Edwards III; as of 1993, he remained the chief executive officer (CEO) of a company far larger than his forebears would have thought possible, and has been cited numerous times as one of the outstanding CEOs in the securities business.
When Benjamin Edwards took over the top spot at AGE in 1965, the nation's economy was booming and brokerage houses expanding on every front. The question for AGE was not whether to expand but in what direction; as a midsized regional player in the securities industry the company could have embarked on any number of different paths. Edwards and his staff conducted a two-year study of AGE's strengths and weaknesses relative to the emerging marketplace, concluding in 1968 that they should continue what they were already doing but on a larger scale. As Benjamin Edwards later described in Investor's Daily, "We ended up with a model that called for the delivery of financial services of value to a 'mass/class' market through a network of retail branches acting as agents of the customer. [The brokers'] allegiance was to clients, not to us."
Central to Edwards's declaration are the terms "mass/class" and "allegiance." By "mass/class" Edwards meant that his brokerage force would concentrate its energies on the mass of individual investors, the "little people" of middle America, and only incidentally pursue the wealthy, "class" investor. That meant continuing to open more retail offices in small communities around the country--from 44 in the mid-1960s to 450 in 1992--and staffing them with a higher proportion of brokers than the average Wall Street outlet. It also meant largely ignoring the big-money deal making that came to be known on Wall Street as investment banking. AGE has always done its share of stock underwriting, but it did not get caught up in the exotic corporate deals of the 1980s simply because its clients were not corporations and because Benjamin Edwards maintained a healthy skepticism toward get-rich-quick schemes of all kinds.
The second key term of Edwards's statement quoted in Investors Daily, "allegiance," is harder to define but probably more fundamental to AGE's success. All brokers claim to be acting on behalf of their clients, and it would be easy to dismiss Edwards's statement as routine puffery if not for the fact that AGE's history appears to confirm its truth. AGE has long made it a policy not to trade stocks on its own account, just as it has not marketed its own investment packages to clients. Either step can easily divide the "allegiance" of a broker between the welfare of his customers and the making of money for the corporation, eventually destroying the relationship of trust between client and broker on which AGE has built its reputation. For the same reason, AGE has refused to lure top brokers away from other firms with bonuses and high salaries and encourages its own brokers to maintain annual sales figures about 30 percent lower than the industry average. Freed from the pressure to earn high commissions, AGE brokers are more likely to consider the interests of their clients instead of looking to make the maximum number of trades possible in every eight-hour day. As compensation, AGE lets the brokers keep approximately ten percent more in commission than is standard in the industry.
The result of AGE's "goody two-shoes" philosophy, as Edwards humorously characterized it in the New York Times, has been a tradition of loyalty from customers and employees alike. When the company suffered large losses in the industry shakeout of the early 1970s, AGE employees responded to management's frank call for help by working four-day weeks and cutting overall costs by 17 percent in a matter of months. Brokers tend to stay at AGE for its low-pressure approach to sales and closely knit, supportive environment. "There's less politicking here and more teamwork," commented one senior broker when interviewed for the company's profile in The 100 Best Companies to Work for in America, which appeared in 1983.
Customer loyalty was tested severely in the period following the SEC's 1975 decision to deregulate commission rates. Soon "discount houses" appeared in the securities business, offering to transact trades at prices substantially lower than those charged by full-service houses like AGE. Such discounters appealed directly to small investors from whom AGE earned the bulk of its revenues and should have taken a significant piece of market share; but it appeared that the discounters did not adversely affected AGE's business, even though the latter refused to lower its commission rates. Indeed, the period from 1975 to 1990 saw the greatest expansion in AGE history, offices increasing from 100 to more than 400 and employees from 2,000 to over 8,000. Clearly, the company's several hundred thousand customers valued the knowledge and experience of AGE brokers more than the dollars they would have saved by using a discounter, which typically offers no client counseling. AGE's success in the face of such direct competition confirmed the company's long-held belief that when it comes to money handling, customers desire above all a broker whom they know and trust.
The most dramatic demonstration of AGE's independence from Wall Street fashions--and the strength derived from such independence--was provided by the market crash in October of 1987. The 1980s had seen a phenomenal rise in the deal making power of investment bankers, many of whom earned enormous fees for engineering mergers, acquisitions, and leveraged buyouts that were often undercapitalized and sometimes fraudulent, as in the cases of Michael Milken and Ivan Boesky. The market crash destroyed this glitter-and-greed atmosphere, and in its wake about 18 percent of the industry's employees had lost their jobs by 1991. By contrast, AGE, since it does not trade its own account, sustained minor losses in the crash and in the following years increased its work force by 33 percent--much to the satisfaction of Benjamin Edwards, who later told the St. Louis Post-Dispatch that his Wall Street counterparts had "wanted to be macho at the lunch table. The ego was gratified if you had the big numbers."
Since then AGE has been the firm with the big numbers: tremendous growth in every category, bottom-line earnings that make its competitors green with envy and, most remarkable for a company expanding so quickly, no long-term debt to speak of. In recognition of his firm's success, Benjamin Edwards was named one of the industry's top three executives no fewer than six times in the 1980s; and waiting in the wings to continue the family tradition at AGE are his sons Benjamin Edwards IV and Scott P. Edwards. AGE celebrated its 100th anniversary in 1987, and it seemed quite possible that its 200th would be celebrated in 2087 by a young man with blond hair and boyish features named Benjamin Edwards VII.
Principal Subsidiaries: A.G. Edwards & Sons, Inc.
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