Edward Jones discrimination lawsuit turns scrutiny on corporate DEI promises

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A pay discrimination lawsuit against broker-dealer giant Edward Jones is casting a spotlight on how wealth management companies that make big promises to improve their diversity could be held accountable for those public pledges. 

Edward Jones lost a motion last month to dismiss a lawsuit filed in March 2022 by former employee advisors Kathryn "Katie" Dixon and Jaime "Jimmy" Gaona. The Missouri federal judge in the case also lifted a stay on discovery, opening the door to internal documents becoming public and depositions of brokerage executives.

That's where things could get ugly for Edward Jones. Depending on what turns up, many employers in wealth management and other industries could learn from following the case, employment attorneys told Financial Planning

One possibility is that the broker-dealer could be roasted on the coals of its publicly stated goals of increased hiring and support for diverse advisors, and internal data tracking related metrics. 

"It will be interesting to see how the plaintiffs utilize those public promises, and how that works to the plaintiffs' advantage," said Saba Bireda, a partner at Sanford Heisler Sharp in Washington, D.C. and co-managing partner and co-chair of the discrimination and harassment practice group at her law firm. 

Bireda added that the internal data the plaintiffs cited in court papers, which she said didn't look "very good" for Edward Jones, will be interesting to follow as "more and more firms and companies are going to be collecting this type of data" for DEI initiatives. 

'Goodknight'
The plaintiffs, who are seeking class-action certification on behalf of other advisors with analogous complaints, allege that they and other "similarly situated" employees were paid less due to their gender, sexual orientation, race and ethnicity. Dixon, a woman who identifies as pansexual, had disclosed to the firm that she was an LGBTQ+ individual in 2020. Gaona identifies as a first-generation Mexican American. 

Their case centers on alleged pay disparities enabled by Edward Jones' "Goodknight" program, in which senior advisors transfer client assets and accounts to more junior advisors to help grow their businesses. 

"Goodknight overwhelmingly favors white male FAs primarily of US national origin or ancestry," the plaintiffs said in the complaint, citing reports Goana had reviewed as a former regional Diversity and Inclusion Leader at the firm. 

The complaint also cites the firm's publicly posted "Purpose, Inclusion and Citizenship" report from 2021 in which it said that nearly 100 years after its founding, only 21% of the firm's advisors in Canada and the U.S. were female, while 8% were "people of color."

"These disproportionate hiring statistics show that Edward Jones is aware of its tendency to favor white male FAs over female and diverse FAs," the plaintiffs said, referring to financial advisors, in an amended complaint filed in April 2022.

Reached for comment, a spokesperson for Edward Jones issued an emailed statement identical to one given last year when Financial Planning first reached out after the suit was filed. The firm did not respond to requests for further comment prior to publication. 

On Friday evening, the firm emailed a statement from Jennifer Kingston, Head of Diversity, Equity and Inclusion at Edward Jones: "We are extremely proud of our five-point commitment to diversity, equity and inclusion, as outlined in our fifth-annual Purpose, Inclusion and Citizenship Report... We have been progressing toward these goals and acknowledge we have more work to do."

Jenice Malecki, a securities litigation attorney at Malecki Law in New York, said the complaint was well-articulated in its use of the broker-dealer's own dismal numbers on diversity and inclusion. 

"I mean, they can see that every day," she said of leaders at Edward Jones. "So any claim that they don't see that there's a problem, really should fall on deaf ears." 

Promises to keep
Many wealth management firms and companies at large have committed publicly to improve efforts on diversity measures in recent years — from hiring more women and racial minorities, for example, to promoting more of them. The police murder of George Floyd in May 2020 spurred widespread calls to reform workplace policies that were seen as contributing to inequality. 

But years later, financial advisors are asking if those pledges have borne fruit in practice. Advisors who believe their employer failed to remedy discriminatory policies could raise those same questions in court, this time with more at stake for the firm.

"Often companies claim that they didn't intend any discrimination. But not all discrimination claims require proof of intent in a traditional way," Shannon Liss-Riordan, an employment class-action lawyer at Lichten & Liss-Riordan in Boston, said in an interview. 

In recent years, she has seen "a lot of class discrimination claims coming up in various industries … wage cases have frequently extended into industries that have not traditionally seen those types of claims." 

In 2022, employment class actions continued to soar, according to a study published in January by corporate law firm Duane Morris. In March, the Equal Employment Opportunity Commission office said in its annual report that last year it had received "73,485 new discrimination charges, an increase of nearly 20% compared to fiscal year 2021." 

But that doesn't mean that making diversity commitments opens a Pandora's box for a firm to get sued for falling short, Liss-Riordan said. They still face the risk of getting sued, because "there is more public perception about these problems — which itself leads to more litigation." 

If anything, undertaking diversity, equity and inclusion efforts could help an employer ward off the worst of litigation threats. "I think that would paint them in a better perspective, frankly, from the eyes of a decision maker" in court, Liss-Riordan said. 

Scrutiny of equity policies
In the case of Edward Jones, the company announced a "five-point commitment" in June 2020 to improve diverse hiring, promotion and retention. The firm was "committed to equal pay for equal work," it said in a press release at the time. Since then, it has also rolled out voluntary bias trainings and an allyship course, among other changes.

In 2021, it settled a 2018 class-action lawsuit for $34 million brought by Black advisor Wayne Bland, who alleged that he and many other Black employees had experienced policies that systemically limited their pay and growth at the company. 

Later that year, in its third annual "Purpose, Inclusion and Citizenship" report — the first of which came out in 2019, after the Bland suit was filed — the firm promised to increase diverse hiring so that by 2025, 30% of its financial advisors in the U.S. and Canada would be women and 15% would be people of color. In addition, it committed to conducting "regular pay equity studies to drive ongoing improvements." 

The plaintiffs in Dixon claim that pay equity failed to improve meaningfully in their time at the firm. When they advocated internally for fixes to perceived inequities such as those in "Goodknight," they were dismissed, ignored, and even "suppressed," they said in court papers. 

Instead, they alleged, Edward Jones allowed senior white male advisors to give more lucrative accounts, and more often, to their white male colleagues, without any justification based on merit or experience. This translated into higher pay for those men because pay is based "principally" on advisors' assets under management, the plaintiffs said. 

"As an institution, if you want diversity, you can't leave things like choosing your successor or who's going to get your account to the old guard," Malecki said. 

Edward Jones had monthly Goodknight reports marking "female and diverse FAs with a red asterisk and list[ing] their total assets received from transfers alongside those of their non-diverse colleagues," the amended complaint said. If these documents turn up in discovery, they could be damning evidence. 

"Large companies are just going to have to be aware that their practices may very well come under scrutiny. They should be thinking about that when they're making decisions," Liss-Riordan said. 

'Cosmetic' incentive
Under the Goodknight program, Edward Jones offered a 10% pay incentive for senior financial advisors to transfer their assets to junior advisors who were women or minorities, the complaint said.  

But the firm did not adequately advertise the policy, the plaintiffs said. Many senior advisors in Gaona's region were allegedly "unaware of the 10% incentive," making it "cosmetic" and having "no appreciable impact" on the inequity the plaintiffs allege was widespread at the firm. 

Bireda said it seemed that the 10% incentive policy was not publicized in good faith, based on the complaint. 

"That does not sound like a practice that allegedly was rolled out with much fidelity," she said. "If you're really serious about it, every single person in the company would need to be aware of it." 

The Goodknight incentive was reported in the press in 2019 when it was first known to be introduced, apparently via an internal document sent to brokers, although the firm then said it had offered the incentive since June 2018.

Pay gaps
"It is hardly a secret that women and other protected workers are systemically paid less than their white male colleagues in our economy," George A. Hanson, a lawyer for the plaintiffs at Stueve Siegel Hanson, said in an email. 

A 2023 gender pay gap study by Payscale, which surveyed 758,000 American workers over the past two years, found that women employed in financial services experienced the greatest wage gap relative to men, out of all industries, when not controlling for factors such as education level, seniority and job title and responsibilities. 

Overall, female employees in financial services made $0.77 for every dollar a male employee made — compared to a median pay of $0.83 on the dollar for women in all industries. When all factors were controlled, the typical woman in financial services made $0.98 on every dollar a male peer earned — still less than the industry-wide average of $0.99, though. 

"Although $0.99 cents may seem very close to $1, small differences in earnings on the dollar can compound over the course of a lifetime career," the Payscale report authors wrote.

The industry has seen a number of high-profile discrimination lawsuits against broker-dealers over the years. In 1996, female advisors sued what was then Smith Barney — which has since been acquired by Morgan Stanley — alleging pay discrimination and harassment, in the infamous "boom boom room" lawsuit that ultimately settled for $150 million. 

Merrill Lynch's parent Bank of America in 2013 settled another pay discrimination lawsuit brought by female advisors who had alleged, among other complaints, that women had been excluded from receiving their fair share of lucrative client account transfers from senior advisors. 

"Even after a court ruling or large settlements, it's still often hard to change corporate culture. Sometimes it takes repeated attempts," Liss-Riordan said. 

Hanson said he hoped the Dixon case, along with a "related case" involving gender-based pay discrimination filed by female advisor Blair Zigler against Edward Jones in September 2022, would be "a critical step towards fairness and equality within Edward Jones and provide an example to the financial industry generally." Hanson represents Zigler in her case.

Dixon left Edward Jones in September 2022, and is now the sole advisor running a registered investment advisor called KD Wealth Advisors in Olathe, Kansas. Gaona is currently a financial advisor based in Lenexa, Kansas, affiliated with RIA Creative Financial Designs in ​​Kokomo, Indiana. He joined in January 2022 after leaving Edward Jones. 

Update
This story has been updated to include a new comment from Edward Jones.
April 17, 2023 10:24 AM EDT
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Regulation and compliance Diversity and equality Edward Jones Law and legal issues Gender discrimination Racial bias
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