Edward Jones competes in the retail brokerage business. The firmwas founded in 1922, and it remains a privately held corporation tothis day. By 2006, it had become the fourth largest broker in theUSA. The company’s average pre-tax ROE from 2000-2006 was 27.8% ascompared to 16.1% for Merrill Lynch, 15.9% for Charles Schwab,13.7% for Wachovia Securities, and 6/7% for TD Ameritrade. EdwardJones sold only to individual customers rather than selling toinstitutions as well. Many of Edward Jones’ clients were retireeswho did not trade equities or bonds very often. They tended to buyand hold. Many clients at competitor brokerage offices traded muchmore often. This meant that Edward Jones didn’t generate as manycommissions per client as its rivals. Many of its competitors alsowere large diversified financial services firms that offeredinvestment banking services as well as retail brokerage services.Edward Jones did not operate an investment bank, insurance company,or other financial services entity. Thus, Edward Jones sold othercompanies’ products, such as mutual funds, because it did not haveits own investment products. It simply advised clients as to whatproducts it should invest in from the range of offerings availablefrom many different financial services firms. Merrill Lynch, on theother hand, often directed its clients to buy its own mutual funds,as well as to invest in stocks for which the firm’s investmentbanking arm had conducted the initial public offering. Edward Joneshad a very conservative investment philosophy; it would not allowits customers to invest in initial public offerings, penny stocks,commodities, or derivatives. Edward Jones had offices throughoutthe country with a single broker in them. That broker worked as anentrepreneur to build relationships with clients in that community.Competitors tended to have multi-broker offices, with each brokerspecializing in certain types of investments. Edward Jones began byfocusing exclusively on small towns and rural locations. Morerecently, it had moved into suburban and urban locations, though alarge percentage of its offices were in small towns still today.Competitors advertised a great deal on the broadcast televisionnetworks over the years, while Edward Jones relied much more onword-of-mouth promotion of its services. Given this information,can you explain why Edward Jones has outperformed most of itsrivals in the retail brokerage business?