Investor Satisfaction with Self-Directed Firms Declines

By Hal M. Bundrick

NEW YORK ( MainStreet)--Investors who prefer to go it alone are less satisfied with the service they are receiving from self-directed investment firms, according to a new J.D. Power & Associates study. The 2013 U.S. Self-Directed Investor Satisfaction Study>>finds that investors want better communication and simpler online services.

The survey reports that based on a 1,000-point scale, Scottrade ranks highest among self-directed investors with a score of 810. The biggest issue affecting consumer satisfaction seems to be the quality and frequency of contact.

"Investment firms miss an important opportunity to keep self-directed investors informed about fees, investor tools and other product offerings by not communicating in the manner and frequency that investors prefer," said Craig Martin, director of the wealth management practice at J.D. Power. "Firms need to know how their investors would like to be notified -- whether it occurs via email, phone or other means. It's important to contact investors proactively and at the appropriate frequency based on investor preference."

Self-directed investors seem to be struggling with online tools as data overload may be actually making it more difficult for them to navigate to the online eservices they are seeking. The report says that overall satisfaction declines by 72 points when website functions are difficult to locate. When investment firms do not communicate frequently enough and do not communicate via investors' preferred methods, satisfaction declines by 62 points.

The survey of 3,619 investors who make all of their investment decisions without the counsel of an investment advisor included these additional findings:
  • The number of investors who say they "completely" understand their fee structure has dropped 4% from last year to 35% in 2013.
  • The proportion of investment firms that have contacted investors two or more times in the past 12 months -- the minimum standard according to J.D. Power -- regarding products, services or educational seminars has declined to 34% from 39%.
  • The incidence of investor awareness or use of at least one financial planning tool has declined to 28% from 31%.

The study also finds that the type of information firms are communicating is another important driver of satisfaction. For example, although 55% of investors indicate their firm offers investment education seminars to inform them about investment tools, news, guidance and research/analysis, only 7% of investors indicate attending one of these seminars.

"While, in theory, offering more tools and services may seem to be better, those offerings will have limited value if the features and benefits aren't applicable to the majority of investors," said Martin. "Investment firms need to understand the trading behaviors of their investors and provide them with information, tools and other capabilities that will address their highest priority needs. Taking a one-size-fits-all approach is likely to result in fewer investors being satisfied."

Among firms catering to self-directed investors, Charles Schwab & Co., Inc. ranked second in the J.D. Power report with a score of 797, followed by Vanguard at 795.

--Written by Hal M. Bundrick

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