J.D. Power: Self-Directed Investors Rate USAA Best; Overall Satisfaction Lower

Investors mostly upset over growing fees and trading charges

Investors who do their own trading and investing are finding the fees and trading charges they must pay considerably less acceptable than they did in 2010, according to the results of a survey released on Thursday. Among investment firms, USAA garnered the highest customer satisfaction rating, with most firms being ranked average or lower.

The J.D. Power and Associates 2011 U.S. Self-Directed Investor Satisfaction Study measures six factors in self-directed investor satisfaction: interaction; account information; trading charges and fees; account offerings; information resources; and problem resolution.

Scores on a 1,000-point scale for trading charges and fees declined from 733 in 2010 to 703 in this year, which according to the company is due to a lack of understanding of those expenses. Only 36% say they “completely” understand their commission and fee structure. That’s down from 52% in 2010. Also, only 48% say their nontrading charges were explained to them; that’s down from 65% in 2010.

For overall satisfaction, USAA scored 831. It was followed by Scottrade (804), Charles Schwab & Co. (803), Vanguard (785) and TD Ameritrade (769), to round out the top five. The industry average was 764, a rating that, according to the survey scale, is “about average.”

David Lo, director of investment services at J.D. Power and Associates, said in a statement, “Providing a clear explanation and disclosure of all fees, particularly nontrading charges such as minimum balance fees, inactivity fees, and account maintenance fees, is critically important for firms to maintain satisfaction among self-directed investors. While firms are certainly open to assess fees as they deem suitable, transparency is critical, as nothing is more frustrating to investors than being surprised with fees they were not expecting.”

For advisors, Lo suggests that they make sure clients know their value. In an interview, he said that, while the survey was conducted among people who do not use a financial advisor for the accounts they were asked about, it is not uncommon for people to use an advisor and also have a separate self-directed account.

“Advisors thinking maybe their clients are leaning toward self-direction should show the value they’re bringing to the table,” he said. “Having strategic discussions [is part of that]—talking about risk tolerance, if there is any change in a client’s risk tolerance—cultivate the relationship,” he urged.

Lo added that, for advisors who have clients who might be leaning more toward self-direction, “The best way to keep a client is to develop that relationship and make sure you’re providing value to them. If not, the customer or client will view themselves as more decision-maker than you are, and the relationship is essentially at risk.”

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