They may be classified as self-directed investors, but many individuals managing their money online are looking to strengthen the relationship they have with their broker-dealer and receive more guidance, the J.D. Power 2014 U.S. Self-Directed Investor Satisfaction Study shows.
The study, now in its 13th year, finds that last year’s top-rated firm remains at the top of the list. It also reveals that overall satisfaction has improved slightly, according to the results of a poll of about 3,800 self-directed investors released Thursday.
“We’re seeing a tremendous shift in the industry where price alone is not enough to satisfy self-directed investors, especially young investors, who are important for the long-term future of the business and who are begging for a change,” said Craig Martin, director of the wealth management practice at J.D. Power, in a press release.
“Self-directed firms’ traditional pricing approach is highly reminiscent of the free-checking model used by retail banks, in which a small portion of the customer base was subsidizing the free services provided to all customers, and the perceived value of the relationship was diminished,” Martin explained.” We saw the ramifications of that play out in 2010 when regulations created massive disruptions from which the banks are still recovering.”
Self-directed investors use online tools as the main way to ask questions and obtain guidance on how to achieve their financial objectives. Thus, their broker-dealers need to make these investors aware of the most important tools, illustrate the value of such tools and get investors to use them.
“Firms need to take an ‘outside in’ view that focuses on customer needs in lieu of their current ‘inside out’ approach that has led to an industrywide pricing and technology race,” noted Martin.
According to J.D. Power, self-directed investors who know about and utilize financial planning or asset-allocation tools give a satisfaction score 80 points higher than the average DIY investor. Plus, self-directed investors that turn to tracking or monitoring tools give scores 96 points higher than the average.
“The use of tools also increases the amount investors plan to invest with their firm in the next 12 months by as much as 16 percentage points,” J.D. Power said.
The group also notes that about two-thirds (63%) of self-directed investors say they do not fully understand their firm’s fee structure, and 74% of this subset of investors has made fewer than five trades in the past year.
The satisfaction level of investors who do not understand their fee structure is below both the overall average and the satisfaction level of all 10 firms included in the poll.
Keep reading for self-directed investors' ranking of investment firms in 2014 and 2013:
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