The full-service investment industry is in transition as investors move to do more on their own – especially online. And with growing confusion and attention drawn to the fees they pay, the industry could be at a pivotal point, industry research finds.
These trends are reflected in the J.D. Power 2016 U.S. Full Service Investor Satisfaction Study, released Thursday, which found a very small drop in overall investor satisfaction.
According to J.D. Power & Associates, “A steadily increasing number of investment advisory customers have disrupted conventional thinking about full-service and self-directed advisory services, favoring a hybrid approach in which advisors become validators, or sounding boards, but not final decision makers.”
Plus, confusion over fees “remains a challenge,” the group says.
The majority of investors polled, 60%, indicate that they do not fully understand their fees. That’s up from 56% a year ago.
As the research group points out, this problem is “likely to become worse with the proliferation of such low-cost alternatives as robo-advisors and regulatory changes such as the Department of Labor’s recently released rules on implementing a fiduciary standard for all retirement-related accounts.”
The study, now in its 14th year, measures overall investor satisfaction with full-service broker-dealers by taking into account these seven factors: financial advisor, account information, investment performance, product offerings, commissions and fees, website and problem resolution.
Most investors, 59%, say their financial situation in 2016 is about the same as it was a year ago.
However, investors were more than twice as likely to say their finances had improved than to say they had gotten worse: 29% vs. 12%, respectively.
J.D. Power’s survey, which includes the views of about 6,000 investors who make some or all of their investment decisions with a financial advisor, was taken in January.
(Check out CHARTS on pages 3 and 4 for firm rankings)
Investor satisfaction is measured on a 1,000-point scale. The overall level is down just three points from last year and remains above 800, despite the fact that the January 2016 market environment was highly volatile.
“The current evolution we’re seeing in investor preferences will likely be accelerated by the further development of new technologies, such as robo-advisors, and by regulatory changes, such as those just issued by the Department of Labor concerning fiduciary standards,” said Mike Foy, director of the wealth management practice at J.D. Power, in a statement.
“Full service firms will need to adapt to these changes by providing more value and transparency to investors, making a clear case for the value they provide vs. lower-cost alternatives,” Foy said.
The 2016 survey finds investors have more negative opinions of seven broker-dealers, while they are more upbeat than last year on 10 firms.
This year’s top performer has a score that is much higher than last year’s tally, while the performers just below it experienced some improvement in their satisfaction scores.
The latest results include the views of investors using USAA, a financial services firm that is restricted to military families. While USAA is not given an “official ranking” in the J.D. Power report, the company’s score is noteworthy.
(USAA, which generally ranks high in customer satisfaction for its banking and insurance services, is the first firm in the U.S. to give clients online access to information on their bitcoin assets.)
Three of the top five firms – such as Charles Schwab – are known for their ability to give investors do-it-yourself capabilities online (as is USAA).
Included in this year’s full-service rankings is one wirehouse, which had a substantial jump in its satisfaction score from 2015. In addition to this broker-dealer, two other wirehouse firms are among firms topping the industry average, while one falls below it.
Other broker-dealers, such as LPL Financial, also rank below the industry average of 800.
“The survey is based on a tiny number of respondents, averaging 400 per full-service brokerage firm,” said Morgan Stanley in a statement. “J.D. Power made no effort to ascertain whether their statistically questionable sample was actually representative of our client base. Other third-party surveys of much larger, validated client samples consistently show high satisfaction rates of 96% or higher.”
Based on its latest research, J.D. Power says it identified three segments of full-service investors, based on their preference for making financial decisions in consultation with a personal financial advisor. These are:
- Validators, who want to make their own decisions but also have access to an advisor for support and to serve as a sounding board.
- Collaborators, who want to interact with an advisor and depend on this guidance and advice for investment decisions.
- Delegators, who want an advisor to make decisions on their behalf.
The latest survey finds that the percentage of full-service investors who indicate that they are validators “has increased steadily since 2013, and now accounts for 36%” of the overall group surveyed.
The percentage of collaborators, though, has declined to 51% in 2016 from 59% in 2013, while the number of delegators “has remained flat,” J.D. Power says. The trend is “even more pronounced among millennials,” 64% of whom fall into the validator segment this year.
Close to four in 10 investors (38%) say their advisor has not helped them set goals or discuss risk tolerance. Plus, only 42% state that their advisor has met key performance indicators related to setting goals, implementing strategy and ongoing tracking, according to J.D. Power.
The research group also finds that performance satisfaction scores are 117 index points higher among investors with advisors who discuss portfolio performance and goal-setting, averaging 783, vs. those with advisors who simply discuss portfolio performance and asset allocation, 666.
Check out the CHARTS on the next two pages for firms ranked above and below industry average:
Firms Above the Industry Average
– Check out which firms are Below Industry Average on the next page –
Firms Below the Industry Average
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