Investing at ‘Banks’ – A Potential Risk for Investment-Only Institutions?

Data from J.D. Power’s U.S. Retail Banking Satisfaction Study finds that younger investors have greater willingness to open investment accounts/products at their primary retail banking institution.

For example, among Affluent Investors, 37% of those in the Generation Y age cohort  hold a mutual fund/annuity with their primary retail bank. Conversely, only 9% of Affluent Investors in the Pre-Boomer age cohort hold a mutual fund/annuity with their primary retail bank.

On one hand, this could be good news for ‘banking’ institutions looking to increase their share of investable assets held. On the other hand, traditional ‘investment-only’ institutions may be at risk of losing valuable asset share moving forward.

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Optimizing the Frequency of Proactive Contact for Full-Service Investors

Full-service investment firms looking to maximize the ROI of proactive outreach to their clients should be aware that the ‘demand’ for proactive outreach varies considerably by demographic segment. In other words, developing proactive outreach programs should not be viewed with a ‘one-size-fits-at-all’ approach.

The graphic below, which is based on data from the 2014 J.D. Power Full-Service Investor Study, looks at investors that are ‘highly satisfied’ with the Account Offerings available at their firm. While highly satisfied ‘Affluent’ investors report an average of 9.9 contacts from their advisor, and 7.2 contacts from their firm, high satisfaction among investors in the ‘Mass Market’ and ‘Mass Affluent’ segments can be maintained with less frequent outreach.

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Understanding the differing levels of service that drive investor satisfaction may help firms create communication strategies that meet client needs, while also managing the costs associated with proactive outreach. It is also important to note that investors across different demographic segments have different preferences with regards to the channel used for communication, and the types of information that should be provided to them proactively.

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‘Corporate Leadership’ a Key Driver of Satisfaction and Retention Among Financial Advisors

Based on findings from the 2014 J.D. Power Financial Advisor Satisfaction Study, about 87% of Employee advisors and 93% of Independent advisors say they either “definitely will” or “probably will” remain at their current firm for the next 1 to 2 years.

‘Loyal advisors’ are more likely to cite ‘cultural values/benefits’ as a primary reason to remain with their firm, compared to ‘neutral advisors’. Specifically, study data finds that ‘Corporate Leadership’ has a key role to play in improving advisor loyalty through clear and effective communications of the firm’s core values and strategy.

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Additional analysis identifies some key differences in brand perception among ‘loyal’ and ‘neutral’ financial advisors – ‘loyal’ advisors are more likely to perceive their firm as ‘customer-focused’, ‘collaborative’ and ‘flexible’.

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Importance of Onboarding Self-Directed Investors

By definition, self-directed investors tend to have a less ‘personal’ relationship with their investment firm compared to other investors. Because of this, there is less opportunity for firms to personally engage clients and educate them on available products and services, thereby placing greater importance on the onboarding phase of the relationship. Firms that can successfully onboard new clients stand to benefit from improved satisfaction that may ultimately lead to increased loyalty and propensity to invest.

Educating new clients on the tools and resources available to them is a primary goal of the onboarding process. Data from the 2014 J.D. Power and Associates Self-Directed Investor Study finds that increasing awareness (and usage) of available tools can significantly increase investor satisfaction.

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Study findings also indicate that encouraging customers to use one set of tools drives increased awareness and usage of additional tools. For example, familiarizing self-directed investors on basic tools, such as investing basics or budgeting tools, drives greater usage of more advanced tools such as asset allocation or financial planning.

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Minimizing Investor Dissatisfaction with ‘Poor’ Investment Performance

Data from the 2014 JD Power Full-Service Investor Satisfaction Study finds a significant increase in the number of investors reporting that their portfolio performance was ‘better-than-expected’ (driven by healthy market performance throughout 2013). Accordingly, overall investor satisfaction also improved significantly, as good financial performance tends to drive investor satisfaction.

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However, history tells us that market performance fluctuates and that a ‘downturn’ is likely at some point in the future. In preparation for this, financial institutions and advisors should identify behaviors that can help mitigate dissatisfaction with ‘poor’ portfolio performance. In turn, minimizing dissatisfaction may help prevent investor attrition and/or the transfer of assets to competitors.

Once the behaviors are identified, focus should be placed on implementing new processes and/or training programs to ensure that the institution and its advisors are capable of providing the optimal level of service to their clients.

Key methods of minimizing investor dissatisfaction with ‘poor’ portfolio performance include:

Building a strong ‘advisor-investor’ relationship

Developing a clear financial plan

Discussing and incorporating risk tolerance

Clearly communicating reasons for investment performance

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Building Investor-Focused Relationships

Data from the J.D. Power U.S. Full Service Investor Satisfaction Study clearly shows that good market performance influences satisfaction.  However, it’s the development of strong relationships with investors that determines which firms thrive. Firms must ensure that advisor actions align with investor expectations and, thus, strengthen both loyalty and advocacy.

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Keys to building strong relationships include:

Ensure financial planning activities clearly define a strategy based on key needs and goals. As the relationship progresses, plans must adapt to changes in both the investor’s life circumstances and the broader financial environment.

Tailor the communications approach to the unique needs of the investor instead of using a “one-size-fits-all” approach. Investors want to believe their advisors understand them and their needs, which begins with interacting via their preferred method.

Build transparency into all interactions. Two key issues for all investors are whether they are making as much as they can and whether they are paying too much. Ensuring there is clarity in both areas will help to build trust.

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Improving Affluent Customer Satisfaction to Increase Loyalty

Data from the 2013 U.S. Retail Banking Satisfaction Study finds that satisfaction and loyalty metrics among Affluent customers are lagging those of Non-Affluent customers. In turn, financial institutions are jeopardizing their ability to deepen the share-of-wallet they hold with their most valuable segment of customers.

Contrary to findings within the retail banking segment, data from the 2013 Full Service Investor Study finds that Affluent investors are significantly more satisfied than Non-Affluent Investors (818 vs. 785, respectively), leading to lower levels of intended attrition.  Therefore, financial institutions have an opportunity to identify the drivers of Affluent customer satisfaction from the wealth management experience and translate them into the retail banking experience.

For example, Affluent customers are considerably more satisfied with the Fees and Product Offerings associated with their investment relationship, as opposed to the Fees and Product Offerings associated with their retail banking relationship. Successful communication, often driven by the presence of an account manager, helps raise pricing-related satisfaction within the wealth management industry. Additionally, financial institutions may want to consider revisions to their lineup of retail banking products/services to better align with the specific needs of Affluent customers, which tend to be more complex.

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Beyond Portfolio Management – What do Investors Really Want?

When the market is doing well, satisfaction among full service investors is high.

This is evident by examining the correlation between satisfaction in the Investment Performance factor during the past 7 years and trends in the S&P 500 index during the same period. At a minimum, investors expect their financial advisor to provide the most effective guidance with respect to the performance of their portfolio.

Index and Investment Performance

Analysis at the investor level shows that among the majority of investors, Investment Performance satisfaction aligns with the relative returns reported for their portfolio. In other words, approximately 60% of investors combined fall into the high portfolio performance/high Investment Performance satisfaction quadrant or low portfolio performance/low Investment Performance satisfaction quadrant, as shown in the following figure.

Portfolio Performance

However, investment performance alone isn’t the driver of performance satisfaction among some investors. A significant proportion of investors do not follow the script and fall into the high portfolio performance/low Investment Performance and low portfolio performance/high Investment Performance quadrants (approximately 40% combined). The large number of investors in these quadrants raises the question, what can firms and advisors do to enhance investors’ perceptions of their portfolio performance?

CONTINUE READING

For more information about our J.D. Power & Associates 2013 Full Service Investor Satisfaction Study, please contact: Holly Zagresky at: (248) 680-6319 or email her at holly_zagresky@jdpa.com.

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Top 10 Sources for Gathering Investment Information

Unlike the majority of full service investors, self-directed investors MUST seek out information to aid in their decision-making regarding investments.

Did you know that satisfaction is highest among self-directed investors who use investment magazines and their firm as primary sources of this information?

The majority of self-directed investors (68%) indicate using their firm as one source of information, which is 4 percentage points lower than in 2011 (68% vs. 72%, respectively), and 30% of investors indicate that their firm is their main source of information, which is virtually the same as in 2011.  Below are the top 10 main sources of information that self-directed investors indicate using to aid in their investment decision-maiking:

Not depicted above, but included in our J.D.Power 2012 US Self-Directed Investor Satsfaction Study,  Sharebuilder from ING Direct leads the industry in the proportion of investors indicating that they use their firm as the primary source of information (36%), followed closely by E*TRADE Financial (35%) and Fidelity Investments (33%).

 Data Source:  J.D. Power and Associates 2012 US Self-Directed InvestorSatisfaction Study SM
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Fees Contribute To Dissatisfaction Among Self-Directed Investors

Our 2012 U.S. Self-Directed Investor Satisfaction StudySM, released yesterday, finds that although self-directed investors’ overall satisfaction with their investment firm has improved from 2011, satisfaction with trading charges and fees has decreased for a second consecutive year.

We’d like to share with you a short video that highlights some of the results from the study.

2012 Self-Directed Investor Satisfaction Highlights

Non-trading fees continue to be the primary contributor to dissatisfaction.

  • Satisfaction averages 723 (on a 1,000-point scale) when investors do not pay a non-trading charge, compared with 613 when they are aware of maintenance fees and 628 when they are aware of inactivity fees.
  • Overall, satisfaction with trading charges and fees is 697, down from 703 in 2011.

Overall satisfaction with investment firms has increased to 768 in 2012, compared with 764 in 2011.

  • The increase is due to increases in satisfaction with interaction, information resources and account offerings.

Using tools and resources to aid in investment decisions is closely associated with higher levels of satisfaction and more frequent trading activity.

  • Among moderately active traders (one to 35 trades per year) who use real-time quotes/alerts, overall satisfaction averages 826 and the number of trades per year averages 9.6.
  • Satisfaction among moderately active traders who are not aware of the tool averages 749, and the number of trades per year averages 5.3.

Investors and potential investors are particularly interested in the availability of mobile platforms and apps that allow them to access account information or makes trades on the go.

2012 Self-Directed Investor Satisfaction Rankings

  • Charles Schwab & Co., Inc. ranks highest in self-directed investor satisfaction with a score of 801 and performs particularly well in account information, account offerings and information resources.
  • Vanguard follows in the rankings with a score of 799, followed closely by Scottrade at 798.

Visit our website for a complete list of self-directed investor satisfaction rankings.

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QUESTIONS?

Please contact Holly Zagresky at holly_zagresky@jdpa.com or (248) 680-6319

The study, now in its 11th year, measures customer satisfaction with investment firms based on performance in six factors: account information; account offerings; information resources; interaction; problem resolution; and trading charges and fees.  Study is based on responses from 3,733 investors who make all of their investment decisions without the counsel of an investment advisor. The study was fielded in February 2012.
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