Low costs and guidance from their investment firm -- self-directed investors want both, according to J.D. Power’s latest survey. Charles Schwab, Vangurd, Fidelity Investments and T. Row Price scored highest in satisfaction ratings, its researchers said, because they manage to deliver on both expectations through digital means.
"Even though by definition they don’t work with a dedicated personal advisor, [self-directed investors] are increasingly looking for the firm they work with to provide guidance in a variety of ways," said Mike Foy, director of the wealth management practice at J.D. Power.
“These include a suite of digital tools that allows them to not only track their investments but also asset allocation, financial planning and educational resources such as in-person seminars and webcasts on a wide range of topics, everything from ‘Investing 101’ to sophisticated options strategies.”
The J.D. Power survey reports Charles Schwab ranking the highest in terms of self-directed investor satisfaction, a measure that weighed interaction, account information, trading charges and fees, account offerings, information resources and problem resolution as criteria.
Schwab was best all-around, with a score of 801 on a thousand-point scale. Vanguard ranks second with a score of 794, Fidelity Investments at 791, then T. Rowe Price, followed in close succession by Scottrade, TD Ameritrade and E*Trade Financial. All of those firms received above-average ratings.
“The leading firms in the study, Schwab, Vanguard and Fidelity, are clearly offering a variety of capabilities and are really on the leading edge of providing tools to help investors track investments with things like asset-allocation and financial-planning tools,” Foy said.
“Each in its own way has stepped up and made robo advisory capabilities available and taken leadership positions in the digital wealth management space,” he added. “They are recognized as firms with strong offerings in those areas.”
ShareBuilder from Capital One got an average grade, while two wirehouses’ self-directed platforms, Merrill Edge and WellsTrade, got below-average scores.
Overall satisfaction in 2015 averaged 763, unchanged since 2014.
The J.D. Power study focused only on the largest firms in the space, and so did not include digital wealth management startups such as Robinhood, which targets self-directed investors by offering free stock trading via its iPhone app.
J.D. Power’s survey underscored the fact that low-cost trades, fast and reliable trade execution and investment-related research have become table stakes. Self-directed investors want – and often expect – more from their firm than that, according to the study.
Foy said even those investors not looking for a full-service one-on-one advisor relationship are increasingly looking for a guidance to help them establish and track performance against their personal financial goals.
A key finding for financial services executives is that investors with guidance-based relationships are much more likely to recommend their firm to friends and family and invest additional capital with the firm.
“The biggest takeaway is a continuing trend in this space where investors are really expecting more in terms of guidance,” said. “Even though they’re self-directed investors, they’re not just looking for low fees and a trading platform that’s fast and reliable – they’re raising the bar in terms of what they’re expecting from providers.”
The J.D. Power report outlined three pillars of successful financial guidance-based relationships: effective communications, relevant educational resources and a comprehensive, user-friendly suite of digital tools that help investors with financial planning, portfolio management and k keeping track of their investments.
Foy said firms that can effectively cultivate those relationships are more likely to satisfy clients and potentially retain them over the long term, which is especially important with younger clients such as Millennials as their assets grow and their financial needs become more complex over time.
When asked about their investment style, 66% of self-directed investors described themselves as true do-it-yourself investors seeking no advisor input, compared to 21% who consider themselves “validators” preferring to have a professional advisor act as a sounding board for their ideas. The remaining 13% consider themselves “collaborators” who often make decisions with help from some sort of advisor.
The number of validators and collaborators is even higher among Gen Y and Gen Z (38%) and women investors (38%), both of which are fast-growing segments of the investor market, according to J.D. Power.
Foy said that firms need to make sure that their clients understand what is available to them and how the overall value proposition relates to what they pay. In most cases, clients are getting a lot more value from their firm than just the ability to trade, he said.
Only 40% of the investors J.D. Power surveyed indicated that they completely understand the fees they pay. However, investors who said that they did receive an explanation of fees from their firm are more than three times more likely to say they completely understand the fees (50%), compared with those who did not receive such an explanation (16%).
“The communications piece of it is important, sending frequent, targeted, relevant communications so investors are aware of the breadth of products and services available to them and they understand the value proposition above and beyond paying X dollars for a trade,” Foy said.
“The impact on metrics that a lot of firms are looking at such as satisfaction, likelihood to refer, share of investment and loyalty are significantly higher for self-directed investors with a guidance-based relationship than for those who don’t,” he said. “It’s important for firms to make sure they have these capabilities available and continue to develop tools that are intuitive and user-friendly.
“Investors are increasingly used to using digital tools on their tablet, laptop and phone, and with more personal finance tools available to them, the expectations for what their investment platform should provide will increase.”
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