J.D. Power Reports: Self-Directed Investors Desire Support and Financial Tools to Help Guide Investment Decisions

WESTLAKE VILLAGE, Calif., May 22, 2014 /PRNewswire/ -- Having the least expensive trading fees or the latest tools are no longer the key inducement for firms in attracting and retaining self-directed investors, who want a stronger relationship with their firm and more guidance from them, according to the J.D. Power 2014 U.S. Self-Directed Investor Satisfaction Study^SM released today.

The study, now in its 13th year, measures self-directed investors' satisfaction with their investment firm based on performance in six factors (in order of importance): interaction; account information; trading charges and fees; account offerings; information resources; and problem resolution. Overall satisfaction in 2014 averages 763 (on a 1,000-point scale), up from 752 in 2013.

The study finds that while self-directed investors still make their own investment decisions, they are looking for support from their firms in the form of tools, education and ability to interact with personnel when they have questions or need guidance. Self-directed young investors (35 years and younger) place a premium on access to relevant insights and advice. Satisfaction is not only driven by low trading fees, data and tools, but also by how well firms help investors make prudent decisions and reach their financial goals.

"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. "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. We saw the ramifications of that play out in 2010 when regulations created massive disruptions from which the banks are still recovering."

Martin noted that the shift in consumer demand may require self-directed firms to change their focus. "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 industry-wide pricing and technology race."

In a self-directed relationship, online investment tools are the main vehicle firms use to answer investors' questions and offer guidance on how to achieve their financial objectives. There are two key elements in a successful investment offering: first, investors must be aware of the tools that matter to them; and second, investors must see the value of the tools available so they are driven to use those tools.

Financial planning tools in particular drive satisfaction with information resources and increase investor confidence in their investment firm, often leading to a propensity to increase the amount of their investments. When an investor is aware of and uses their firm's financial planning or asset allocation tools, satisfaction improves by an average of 80 points, while the use of tracking or monitoring tools improves satisfaction by 96 points. 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.

The study finds the current self-directed pricing model is causing investors to question the transparency of charges and fees. Nearly two-thirds (63%) of self-directed investors indicate they do not completely understand their firm's fee structure, and 74 percent of this group has made fewer than five trades in the past year. Satisfaction among investors who do not understand their fee structure at all averages 681, compared with 831 among those who completely understand the fee structure.

2014 Self-Directed Investor Satisfaction Rankings
Scottrade ranks highest in self-directed investor satisfaction for a second consecutive year, with a score of 813. Scottrade performs well across all factors, particularly in trading charges and fees.   Vanguard ranks second with a score of 805, followed by Charles Schwab & Co., Inc. at 797.

KEY FINDINGS

• Among the various channels used to interact with their firm, 85 percent of investors overall use the firm's website and 10 percent use a mobile device. Website use among young investors is decreasing (86% in 2014 vs. 91% in 2011), while their use of mobile devices is increasing, compared with 2011(21% vs. 13%, respectively). In comparison, website usage among retirement investors (62 years and older) is increasing (84% in 2014 vs. 80% in 2011), as is their use of mobile devices (5% vs. 2%, respectively).
• While the website is the main source of most investment activities, 61 percent of investors with questions still prefer to speak with a representative by phone.
• While not all firms have a branch presence, such an offering allows investors to have a personal interaction, which can increase their knowledge of self-directed tools. Among the 17 percent of investors who have visited a branch office, 29 percent did so to seek investment advice.

Power Circle Ratings Legend:

5 – Among the best
4 – Better than most
3 – About average
2 – The rest

The 2014 U.S. Self-Directed Investor Satisfaction Study is based on responses from 3,764 investors who make all of their investment decisions without the counsel of an investment advisor. The study was fielded in January and February 2014.

Media Relations Contacts

Jeff Perlman; Brandware Public Relations; Woodland Hills, Calif.; 818-317-3070; [email protected]

John Tews; J.D. Power; Troy, Mich.; 248-680-6218; [email protected]

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SOURCE J.D. Power