Now more than ever, you need to know how your clients feel about you. These days, an investor's relationship with his financial advisor drives his level of satisfaction with his firm and his portfolio more than anything else — including convenience, investment performance, account offerings, account statements or fees — according to a recent survey of U.S. full service investors by J.D. Power and Associates.
You might think performance would take a front seat. After all, 85 percent of full-service investor portfolios declined in the twelve months through April, with the majority of those declining by a third or more in value. But that is precisely the point.
“As investors become increasingly uneasy amid current market conditions, they're more often looking to their financial advisors for reassurance and guidance,” says David Lo, director of investment services at J.D. Power and Associates. “As investment performance tends to be a relative and subjective measure, it's more important that the financial advisor manages investors' expectations of investment performance.”
Investor satisfaction may seem like a subjective measure itself, but it counts — in dollar terms. Edward Jones, LPL Financial Services and Charles Schwab, the firms most highly ranked on this scale in J.D. Power's 2009 survey, also saw the least dramatic declines in assets under management compared to other firms last year, the report shows. In fact, J.D. Power's report shows that average AUM per investor has grown or stayed the same at each of the highly ranked firms over the past three years, whereas it has declined at firms like Merrill Lynch, Morgan Stanley and Wachovia Securities, three of the lowest ranked firms in terms of investor satisfaction.
Who Do You Love?
Perennial favorite with financial advisors and investors alike, Edward Jones, once again, ranked highest in investor satisfaction this year, with a score of 784 out of 1,000. The firm received particularly good marks for “convenience” and “account statements.” But Ed Jones also has the highest percentage of investors who report having a one-on-one relationship with their advisor (93 percent), versus the industry average of 66 percent. Investors at Edward Jones were also more likely to contact their advisor by visiting a branch office (75 percent) or calling their advisor directly (87 percent) than the industry average (45 percent and 72 percent).
LPL came in just a hair behind Edward Jones, with a score of 773. Nearly all of the LPL investors surveyed reported a one-on-one relationship with a specific financial advisor, and a high proportion of them reported that the level of contact they have with their advisors is “about right” for their needs. Meanwhile, about 80 percent of LPL investors say their advisors focus on their best interests first, versus an industry average of 63 percent. Finally, Charles Schwab received a score of 771, getting its highest scores in investment performance, account offerings, and commissions and fees. The firm earned a particularly high score, or 695, for investment performance, the third most important factor to investors in this year's study.
J.D. Power's survey, now in its sixth year, measures overall investor satisfaction with full service investment firms based on six factors. This year, they fell into the following order of importance: financial advisor, convenience, investment performance, account offerings, account statements and fees. The study is based on responses from nearly 4,500 investors who make some or all of their investment decision with a financial advisor and was fielded from March to April, 2009.
Below, is a look at the rankings of various firms:
