More investors say they are likely to switch investment firms: study

Poor investment performance throughout the financial crisis has driven down satisfaction among full-service investors considerably from last year, according to the J.D. Power and Associates 2009 Canadian Full Service Investor Satisfaction Study released on Wednesday.

The fourth annual survey of more than 6,000 investors, which was conducted in May, finds that overall investor satisfaction in Canada declined this year by nearly 30 points to 693 on a 1,000-point scale. Poor investment performance was the main contributor to the drop, with satisfaction in this area down 50 points from 2008.

The study uses six factors to evaluate overall investor satisfaction with full-service investment firms and financial institutions that offer wealth management and private banking services: account set-up and offerings; account statements; convenience; cost; investment advisor; and investment performance.

The rate of switching investment firms has also increased in 2009, with 10% of investors indicating they will likely switch firms in the next 12 months, up from only 6% in 2008. Additionally, investors are less likely to recommend their investment firm to others, with only 24% indicating they “definitely will” recommend their primary firm in 2009, compared with 32% in 2008.

In coping with the challenging environment, advisors could boost client loyalty by providing proactive and timely communication, according to Lubo Li, senior director and financial services practice leader at J.D. Power and Associates, Toronto.

“By offering investors a little soothing touch of support in these tumultuous times, advisors and investment firms may differentiate their services from the competition and increase client loyalty,” Li said.

The study also finds that investors are increasingly using other channels to receive expert advice from full-service advisors and take advantage of the lower costs associated with self-directing and trading online. The percentage of full-service investors who had an online or discount brokerage account jumped substantially to 36% this year, from 25% in 2008.

“Investors are becoming more sophisticated in understanding the value of each channel and maximizing their investments by diversifying their portfolio and trading channels,” said Li. “As investment vehicles become more complex, firms will benefit from providing clients with investment information online and secure online trading that is cost effective and easy to use. The new frugality has arrived.”

Furthermore, the survey found that among those full service brokerage firms that are affiliated with one of the five major banks in Canada, nearly half of their investors use an online or discount brokerage.

“Financial institutions that offer integrated channel options to investors are better positioned to benefit from this changing trend,” said Li. “This will likely accelerate as the younger generation — which is growing up with online games, Facebook and smart phones — matures and joins the investor ranks in the coming years.”

Raymond James earns highest marks

Raymond James Ltd. ranked highest among the full-service investment firms in the study, with a score of 747 on a 1,000-point scale. It performed particularly well in the advisor; investment performance; account statement; and account set-up and offerings factors, according to J.D. Power.

Edward Jones closely follows Raymond James with a score of 742, performing particularly well in the convenience factor. Dundee Wealth Management Inc. ranked third overall at 725.

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