2007 Online Investor Satisfaction Study
Individual investors who manage their portfolios online have a number of financial services companies to choose from, and different firms seem to appeal to different types of investors, largely depending on their objectives, their frequency of use, and their investment style, according to the J.D. Power and Associates 2007 Online Investor Satisfaction StudySM.
The study, now in its ninth year, measures customer satisfaction with online investment and trading firms based on performance in five factors (in order of importance): information resources; cost; trade execution; Web site functionality; and interaction with customer service representatives. Among the 20 online investment firms included in the study, Scottrade ranks highest in customer satisfaction with the more than 5,000 investors surveyed, achieving an overall investor satisfaction index score of 825 on a 1,000-point scale—an 11-point improvement from 2006. According to its customers, Scottrade performs particularly well on cost and trade execution. Vanguard follows Scottrade in the rankings with a score of 819, performing especially well in Web site functionality. Charles Schwab, Fidelity Investments and TD Ameritrade also perform above the industry average in the study.
The study also shows that 56 percent of investors who trade securities online make all their investment decisions independently, and that self-directed investors are more likely to describe their investment style as “aggressive” compared with investors who rely on recommendations from a financial advisor. Self-directed investors are also more likely to be active traders, and—not surprisingly—active traders viewed Web site functionality, trade execution, and interactions with customer service representative(s) as most important to their overall satisfaction with their online investment firm. Cost was the least important driver of satisfaction, perhaps because almost all online investment firms offer attractive transaction fees to active traders.
Highest ranked: Scottrade
Scottrade ranks highest in this year’s study, after having achieved the No. 2 ranking in 2006. Scottrade achieves the highest marks in the cost and trade execution factors and second-highest score in Web site functionality. Approximately 20 percent of all investors surveyed cited their primary investment firm as their primary source of investor information, but that figure fell to only slightly more than 10 percent among Scottrade investors, which resulted in the company’s fourth-highest score in the information resources factor. Scottrade is known for its appeal to active traders, and thus advertises low fees and a user-friendly but no-frills platform.
Ranked No. 2: Vanguard
Vanguard, which ranked highest in the 2006 study, dropped to the No. 2 ranking in 2007. It’s the top-rated firm in Web site functionality, but its scores for cost and trade execution declined from last year. Vanguard, a client-owned organization, focuses on the long-term investor and offers a broad array of mutual funds. It has a lower-than-industry-average proportion of active traders, and consequently contains its costs by maintaining a relatively low number of branch offices. Vanguard promotes itself in particular to investors who are building college and/or retirement funds.
Ranked No. 3: Charles Schwab
Charles Schwab moved up one rank position over its 2006 performance to finish with a No. 3 ranking in this year’s study. Its overall index score improved by 28 points, most notably in the cost and interaction with customer representative(s) factors. Charles Schwab receives the highest marks in the industry in information resources. The company promotes itself largely on the basis of its extensive research and its wide range of investment and advisory services.
