TORONTO: 22 August 2013 — Improved market performance, coupled with effective advisor communication with their clients, help drive an increase in overall investor satisfaction with full service investment firms in Canada, according to the J.D. Power 2013 Canadian Full Service Investor Satisfaction StudySM released today.
The Canadian Full Service Investor Satisfaction Study provides benchmarks for satisfaction that allow individual investment firms in Canada to compare their performance with other firms included in the study. Overall investor satisfaction with full service investment firms and financial institutions that offer wealth management and private banking services is measured in seven factors (in order of importance): investment advisor (38%); investment performance (18%); account information (17%); account offerings (14%); commissions and fees (8%); website (2%); and problem resolution (2%).
- Overall investor satisfaction with full service investment firms in Canada improves to 737, up 17 points from 2012.
- Satisfaction improves an average of 99 points when advisors discuss fees with their investors.
- Nearly three-fourths (72%) of highly satisfied investors indicate they will recommend their investment firm to others.
Overall satisfaction improves to 737 (on a 1,000-point scale), up from 720 in 2012. The study finds a strong correlation between investor satisfaction and actual market performance, with only 8 percent of investors indicating a decrease in their portfolio performance in 2013, down from 29 percent in 2012.
"Investment performance certainly helps drive an increase in overall satisfaction, but the advisor still plays a key role," said Craig Martin, director of investment services at J.D. Power. "Even when the market is strong, advisors need to ensure their clients understand the reasons for their portfolio performance, explain costs and fees and manage expectations regarding risk. Relying too heavily on financial performance alone to drive investor satisfaction may have a number of pitfalls."
According to the study, investors are not only looking for good financial return, they are also are seeking reassurance that they are making the right investment decisions. Overall satisfaction among investors who indicate their advisor clearly communicated reasons for investment performance is 145 points higher than among those who indicate the converse. Additionally, when advisors discuss and effectively incorporate risk tolerance as part of their reviews with investors, there is a significant 109-point lift in overall satisfaction. Investors want more than just strong investment performance; they want to understand the reasons behind this performance.
Firms with higher satisfaction scores ensure that investors feel involved in—and to an extent responsible for—their investment performance. Stronger relationships between advisors and investors allow these firms to positively influence investor perceptions of success.
Communicating Costs and Fees Is Key to Satisfaction
Clear communication regarding the reasons for investment performance and an explanation of the firm's cost and fee structure are among the most important facets in overall investor satisfaction. Despite an overall increase in satisfaction with investment firms, the study finds that fewer advisors are talking to their investors about fees—57 percent of investors indicate that their advisor explained their fee structure, down from 63 percent in 2012. Investor satisfaction improves an average of 99 points when advisors discuss their firm's fee structure.
"Taking the time to explain the fees that firms charge helps ensure investors fully understand the value proposition of working with an advisor—they see what costs are associated with the relationship and the benefits they are getting for the fees that are charged," said Martin. "Being transparent about fees is an essential part of a healthy relationship and is something that all advisors should be talking about with their investors."
An investor's experience is closely linked to the bottom line of their firm, as that experience impacts loyalty, advocacy and share of wallet. While 72 percent of highly satisfied investors (satisfaction scores of 900 and above) say they "definitely will" recommend their firm to others, only 29 percent of investors with medium satisfaction (scores between 700 and 899) and 4 percent of investors who have low satisfaction (scores below 700) say the same. Additionally, 27 percent of highly satisfied investors say they will increase the amount invested with their primary firm during the next 12 months, compared with only 17 percent of investors with low satisfaction.
"Word of mouth recommendations are essential in the investment industry, as that is the means by which advisors acquire the majority of their investors," said Lubo Li, senior director of the financial services practice at J.D. Power, Toronto. "Satisfied investors not only are more likely to recommend their investment firm or advisor to family and friends, but are also more likely to increase their investments with their firm. Firms that deliver the best experience are likely to reap the financial benefits of increased investor retention and improve their chances at attracting new investors."
Drive Higher Perceptions of Performance
A high level of communication alone is not enough to improve investor satisfaction. Advisors who achieve above-average investment performance satisfaction and who have a strong relationship with their investors share the following traits:
- They develop and/or review a financial plan that effectively incorporates risk and ensure this plan is in a tangible form that can be easily understood by the investor.
- They clearly communicate the reasons for investment performance and the firm's fee structure so investors fully understand the value provided for the fees paid.
- They strive for an equal partnership with investors and make them feel involved in decisions impacting the performance of their investments.
- They define the appropriate level and method of contact to meet the expectations of their investors.
Investment Firm Rankings
Edward Jones ranks highest in investor satisfaction among full service investment firms in Canada, with a score of 773. Edward Jones performs particularly well in four factors: investment advisor; investment performance; account information; and account offerings. Following in the rankings are DundeeWealth (760) and Raymond James Ltd. (758).
The 2013 Canadian Full Service Investor Satisfaction Study is based on responses from 5,592 investors who use advice-based investment services with financial institutions in Canada. The study was fielded in May and June 2013.
About J.D. Power
J.D. Power is a global marketing information services company providing performance improvement, social media and customer satisfaction insights and solutions. The company's quality and satisfaction measurements are based on responses from millions of consumers annually. Headquartered in Westlake Village, Calif., J.D. Power has offices in North America, Europe and Asia Pacific. For more information on car reviews and ratings, car insurance, health insurance, cell phone ratings, and more, please visit JDPower.com. J.D. Power is a business unit of McGraw-Hill Financial.
About McGraw Hill Financial
McGraw Hill Financial (NYSE: MHFI) is a leading financial intelligence company providing the global capital and commodity markets with independent benchmarks, credit ratings, portfolio and enterprise risk solutions, and analytics. The Company's iconic brands include: Standard & Poor's Ratings Services, S&P Capital IQ, S&P Dow Jones Indices, Platts, CRISIL, J.D. Power, and McGraw Hill Construction. The Company has approximately 17,000 employees in 27 countries. Additional information is available at www.mhfi.com.
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