Big Six not among the top three in client satisfaction

Canada’s Big Six didn’t crack the top-three in JD Power’s investor satisfaction survey. But overall satisfaction with the full-service investment firms increased – especially among investors who were given a transparent account of fees.

Overall investor satisfaction with full service investment firms in Canada improves to 737, up 17 points from 2012. Satisfaction improved 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.

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 study provides benchmarks for satisfaction that allow individual investment firms in Canada to compare their performance with other firms. Overall investor satisfaction with full service investment firms and financial institutions that offer wealth management and private banking services is measured in seven factors: investment advisor (38%); investment performance (18%); account information (17%); account offerings (14%); commissions and fees (8%); website (2%); and problem resolution (2%).

Overall satisfaction improved to 737 on a 1,000-point scale, up from 720 in 2012. The study found a strong correlation between investor satisfaction and actual market performance, with only 8% of investors indicating a decrease in their portfolio performance in 2013, down from 29% 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 returns, 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 was 145 points higher than among those who indicated the converse.

Additionally, when advisors discussed and effectively incorporated risk tolerance as part of their reviews with investors, there was 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 ensured that investors feet involved in—and to an extent responsible for—their investment performance. Stronger relationships between advisors and investors allowed these firms to positively influence investor perceptions of success.

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Clear communication regarding the reasons for investment performance and an explanation of the firm's cost and fee structure were among the most important facets in overall investor satisfaction.

Despite an overall increase in satisfaction with investment firms, the study found that fewer advisors were talking to their investors about fees – 57% of investors indicated that their advisor explained their fee structure, down from 63% in 2012. However, investor satisfaction improves an average of 99 points when advisors discussed 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% of highly satisfied investors – those with satisfaction scores of 900 and above – said they "definitely will" recommend their firm to others, only 29% of investors with medium satisfaction – between 700 and 899 – and 4% of investors who have low satisfaction (below 700) said the same.

Additionally, 27% of highly satisfied investors said they would increase the amount invested with their primary firm during the next 12 months, compared with only 17% of investors with low satisfaction.

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"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 JD 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."

But a high level of communication alone was not enough to improve investor satisfaction. Advisors who achieved above-average investment performance satisfaction and who had a strong relationship with their investors shared 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.

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The study was 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.