The full-service investment industry is in transition as investors move to do more on their own – especially online. And with growing confusion and attention drawn to the fees they pay, the industry could be at a pivotal point, industry research finds.
These trends are reflected in the J.D. Power 2016 U.S. Full Service Investor Satisfaction Study, released Thursday, which found a very small drop in overall investor satisfaction.
According to J.D. Power & Associates, "A steadily increasing number of investment advisory customers have disrupted conventional thinking about full-service and self-directed advisory services, favoring a hybrid approach in which advisors become validators, or sounding boards, but not final decision makers."
Plus, confusion over fees "remains a challenge," the group says.
The majority of investors polled, 60%, indicate that they do not fully understand their fees. That's up from 56% a year ago.
As the research group points out, this problem is "likely to become worse with the proliferation of such low-cost alternatives as robo-advisors and regulatory changes such as the Department of Labor's recently released rules on implementing a fiduciary standard for all retirement-related accounts."
The study, now in its 14th year, measures overall investor satisfaction with full-service broker-dealers by taking into account these seven factors: financial advisor, account information, investment performance, product offerings, commissions and fees, website and problem resolution.
Overall Results
Most investors, 59%, say their financial situation in 2016 is about the same as it was a year ago.
However, investors were more than twice as likely to say their finances had improved than to say they had gotten worse: 29% vs. 12%, respectively.
J.D. Power's survey, which includes the views of about 6,000 investors who make some or all of their investment decisions with a financial advisor, was taken in January.
(Check out CHARTS on pages 3 and 4 for firm rankings)
Investor satisfaction is measured on a 1,000-point scale. The overall level is down just three points from last year and remains above 800, despite the fact that the January 2016 market environment was highly volatile.
"The current evolution we're seeing in investor preferences will likely be accelerated by the further development of new technologies, such as robo-advisors, and by regulatory changes, such as those just issued by the Department of Labor concerning fiduciary standards," said Mike Foy, director of the wealth management practice at J.D. Power, in a statement.
"Full service firms will need to adapt to these changes by providing more value and transparency to investors, making a clear case for the value they provide vs. lower-cost alternatives," Foy said.
Broker-Dealer Blues?
The 2016 survey finds investors have more negative opinions of seven broker-dealers, while they are more upbeat than last year on 10 firms.
This year's top performer has a score that is much higher than last year's tally, while the performers just below it experienced some improvement in their satisfaction scores.
