Unless you delight in being the contrarian, it’s a truism, tried and tested, that investor sentiment yo-yos with market peaks and troughs. And a J.D. Power and Associates study released today confirms it.
The Canadian Full Service Investor Satisfaction Study finds overall satisfaction among full-service investors in Canada declined considerably in 2009 — to 693 on a 1,000-point scale, marking a drop of nearly 30 points, compared with 2008.
Poor investment performance was the primary factor driving the decline, with investor satisfaction dropping 50 points from 2008.
But this recession, it turned out, was not just about consumer sentiment — loyalties seem to have switched as well, with 10% of investors indicating they’ll likely switch firms in the next 12 months, compared with only 6% saying the same 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.
Lubo Li, senior director and financial services practice leader at J.D. Power and Associates, says one way to alleviate the negative market impact is to offer stellar advice, and proactive and timely communication to clients. “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.”
Gary Reamey, head of Edward Jones Canada, who has seen six recessions during his 32 years in this industry, agrees that when times are tough advisors need to be three times as close to their clients as they’d normally be.
Edward Jones ranked second among full-service investment firms, with a score of 742 on a 1,000-point scale, performing particularly well in the convenience factor. Raymond James Ltd. was the highest scorer with 747, while Dundee Wealth Management Inc. ranked third overall at 725.
Reamey said Edward Jones is especially proud of this ranking given the tough economic times. “It reflects our strong commitment to helping clients in different markets,” he says. “We work hard at staying local, providing face-to-face service, and personalizing individual investments. We focus on conservative individual assets, and don’t try to be all things to all people.”
The study further found more investors turning into do-it-yourselfers, and exploring diverse channels to replace full-service advisors and take advantage of the lower costs associated with self-directed online trading. For instance, only 25% of full-service investors had an online or discount brokerage account in 2008 compared with 36% this year.
According to Li, investors are becoming more sophisticated in understanding the value of each channel and maximizing their investments by diversifying their portfolio across trading channels. “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.”
Financial institutions that offer integrated channel options to investors will be better positioned to benefit from this changing trend. Already, nearly 50% of investors at full service brokerage firms affiliated with one of the five major banks in Canada use an online or discount brokerage.
“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,” Li noted.
(06/24/09)