As global economic uncertainty has increased, investor satisfaction with full service investment firms has decreased, says a recent study by J.D. Power and Associates.
According to the 2011 Canadian Full Service Investor Satisfaction Study, overall satisfaction with full service investment firms is currently at 733 on a 1,000-point scale—a decline of two points from 2010.
Satisfaction reached a historic low of 693 during the height of the economic downturn in 2008 and 2009, as many investors experienced a significant decline in the value of their investments. Although the Canadian financial markets had a strong recovery in 2010, market concerns and rising investor expectations have resulted in satisfaction levels that average well below the 763 points seen in 2007.
“Market volatility in 2008 and 2009 yielded some very important lessons about the necessity of reassuring and communicating with investors during turbulent times,” said Lubo Li, senior director and leader of the financial services practice at J.D. Power and Associates in Toronto. “These lessons remain relevant, as the recent downturns in financial markets across the globe have set investors on edge. Once again, it will be the firms that are most proactive in working closely with investors to weather this storm that will emerge with satisfied and loyal clients.”
Some of the gap in satisfaction between 2007 and 2011 may be attributed to increased investor expectations, particularly around communication from investment firm advisors. The highest-performing firms during the recession exhibited a common strategy: their advisors proactively contacted and reassured investors and suggested adjustments to their financial plans as necessary, based on the investor’s short- and long-term goals.
According to the study, there is considerable room for improvement. Sixty-five percent of respondents indicated they have not been contacted by their firm during the past 12 months about product or service offerings. As well, four in 10 investors have not had a risk tolerance discussion with their advisor that was appropriately incorporated into their portfolio and nearly 30% of investors felt their advisor did not effectively communicate the reasons for their portfolio performance during the past year.
“Communication is key in fostering a healthy advisor/client relationship,” said Li. “Advisors who are not only proactively reaching out to their clients, but also having important discussions regarding their risk tolerance, investment performance, and a strategic plan, enjoy the highest levels of satisfaction and loyalty. Communication should not be solely dependent on the advisor. Investment firms need to pull their weight by providing technology solutions that facilitate these important discussions and limit the time an advisor spends on administrative duties.”
Seven factors were used to evaluate overall investor satisfaction: investment advisor, account offerings, investment performance, account information, commissions and fees, website and problem resolution.