Banking & Finance

Merrill and Wells Fargo Hammered in Broker Customer Satisfaction Survey

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Low fees and free tools are no longer enough to satisfy self-directed investors who make their own investment decisions and use a brokerage firm primarily to execute their trades. The online investment tools that brokers offer remain the key elements in the firm’s relationship with investors, but those investors are demanding more.

Now in its 13th year, the J.D. Power 2014 U.S. Self-Directed Investor Satisfaction Study was released Thursday morning, showing that overall satisfaction with investment firms rose from 752 in 2013 to 763 in 2014 (on a 1,000 point scale). There is significant variation among the 11 firms included in the survey however.

The top scoring firm is Scottrade with a score of 813, followed by Vanguard with a score of 805. This is Scottrade’s second consecutive year at the top of the rankings.

The lowest scoring firms are Merrill Edge from Bank of America Corp.’s (NYSE: BAC) Merrill Lynch group and Wells Trade, the online brokerage service of Wells Fargo & Co. (NYSE: WFC), which scored 722 and 726, respectively.

Other firms that scored better than most were Charles Schwab & Co., TD Ameritrade, E*Trade Financial and T. Rowe Price. Firms scoring about average included Fidelity Investments and Sharebuilder from Capital One.

J.D. Power’s director of the wealth management practice said:

Self-directed firms’ traditional pricing approach is highly reminiscent of the free-checking model used by retail banks, in which a small portion of the customer base was subsidizing the free services provided to all customers, and the perceived value of the relationship was diminished. … Firms need to take an ‘outside in’ view that focuses on customer needs in lieu of their current ‘inside out’ approach that has led to an industry-wide pricing and technology race.

One significant shift noted by J.D. Power is that more young investors are now using mobile devices to interact with their brokerage firms and fewer are using the firms’ websites. Website usage has fallen from 91% in 2011 to 86% this year, and mobile usage has risen from 13% to 21% in the same period.

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When investors understand and use the firms’ financial planning or asset allocation tools, satisfaction rises by an average of 80 points. Using the monitoring and tracking tools boosts satisfaction by 96 points. Most important, for the brokerage firms, investors who use the tools invest up to 16% more over the next 12 months. Note that even though firms rely on the websites to handle most of the investment activities, some 61% of investors who have questions want to speak to a representative on the phone.

Another important finding of the J.D. Power study is that the self-directed pricing model is not well understood by 63% of investors, and this leads them to question the transparency of the firms’ fees and charges. Among investors who say they completely understand the brokerage’s fee structure, satisfaction scores rise to 831 compared to a score of 681 for those who do not understand the fee structure.

The J.D. Power study is based on responses from 3,764 investors who make all of their investment decisions without the counsel of an investment advisor. The study was fielded in January and February of 2014.

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