Study: New Investor Surge Pushed Online Brokerages Beyond Their Limits

J.D. Power in Troy, which offers consumer insights, advisory services, and analytics, has released its 2021 U.S. Self-Directed Investor Satisfaction Study, which showed a spike in mainstream investing.
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online investing stock photo
According to the 2021 U.S. Self-Directed Investor Satisfaction Study, online brokerage firms couldn’t keep up with a spike in mainstream investors. // Stock photo

J.D. Power in Troy, which offers consumer insights, advisory services, and analytics, has released its 2021 U.S. Self-Directed Investor Satisfaction Study, which showed a spike in mainstream investing.

At the same time, there was a doubling of the number of problems cited by customers against online brokerage firms, including website issues, processing and trade execution failures, and account statement errors.

“The significant influx of new investors — and increased trading volumes and overall engagement from clients — clearly put a strain on the system and a spotlight on some of the most critical areas that firms need to address if they want to continue to attract and retain self-service investors,” says Michael Foy, senior director and head of wealth intelligence at J.D. Power.

The two groups of investors looked at in the study are true do-it-yourself investors — those who make their investment decisions without interacting with a professional advisor — and those who have access to professional advice, but do not have a dedicated financial advisor.

The 2021 study was redesigned based on performance in seven categories in order of importance: trust; digital channels; the ability to manage wealth how and when I want; products and services; value for fees; people; and problem resolution.

The study found Robinhood, a mobile-friendly online brokerage claimed 27 percent of all new do-it-yourself account openings, the largest of any firm this year. The app was at the center of the GameStop stock-buying frenzy in January and February of this year. Despite it’s market share growth, the company performed poorly in customer trust and problem resolution.

“With virtually every firm now offering free trading and new investors showing lower levels of brand loyalty, firms that get the customer satisfaction formula right have a chance to set themselves apart from the competition,” says Foy.

Customer satisfaction is higher among both groups of investors when the strongly agree that their brokerage firm provides useful guidance or advice. Although the boost occurs, less than half of self-directed investors agreed their firm provided valuable insight.

Overall customer satisfaction is highest when investors work with a wealth management firm and use four or more products as opposed to just one. This shows client relationships and working with an investor in the totality of their financial life, rather than just one aspect, is becoming very important for firms.

Vanguard ranked highest in self-directed investor satisfaction among those seeking guidance, while T. Rowe Price ranked second, and Charles Schwab ranked third. Among true do-it-yourself investors, Vanguard remained in first, with Charles Schwab ranked second, and T. Rowe Price ranked third.

The 2021 study is based on responses from 4,895 investors who make all their investment decisions without the counsel of a full-service dedicated financial advisor. The study was fielded from December 2020 through February 2021.

For more information about the 2021 U.S. Self-Directed Investor Satisfaction Study, visit here.

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