Brokerages: The Pick of the Crop

How does a firm get top marks in customer satisfaction? Here's how J.D. Power drew up its latest list—and how 12 big industry names stack up

From Standard & Poor's Equity Research

From Standard & Poor's weekly investing newsletter The Outlook

While the relationship between investors and financial advisors and brokers remains a key factor in investor satisfaction, changes in the economy have investors looking more closely at investment performance, now the most crucial driver of investor satisfaction according to the J.D. Power & Associates 2008 Full Service Investor Satisfaction Study (J.D. Power, like S&P and BusinessWeek.com, is a unit of The McGraw-Hill Companies (MHP).

Now in its sixth year, the study measures overall investor satisfaction with full service investment firms, based on six factors (in order of importance): investment performance; financial advisor/broker; commissions and fees; account setup/account offerings; convenience; and account statements. The study also measures investor satisfaction within three investor portfolio types: affluent investors (those who have $1 million or more in investable assets); mass affluent investors (between $100,000 and $999,999 in investable assets); and mass market investors (less than $100,000 in investable assets).

Performance Leader

Raymond James (RJF) ranks highest in investor satisfaction with a score of 831 on a 1,000-point scale, receiving high ratings from investors in all six factors and performing particularly well in proactively contacting investors. Edward Jones follows in the rankings with a score of 806, and UBS Financial Services (UBS) ranks third overall, with 798.

Investment performance surpasses financial advisor/broker as the most important factor in satisfaction in 2008, accounting for 24% of overall satisfaction, compared with 19% in 2007. Financial advisor/broker accounts for 22% of overall satisfaction—down from 24% in 2007. "Current economic conditions, as reflected in declines in stock market indices, have heightened investor awareness of portfolio performance," said David Lo, director of investment services at J.D. Power.

"Regardless of market conditions, advisors who succeed at managing the expectations of their investors can help to mitigate some of the negative effects. For instance, keeping investors informed by conducting regular portfolio reviews and including portfolio performance information on account statements can have a considerable impact on satisfaction."

Keeping in Touch Counts

A key to managing the relationship is assigning investors to a dedicated financial advisor or team. Among the 12% of investors who report they do not have a financial advisor or team assigned to them, overall satisfaction is substantially lower compared with investors in other types of investment relationships.

Additionally, advisors can improve satisfaction by maintaining periodic proactive contact with investors. Mass affluent and mass market investors understand that varying levels of investable assets call for differences in the frequency of contact. The study finds that to achieve similar levels of high satisfaction among the three investor segments, investment firms need to proactively contact affluent investors an average of 4.2 times per year, mass affluent 2.8 times, and mass market 1.7 times.

"Our advice to investors is that while portfolio performance is of primary importance, it is only one of several dimensions that drive investor satisfaction," said Lo. "When shopping for an investment advisor, discussing the following key issues can help determine a good fit: whether the investor will be assigned to a specific advisor or team; the frequency of communication about investment performance and the investor's changing needs; how the advisor measures investment performance; what the investor's expectations are; the ease of use of account statements; fees; and other types of products and services available from the investment firm."

The 2008 Full Service Investor Satisfaction Study is based on responses from 4,528 investors who primarily invest with one of the 19 firms included in the study. The study was fielded from April to May 2008.

Below are the 12 brokerage firms listed in J.D. Power's July 30 release, in descending rank order.

Raymond James (RJF)

Edward Jones

UBS Financial Services (UBS)

LPL Financial Services

Merrill Lynch (MER)

Ameriprise Financial Services (AMP)

Wachovia Securities (WB)

Smith Barney (C)

Charles Schwab & Co. (SCHW)

Morgan Stanley (MS)

Chase Investment Services (JPM)

Fidelity Investments