Study: Investor satisfaction with advisors falls along with markets

Investor satisfaction with full-service investment advisors dropped in year-over-year financial advisor ratings, according to the J.D. Power 2023 U.S. Full-Service Investor Satisfaction Study.

“Advisor satisfaction continues to track overall market performance, and this points to a systemic problem in our industry: advisor value propositions grounded in investment performance,” said Tom Rieman, head of wealth solutions at J.D. Power.

“Advisors cannot control the ebbs and flows of the market, but the good ones help their clients plan for their best futures and deliver value in the form of comprehensive advice that should shine through in all market conditions,” he added.

Among the key findings of the 2023 study:

• Full-service advisor satisfaction plunges: Overall investor satisfaction with full-service investment advisors is 727, which is down 17 points from a year ago, the survey said. The performance is consistent with the long-term trend of investor satisfaction moving in lockstep with stock market performance.

The fact that advisor satisfaction is tracking market performance shows that few advisors are delivering on their core value proposition, which will not bode well for the future of an industry that’s already struggling under the weight of digital transformation and changing patterns of investor behavior.

• A small fraction of advisors is currently offering comprehensive advice: Comprehensive advice is defined as personalized guidance from an advisor, which:

--Addresses all financial and wealth management needs.

--Demonstrates an intimate understanding of the client’s lifestyle and goals.

--Puts the client’s best interest first.

--Includes a financial plan.

--Ensures clients understand the fees they pay.

--Is an integral part of the client’s life.

Today, just 11% of advisors are delivering this level of advice. The rest are delivering transactional advice (42%) and goals-based advice (47%), according to the survey.

• Just more than half of full-service wealth clients have financial plans: Among full-service wealth management clients, 57% say they have a financial plan, yet only 56% of clients with plans say they are receiving comprehensive advice. Moreover, among clients with financial plans, 32% do not feel their advisor makes recommendations that are in their best interest and 29% say they do not feel their advisor understands their financial goals and needs.
• Younger clients are ready to vote with their feet: Among clients in all age groups, those in the Millennial and Generation Z1 groups are the most likely to switch firms in the next 12 months and are most likely to already be working with a secondary investment firm. Slightly more than one-fourth (27%) of these younger investors say they “definitely will” or “probably will” switch firms, and 49% say they are working with a secondary investment firm.

Rankings of firms based on investor satisfaction

The study also ranked financial firms based on investor satisfaction with them. Charles Schwab ranks the highest in overall investor satisfaction with a score of 752, the survey. UBS (741) ranks second and Fidelity (740) ranks third, the survey said.

There are several steps full-service advisors can take to help raise the level of client satisfaction. According to Craig Martin, executive managing director, global head of wealth & lending intelligence at J.D. Power, data indicates that investors conflate their satisfaction with their financial advisor and their satisfaction with their portfolio performance. That means that a decline in the market impacts most investors in a negative way. But, he added, “clients receiving comprehensive advice have fewer negative perceptions of their advisors, even when market performance is down.”

A simple place to start is ensuring the client believes they have a plan, he said. More than 2 in 5 (43%) full-service investors indicated they don’t believe they have a documented financial plan. Among those who said they don’t have a plan, the overall satisfaction is a significant 80 points lower (on a 1,000-point scale) than those who believe they have a documented plan. “But for a plan to be truly effective it should be used to facilitate comprehensive advice, and only about half of those with a plan say they receive comprehensive advice from their advisor,” Martin said.

Simple actions sometimes overlooked

Some of the simplest actions can sometimes be overlooked in terms of their importance, Martin added. Nearly 40% of clients indicated their advisor uses terms they don’t understand.

“While some may think using complex terminology shows expertise, confusing clients is not a winning strategy, with an average drop of over 150 points in overall satisfaction when clients don’t understand the terms advisors use,” he added.

Another basic activity that can have a big impact is helping ensure that clients are clear on how they can use the digital resources (i.e, website / mobile app) that are available, said Martin. Only 1 in 3 customers said they ‘strongly agree’ the digital resources are clearly explained by their advisor, but this group’s overall satisfaction is 147 points higher than those who said ‘somewhat agree’ or worse, he added.

The U.S. Full-Service Investor Satisfaction Study, now in its 21st year, measures overall investor satisfaction with full-service investment firms in seven factors (in order of importance): trust; people; products and services; value for fees; ability to manage wealth how and when I want; problem resolution; and digital channels.

The study is based on responses from 6,168 investors who work directly with a dedicated financial advisor or team of advisors. The study was fielded from October 2022 through January 2023.

Ayo Mseka has more than 30 years of experience reporting on the financial services industry. She formerly served as editor-in-chief of NAIFA’s Advisor Today magazine. Contact her at [email protected]. 

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