For the second consecutive year, Canadian full service investor satisfaction has declined as investor relationships with advisors weakens, suggests the J.D. Power and Associates "2012 Canadian Full Service Investor Satisfaction Study". Though significant and there's certainly room for improvement, it's hardly a gloomy scenario overall.
General investor satisfaction with full service investment firms in Canada averages 720 (on a 1,000-point scale) declining 13 points from 2011, the report reads. In contrast, satisfaction among U.S. full service investors has risen for two consecutive years to 775 in 2012, widening the satisfaction gap between full service investors in Canada and the U.S. to 55 points from 39 points in 2011.
The difference between U.S. and Canada full service investors is in the relationship with their investment firm, explains Lubo Li, senior director of the financial services practice at J.D. Power & Associates in Toronto, but he notes investment performance is a key driver of investor satisfaction
"To a large extent, investor satisfaction is impacted by the performance of their investments," he says. "If you look at the trend in the U.S., for the past three years satisfaction has been steadily rising whereas in Canada it's been steadily going down. And it's quite a dramatic decrease from last year to this year which we think is quite significant."
However, Li says Canadian investors have higher expectations for their advisors and investment firms compared to investors south of the border and the investor-to-client ratio is higher here than it is stateside.
"We Canadians have higher expectations and that's evident when you look at the performance of the full service brokerage industry compared against other financial service sectors," he tells Yahoo! Canada Finance. "The two investment sectors — full service brokerage firms and discount brokerage or online investment firms — are the lowest compared against banking, automotive finance, insurance, and other sectors."
This is a people-centric business. This is the reason why the advisor is the centerpiece of the relationship.
"(Firms) need to make sure they're providing the support from a company standpoint that advisors need so they can focus on working the relationships with their clients," he says. "When we look at the key attributes of advisory services such as concern for client needs, promptness in addressing issues, keeping them up-to-date in terms of their investments, all of these indicators in Canada trails that of the U.S. In other words, despite the efforts the investment firms have put in to connect with their clients and providing timely advice has not been enough or at least it's not meeting client expectations."
Of the J.D. Power & Associates' 2012 Canadian investor rankings, Raymond James Ltd. ranks highest in investor satisfaction among full service investment firms with a score of 745.
Rounding out the top 10 are:
- Edward Jones (735)
- TD Waterhouse Private Investment Advice (731)
- Dundee Wealth (729)
- Scotia McLeod (728)
- RBC Dominion Securities Inc. (726)
- CIBC Wood Gundy (723)
- Investors Group Securities Inc. (722)
- Desjardins Securities (721)
- Industry Average (720)
"Some of the firms actually have improved on their clients' satisfaction," he says. "The top two — Raymond James and Edward Jones — either have held their score from last year or improved. These two firms have not decreased. In addition to them, two others have improved year-over-year: Manulife Securities and Desjardins Securities.
"In the majority of firms, we've seen a decline. But about one-third of the firms have actually improved."
The study also provides best practices for advisors to provide more valuable services and build more effective investor relationships including:
- Build and/or enhance tools and financial planning systems that are integrated, which maximizes the amount of time advisors may spend with investors and minimizes the amount of time they spend on administrative tasks.
- Provide ongoing training and education that demonstrates how internal tools and resources can most effectively be used to enhance day-to-day interactions with investors.
- Provide benchmark comparisons online and in account statements that facilitate advisor-investor discussions regarding investment performance.
- Closely look at advisor-to-investor ratios. A higher number of investors likely means higher production, but also may have a long-term detrimental effect on the individual investor experience.
The seventh annual study is based on responses from more than 5,200 investors who use advice-based investment services with financial institutions in Canada. The study was conducted in June and July 2012.