Investor Satisfaction With Online Brokerages Flatlines

Online brokerage firms are struggling to differentiate or add value for self-directed investors amid consolidation and low-fee options, according to J.D. Power’s annual survey of self-directed investor satisfaction.

Do-it-yourself investors gave online brokerage services a 708 out of 1,000 for satisfaction in 2023, just one point up from 2022 and flat with 2021, according to a survey of nearly 10,000 investors who do not work with a dedicated financial adviser. The lack of improvement in spite of strong stock market growth is a warning signal to financial firms that they need to do more to stand out, the researchers wrote in the report.

“Retail brokerages need to rethink their role in their clients’ lives and start to deliver clear, quantifiable value, particularly to younger investors,” said Craig Martin, executive managing director and head of wealth and lending intelligence at J.D. Power, in the release. “The one area where we are seeing increased demand across all categories of investors—even those historically characterized as strictly DIY—is for some level of personalized guidance and support. Right now, that personal connection is really missing at many firms.”

The nod toward personalization was backed up in the surveying: When self-directed investors sought guidance in their investment decisions, the satisfaction rank went up 15 points as compared to the prior year.

Meanwhile, buy-and-hold investors are most at risk of leaving their online broker, as they showed the lowest satisfaction scores, according to J.D. Power.

Leader Board

The study, which also ranked satisfaction among firms, found Fidelity Investments at the top in terms of self-directed investor satisfaction among those seeking guidance, at a score of 708. Charles Schwab came in at No. 2 in this category at 707, and TD Ameritrade, now owned by Charles Schwab, tied with Vanguard for third at 702. E-Trade, owned by Morgan Stanley, came in fourth at 694, with Citigroup fifth at 689.

Separately, TD Ameritrade ranked highest in self-directed investor satisfaction among do-it-yourself investors at 722, with parent Schwab coming in second at 717, and Vanguard tying for that category at 717 as well. Acorns and Fidelity tied for third at 708.

Advisers Adding Value

In a separate study released by J.D. Power in March, the firm found that investors who use financial advisers have more satisfaction than last year.

Overall investor satisfaction with full-service investment advisers was 735, up eight points from a year ago, according to a survey of nearly 10,000 investors with advisers. In this case, satisfaction did move “in concert with stock market performance,” according to J.D. Power.

The firm did note that younger, affluent clients present a “flight risk” for advisories, with attrition rates relatively higher among Millennials with more than $1 million in investable assets. More than one-third (36%) of that cohort said they are likely to change firms in the next year. J.D. Power researchers noted that could be due to those investors working with more than one advisory.

In that survey, U.S. Bank received the highest overall investor satisfaction score at 761, Edward Jones came in second at 749, and Vanguard ranked third at 748.

Both surveys were conducted from January 2023 through January 2024.