The Markets October 25, 2007

Self-Directed Investors Riskier Than Those with Adviser Counsel

Online investors make the majority of their investment decisions independent of an investment adviser (56% of investors who trade securities online) are more likely to have an appetite for riskier investments than those who seek financial counsel.
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Fourteen percent of self-directed investors surveyed for J.D. Power and Associates’ 2007 Online Investor Satisfaction Survey describe themselves as aggressive investors willing to assume risks, while 41% describe themselves as moderately aggressive. Contrarily, only 7% of investors who receive some advice from an adviser and only 4% who receive all of their advice from an adviser say their investment style is aggressive.

Personal Contact

Online investors who have access to a local branch office for support (42% of investors) are significantly more satisfied and more tolerant of commissions and fees than those who do not.

However, according to J.D. Power and Associates, who conducted the 2007 Online Investor Satisfaction Survey, that doesn’t mean that each online investing firm should build branch officers. “There are firms such as Vanguard that have high investor satisfaction without them. It comes down to each firm’s customer base,’ said David Lo, director of investment services at J.D. Power and Associates, in a press release. “Active investors tend to require a higher level of customer ‘touch’ and therefore utilize a branch office to transact and resolve issues quickly. Less-active investors generally do not utilize those services nearly as often.”

Online Investor Characteristics

Self-directed investors are also more likely to spread their investments across more firms compared with investors with traditional full-service firms. Among investors who make some or all of their investment decisions independently, 62% of their total investment assets are with their primary online firm compared with 78% for investors who rely on advice from their financial adviser.

“Self-directed investors also are more likely to be active traders,” said David Lo, director of investment services at J.D. Power and Associates. “Low-cost transaction fees are the norm for online trading, and self-directed investors are far less tolerant of high commissions because they are not taking advantage of the services provided by a financial advisor.”

Firm Satisfaction

The study examined 20 online investment firms and found that, for the seventh time in eight years, Scottrade ranks highest in customer satisfaction. The study measures customer satisfaction with online investment and trading firms based on performance in five factors: information resources; cost; trade execution; Web site functionality; and interaction with customer service representatives.

The overall customer satisfaction rankings of online trading firms (based on a 1,000-point scale) are:

  • Scottrade (825)
  • Vanguard (819)
  • Charles Schwab (812)
  • Fidelity Investments (793)
  • TD Ameritrade (786)
  • Industry Average (784
  • ShareBuilder (781)
  • T. Rowe Price (760)
  • E*TRADE Financial (748)
  • Merrill Lynch Direct (740)
  • Ameriprise Financial (715)

The 2007 Online Investor Satisfaction Study was conducted in 2007 and is based on responses from 5,024 online investors who invest with one of 20 firms included in the study. More information is available at www.JDPower.com.

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