Winners, Losers in Fund Distributor Battle for Investor Loyalty

Some unlikely distribution firms have managed to step into the crisis and increase loyalty among affluent investors, according to Cogent Research.

Meanwhile, some of Wall Street’s biggest broker/dealer players have experienced precipitous drops in the proportion of their affluent clients who remain loyal, according to a release from Cogent. Cogent compared customer loyalty ratings of the top 23 distribution firms in October this year with their rating two years ago.

The overall average score is 40, which isn’t too far off from the average figure in 2006 (36). However, the rank of firms has definitely changed. The highest scorer was USAA (maintaining its number 1 spot), at 86; and the lowest score was Bank of America Securities, which received the only negative score at -2. Scottrade barreled ahead to the number 2 spot up from the number 17 spot, pushing Vanguard out of the “Leaders’ category.

Among the 10 firms ranked as “Leaders,’ three firms have made substantial gains over the past two years. Specifically, TIAA-CREF, ING, and Raymond James made double-digit gains in investor loyalty, upping their rankings from numbers 6, 20, and 21 to numbers 4, 6, and 12, according to Cogent.

Firms that have suffered the greatest losses in loyalty include Bank of America Securities, Merrill Lynch, and Wachovia. These firms all find themselves in the “Drifters’ category this year, having experienced double-digit declines in loyalty. Although sustaining smaller losses than some of their counterparts, three firms dubbed “Players’ have also taken hits in loyalty, including Ameriprise, UBS, and JPMorgan Chase, Cogent said.

“While performance continues to be the primary driver of loyalty—and certainly can’t be dismissed—this year, we see that the big differentiator lies in investor perceptions of a firm’s financial stability’ said Christy White, founder and principal of Cogent Research, in the release.

Among different channels of fund distributors, there were some differences. Online providers, particularly the discount firms, including Scottrade, ING, and TD Ameritrade have all made gains in client loyalty. Firms in the bank channel are all suffering sizeable losses in loyalty—with the exception of Wells Fargo—which is not only the top performing bank when it comes to client loyalty, it managed to increase its score and improve its ranking to number 10, according to Cogent.

According to Cogent, Morgan Stanley, “one of the few pure wirehouses left standing,’ has improved its score and “is looking very strong’ in the number 13 spot. Edward Jones is still the top ranked regional/independent firm (ranked number 5 across all firms); however the major strides made by Raymond James have closed the gap between the two firms substantially.

The study, which will be released next month, was based on the Net Promoter Score (NPS) of the firms. The NPS is based on a national study of 4,000 affluent American investors.