Scottrade plummets from first place to fifth as Fidelity and Vanguard come in a hair behind Schwab

May 22, 2015 — 5:26 PM UTC by Brooke Southall


Brooke’s Note: One of these days I hope I get to meet one of these millennials that I keep hearing about who have invaded from a better parallel universe with a goal, it seems, of living more sensibly and nobly than we ever did. They shun materialistic things like automobiles, McMansions, Big Macs, televisions and weaponry. They are tolerant of all genders, all sexual orientations, never mind all races. So it hardly seems surprising that they are investing in a smart way. We hear that they are the customer base that robo-advisors will ride to legitimacy. But for now, they are being given credit for reordering a J.D. Power survey — the 15th in a series — by redefining what it means to be a self-directed investor away from semi-senseless rugged individualism.

Charles Schwab & Co. Inc. is number one among self-designated, self-directed investors because it does a better job of giving them direction, according to the J.D. Power & Associates 2015 U.S. Self-Directed Investor Satisfaction Study released today.

The San Francisco-based firm climbed from third in 2014 to the top spot this year based on its ability to give investors guidance. See: In tight race, Fidelity and Edward Jones tie for top honors in J.D. Power survey as spiky markets drive down satisfaction scores across the board.

For example, among self-directed investors with a guidance-based relationship, 64% say they “definitely will” recommend the firm, compared with 26% among those investors who prefer to fend for themselves.

Forty-five percent of investors who have a guidance-based relationship with their firm increased their investment levels, compared with only 29% of those whose relationship is not guidance-based.

Title regained

Schwab, which last held the top self-directed spot in 2012, recorded a score of 801 out of 1,000. It performed well across all factors, particularly in interaction and account offerings. Malvern, Pa.-based Vanguard Group ranks second with a score of 794, followed by Boston-based Fidelity Investments at 791. The survey was based on responses from more than 3,700 investors who make all of their investment decisions without the counsel of a personal investment advisor. The study was fielded in January and February of this year. See: What Vanguard revealed under webcast pressure about its phono-robo’s vulnerability.

Fidelity showed the most improvement from 2014, jumping from seventh to third place. Vanguard held onto second place despite the fact that it isn’t thought of as a discount broker like the other brands.

“Vanguard is more a direct distribution channel rather than competing directly with someone like E*Trade,” according to Mike Foy, director of the wealth management practice at J.D. Power, which is based in Westlake Village, Calif. See: What’s up with J.D. Power naming Commonwealth top IBD for the fourth straight year.

Foy allows, too, that the ratings need to be analyzed with the understanding that J.D. Power offers no judgment but rather acts as a conduit for investor perception of the companies under its microscope.

Self-validators vs. collaborators

It seems that investors no longer need to regard themselves as ruggedly individualistic traders to call themselves self-directed. See: With apprehension in the air, Schwab invites its RIAs to a one-hour meeting about robo-advice.

“That’s true,” says Foy. “We call them self-directed. There’s been blurring of the lines, especially with Gen X and Gen Y [i.e. millennial] investors.”

Only 66% of self-directed investors describe themselves as true do-it-yourself investors seeking no advisor input, while 21% consider themselves “validators” who prefer to have a professional act as a sounding board for their ideas.

The remaining 13% consider themselves “collaborators” who largely make decisions collectively with help from some sort of advisor.

The number of validators and collaborators is even higher among Gen Y and Gen Z (38%) and women investors (38%), two critical and fast-growing segments of the investor market. See: After LinkedIn’s stock retreats, LinkedIn CEO hosts NYC event with Merrill’s Thiel, Allianz’s El-Erian, BNY’s Hassell and a robo-panel.

Schwab’s placement reboot

Schwab benefited from Scottrade’s fade, Foy adds. “Scottrade declined across the board. A lot of it is that they established themselves as the low-cost provider.” Scottrade’s advantage is now minimal at $7 per trade for stocks and $17 for mutual funds. New entrants like TradeKing charge $4.95 per trade.
See: After cutting loose its RIA chief, Scottrade is culling some RIAs and imposing an 'unpublished’ $12,000 fee on others.

Scottrade Spokesman whitney Ellis say his firm is unfazed.

“While we weren’t ranked highest in online investor satisfaction this year, we continue to work hard on understanding our clients’ needs and are confident we will be back on top in the near future, “ he says. “As background, Scottrade was first recognized by J.D. Power for highest online investor satisfaction in 2001 and has topped J.D. Power’s list nine times since then, claiming both summer and fall awards in 2002, and annual awards in 2003, 2004, 2005, 2007, 2008, 2013 and 2014.”

Schwab’s marks could have been boosted by its advertising blitz surrounding accountability guarantees, according to Mike Foy, director of the wealth management practice at J.D. Power.. See: How Schwab’s new 'owning it’ advertisements position the firm to offer more advice — and how RIAs factored into the brand rethink.

“That may have shaped impressions about fee transparency.”

Schwab’s e-mailed reply to topping the 2015 chart — and Foy’s analysis of the Schwab rating : “We’ll defer to J.D. Power on this.”

Scottrade has tweaked, but not changed, it advertising message to the market. Last May it launched an advertising campaign with four TV spots focusing on the theme “Our Passion is to Power Yours” — supported by print and online advertising in national and finance-focused publications.

Kim Wells, Scottrade’s chief marketing and digital officer described the goal in these whitewashed terms: “We wanted to demonstrate the concepts of passion and the partnership we have with our clients in a unique way that will distinguish Scottrade in a very competitive marketplace.”

What about robos?

Indeed, Schwab has reshaped its image from weapon of the self-directed to trusted advisor. Schwab’s most recent prominent hire of Terri Kallsen is in keeping with that transformation. See: Schwab promotes relative newcomer Terri Kallsen to head retail, with John Clendening getting the golden parachute and Andy Gill transitioned.

Foy doubts Schwab’s robo launch affected this year’s ratings because the big splash came in March after the surveys were completed. See: Schwab sings 'Blue’ as it rolls out its robo — and phono — functions ahead of deadline, with minimums.

But J.D. Power has the new wave of advisors on its radar.

“We’d love to cover robo-advisors,” he says. For now, however, that is unlikely because the market is so small. Foy adds that questions will likely be added to next year’s self-directed survey about automated portfolios that robo-advisors are known for.

Disclosure: I’ve self-directed my investing at Schwab for 21 years with no complaints . The only sad thing is that I have shunned offers by kindly branch personnel to provide greater assistance.

Mentioned in this article:

Scottrade Advisor Services
Asset Custodian
Top Executive: Brian Stimpfl

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