New investors strain online brokerages: J.D. Power

Financial advisers are not alone in struggling to meet their clientele's heightened expectations around customer experience. Online brokerages, too, are trying to smooth the bumps following the recent explosion of new users moving to online investing platforms. 

More than 10 million new brokerage accounts opened in 2020 as a surge of new retail investors entering the markets via online platforms skyrocketed during the pandemic, according the J.D. Power 2021 U.S. Self-Directed Investor Satisfaction study released Tuesday. 

However, the number of problems cited by customers have doubled during the past year, with website issues, processing and trade execution failures and account statement errors leading the way.

Frequent glitches are bringing down customer satisfaction. In fact, incidences of technical difficulties have doubled in the past year, affecting 11% of all do-it-yourself investors and 12% of those in the seeking guidance segment of self-directed investors, according to the study based on responses from 4,895 investors fielded from December 2020 through February 2021.

A handful of trading and wealth management websites have experienced technical difficulties over the last year as a result of unprecedented volumes of activity. For example, Charles Schwab Co., ETrade Financial Corp., TD Ameritrade Inc., Robinhood Inc., Fidelity Investments Inc., Merrill Lynch & Co Inc. and Vanguard Group Inc. have all experienced some sort of technical difficulty — from login issues to slower processing speeds — while trading volumes surged, according to DownDetector, an outage monitoring website. 

These unprecedented periods of market volatility since March 2020 coupled with a spike in user volume are exposing cracks in online brokerage platforms. 

“The significant influx of new investors — and increased trading volumes and overall engagement from clients — clearly put a strain on the system and a spotlight on some of the most critical areas that firms need to address if they want to continue to attract and retain self-service investors,” said Michael Foy, senior director at J.D. Power. 

With virtually every firm now offering free trading and new investors showing lower levels of brand loyalty, firms that get the customer satisfaction formula right have a chance to set themselves apart from the competition,” he said. 

Robinhood claimed 27% of all new do-it-yourself account openings, more than any other firm, according to the study. While its market share has grown, its strength in digital channels and value for fees was offset by poor performance on trust, people and problem resolution, according to J.D. Power.

Robinhood found itself at the center of the GameStop stock surge in January and February this year, resulting in outrage and skepticism from customers and even U.S. political leaders. Despite Robinhood’s woes, the free trading platform still snagged a top spot among incumbents for overall customer satisfaction.

J.D. Power’s study measures self-directed investors’ satisfaction with their investment firm on a 1,000-point scale based on performance in seven factors: trust; digital channels; the ability to manage wealth; products and services; value for fees; people; and problem resolution. 

Vanguard (736) ranks highest in self-directed investor satisfaction among do-it-yourself investors. Charles Schwab (727) ranks second and T. Rowe Price (721) ranks third. Trailing directly behind is Robinhood (711) ranking fourth.

Fidelity and TD Ameritrade tie for the fifth spot with a score of 707, while ETrade (692), and Merrill Edge (662), round out the top seven. 

Online brokerages could start ramping up their customer satisfaction by focusing on investor education. Overall customer satisfaction scores are 148 points higher among do-it-yourself investors and 155 points higher among those seeking guidance when they strongly agree that their brokerage firm provides useful guidance or advice, according to the study. Yet, fewer than half of self-directed investors say their firm provides useful guidance or advice. 

Moreover, overall customer satisfaction is highest when investors use four or more products with a wealth management firm, which can include services such as investment accounts, banking relationships and mortgages. 

“Besides increasing satisfaction, deepening the client relationship is more critical than ever for firms needing to generate revenue in a free-trading environment,” the study noted.