As the market goes, so follow investors’ opinions of the financial professionals who advise them. With the S&P 500 down 18% in 2022 and bonds off, too, investor sentiment toward full-service investment firms dropped significantly from last year, according to the most recent survey from J.D. Power.
But investors aren’t just mad that their stocks went down. The survey from the consumer-insights company based in Troy, Mich., also indicates that clients are dissatisfied overall with the advice and consideration they get from advisers about their money — and that most people don’t even get the comprehensive advice they need or expect from so-called full-service firms.
Only 11% of companies provided a scope of engagement that offered advice on overall financial health, put the client’s best interests first and made fees clear, according to the survey. The largest contingent, nearly 50%, provided goal-based advice, which sometimes involved a financial plan and clearly stated fees. Just over 40% provided only transactional advice, which offered “conflicting motivations between advisor and client’s best interests,” according to J.D. Power.
Only 57% of clients of full-service firms say they have a full financial plan, and of those who do have such a plan, only about half say they are receiving full-service advice along with it. Even more dire: 32% say they think their adviser is not working in their best interest.
“The impact of financial advice can be profound, but there’s a disparity between great advice and lesser advice,” says Tom Rieman, head of wealth solutions for J.D. Power.
The dissatisfaction noted in this survey is something that the overall industry doesn’t often admit to, because most studies paid for by the brokerage firms themselves focus on the positives of financial services and on how effective financial advice can be. But the mere fact that people equate market performance with adviser satisfaction underscores the problem.
“People don’t just want investment help. They want so much more. We’re still not delivering on that as an industry,” says Rieman. “It’s incumbent upon the industry to take these signs as a wake-up call. It’s an irrefutable moment of truth to make change.”
J.D. Power’s investor-satisfaction survey, now in its 21st year, measures companies on a 1,000-point scale. The measure hit a previous peak in 2020 and a low in 2009, but under different methodology. This year’s average was 727, which is 17 points lower than the previous year.
The top company ranked in the survey is Charles Schwab, with UBS, Fidelity, Lincoln Financial Group and Ameriprise rounding out the top five. At the bottom of the list are Prudential, PNC and LPL.
Rieman notes that investors in higher-income brackets are slightly more satisfied, but that the ratios generally stay the same for all of the questions asked. So the issue is not just one of higher-income clients getting more personalized and focused advice. He says the study did not delve into the issue of whether there’s a difference at those income levels between advice from a full-service brokerage and the kind of service high-net-worth clients get from independent advisers.
But Mitch Tuchman, CEO of Rebalance360, which is one such fee-only firm, argues that there is a difference. “There’s two kinds of wealth managers: those that work at wirehouses and have commissions, and those who don’t,” he says. “Those who have commissions have a different agenda. If you look at fee-only, there are those of us who understand the beauty of this approach, but we have to do a lot to make tangible what a plan will do to change your life.”