The definition of “investor satisfaction”, according to the survey methodology, is actually comprised of the following six factors (shown in descending order of importance to the score):
- Trading Charges & Fees
- Account Information
- Account Offerings
- Information Resources
- Problem Resolution
Each of these factors, however, are weighted differently and as such contribute to the overall score to a different degree. Interaction, for example, is the most highly weighted component (about 35% of the overall score) and covers many factors such as the experience with the website, trading executions and customer service interactions. Problem resolution, by comparison, only accounts for 2% of the overall score.
Given the distribution of the weightings, firms that perform well in the first three categories are probably going to outrank firms that may offer a lot of features, resources or are adept at resolving customer concerns. This is important to consider when reviewing the rankings because the survey is not necessarily a measure of “good” firms vs. “bad” firms, or the “lowest cost” vs. the “most expensive”, but rather how satisfied a particular firm’s clients are with their particular provider on key components.
Your Mileage May Vary
The decision to define and weight the categories in the way they have been structured is the result of extensive statistical analysis and testing. J.D. Power’s professional research team has identified an optimal mix of factors that can help account for a typical user’s experience of “being satisfied” with a particular discount brokerage brand.
One of the important limitations of any survey approach, or any approach that uses “averages” is that the numbers tend to draw a “line of best fit” through different categories of user. What this means for investors is the standard qualifier: YMMV – i.e. your mileage may vary when it comes to the degree to which the survey matches up with any one individual’s experience.
For example, according to the Investor Satisfaction Survey methodology, investors are categorized into the following three groups:
- Passive traders – defined as those who’ve made no trades in the past year
- Moderately active traders – those who’ve made one to 12 trades in the previous 12 months and
- Active traders – defined as those who’ve mad 13 or more trades in the past 12 months
This worked out to about 30% “passive”, 48% “moderately active” and 22% “active” overall however on a firm by firm basis, these weightings were noticeably different. Thus, scores for firms sampled with more active than passive traders would see their particular scores impacted by investor segmentation.