In this final section of our special series on the J.D. Power & Associates Discount Broker Investor Satisfaction Survey, we look at the survey from the perspectives of its creators as well as the company that has placed first in investor satisfaction for the past four years.  Dr. Lubo Li, Senior Director and Industry Practice Leader for Canada at J.D. Power and Associates and Laurent Blanchard, Vice President and Manager of Online Brokerage at Disnat – shared their perspectives with us on the value of the investor satisfaction survey, and what it means for both consumers as well as the discount brokerage industry.

As we’ve learned from the previous sections in this series (click here for part 1 or here for part 2), the Investor Satisfaction Survey measures the experiences of consumers with different discount brokerages in Canada.  According to Dr. Li, however, the value of the survey goes beyond simply looking at experiences.   The real strength of the survey, he explained, is its ability to measure the “voice of the customer” and uncover “perceived customer value.” In short, the survey results reflect what consumers believe are important components to having a discount brokerage account.

Reliability matters

As any quick Google search will reveal, reliable and impartial measures of consumer opinions on Canadian discount brokerages are hard to come by. Thus, for consumers of financial products, the opportunity to access reliable feedback from their peers is invaluable.  Since a survey is only as useful as it is accurate,  consumers must be skeptical when coming across ‘polls’, surveys or other rankings by asking how they were devised and measured. As we’ve seen over the past year, several discount brokerages have been considered “the best” depending on who’s doing the ranking. Defining and measuring “investor satisfaction” accurately and transparently was therefore critical to the overall reliability of the investor satisfaction survey. For example, Dr. Li was able to explain that the reason the rankings (covered in section 1) were ordered in the way they were was because that was the priority most investors placed on those items.  To review, the six categories of investor satisfaction are:

1. Interaction
2. Trading Charges and Fees
3. Account Information
4. Account Offerings
5. Information Resources
6. Problem Resolution

Interestingly, when asked why something as seemingly important as “Problem Resolution” was placed last on the scale, Dr. Li answered that while the importance of receiving help when it is needed is high, the frequency with which that occurs relative to other situations is actually quite low.  The example he gave was using the insurance industry where although the essence of why insurance is useful is precisely because one may need it in an emergency, the frequency of those occurrences is actually quite rare. Similarly, for discount broker customers,the more immediate concerns of being able to get a hold of someone or how much a transaction costs score higher on the list of priorities hence they  are given greater importance for scoring.

If a tree falls in the forest…

Just because the voices of consumers are collected and analyzed, however, does not necessarily mean they are heard by the industry.  The way in which J.D. Power is able to make money is by selling the in-depth results of their surveys to financial organizations interested in understanding the experiences of their customers.  Their reputation for reliable research is widely accepted by industry members and as a result when they speak, companies often pay attention – although not always. A fascinating piece of insight Dr. Li shared was that not all discount brokerages are eager to listen. Whether they look to a third party source or conduct their own evaluations, discount brokerages that think at the level of their customers, will be better able to understand whether or not they are doing enough to deliver and communicate value.  A second point shared by Dr. Li was that communication with clients shouldn’t be limited to when discount brokerages are trying to win new customers; instead there needs to be ongoing dialogue with existing clients that validates why the choice to give their business to one discount brokerage over another was a good one.

The bottom line according to Dr. Li is that if customers perceive a high degree of value in a discount brokerage, they will typically be more satisfied than those who do not.  The key message to the discount brokerage industry is that what customers think and perceive matters – not how big or small a particular deal is or how flashy an advertisement might be.

Follow the Data

When we looked at the results from the past four years of the survey (see section 2 for more details), it was clear that one company, Disnat, had managed to do far better than its competitors, coming in first each year of the survey and increasing its scores in consecutive years.  While a feat in and of itself, we found it particularly compelling that 2012 was a year in which Disnat not only did far better than their competitors in terms of investor satisfaction, but they also did far better than their own historical performance would have suggested.  Also of interest to us was why they have managed to do so well in this survey, yet so poorly or mediocre in other surveys such as the Globe and Mail Discount Brokerage Ranking or the Surviscor ratings. To find out the answers to these questions, we spoke to Laurent Blanchard Vice President and Manager of Online Brokerage at Disnat.

While it would be great to claim the achievement as industry leading, Mr. Blanchard instead mentioned that Disnat’s initial win of the J.D. Power Investor Satisfaction survey came as a bit of a surprise.  The strong performance is one that he attributes to a focus on what the company itself could control, things such as information technology infrastructure, customer service and providing education to investors. These have all been priorities at Disnat. To their credit, Disnat has produced a mixture of products that has resonated with their clients, such as their “guided portfolio strategy” which allows investors to mirror a professional portfolio and their partnership with Stockscores for investor education and training.  These investments appear to have paid off.

It can’t be known for sure what caused the tremendous spike in the results, but the combination of clear objectives, consistent leadership and customer focus are likely to have helped. What was not particularly clear to Mr. Blanchard was the variation in performance of companies between different rankings.  Some possible reasons he offered for this variation were that different surveys are measuring different groups of people, a point we certainly agree with after having looked more closely at how each ranking is determined.  Another possible reason might have been the lack of inclusion of the offering of Disnat’s products for active traders in other surveys.  Whatever the case, the sentiment echoed by both Mr. Blanchard and Dr. Li was that the investor satisfaction survey can be a valuable tool to help improve on weaknesses and build on strengths.

Conclusion

While the streak has been a good one, Mr. Blanchard admits next year’s result is anybody’s guess.  He was quick to point out that his closest competitors are strong brands and choices for consumers to consider.  The competition in the discount brokerage industry means that change and evolution are the realities confronting all participants. The expected pace of that change, unfortunately for Canadian self-directed investors, will be slower relative to what is happening in the American discount brokerage industry – there simply isn’t enough competition here. Headwinds facing the discount brokerage industry in Canada, however, may force discount brokerages to respond more quickly than they typically have in order to justify staying in business. Self-directed investors are reluctant to participate in the stock market and as a result trading volumes are down and costs to acquire and service customers are rising.  Ironically, this “perfect storm” of forces makes customers and their opinions all the more valuable to listen to when deciding whether or not a job of being a discount broker is a job well done.