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As a consequence of waning trust in the financial services industry, affluent investors appear to be retrenching, consolidating their investment accounts and concentrating more of their assets with a single distributor firm. While this is positive for primary distributors, it’s imperative that they increase customer loyalty of affluent investors to retain these new assets.
According to Investor Brandscape, investors report an average of 2.03 distributor relationships this year, down from 2.31 in 2015. Concurrently, the average percentage of assets that investors direct to their primary distributor, the firm with which an investor holds the largest proportion of his or her portfolio, has significantly increased to 81% from 70% in 2015.
Interestingly, the trend toward asset consolidation is driven by Millennials, Gen Xers and 2nd Wave Boomers, as these investors report holding a larger proportion of their portfolios with their primary distributor this year. Yet there is an inverse relationship between number of distributor relationships and age. Boomer and Silent Generation investors generally have fewer distributor relationships compared with Millennial and Gen X investors.
This phenomenon may seem like good news for distributors and could tempt these firms to rest on their laurels and enjoy this favorable trend toward consolidation from which they currently benefit. But there are dark clouds on the horizon. Investor satisfaction and loyalty ratings are declining, which should serve as a warning to investment account distributors that affluent investors are increasingly displeased and may be susceptible to changing their primary provider relationships.
In a year where investor trust in the financial investment community has dropped significantly and loyalty to firms is being tested, how can investment firms weather the storm and strengthen client relationships? The key lies in emphasizing the drivers of loyalty to distributor firms, which this year include the aspects of “financial stability” and “easy to do business with” along with “range of investment products and services.” While the industry average loyalty score is down substantially compared with 2015, a handful of firms have bucked this trend, maintaining or even strengthening loyalty among clients for whom they serve as primary distributors:
2016: Top Five Firms with Strongest Customer Loyalty Scores
Among Clients for Whom Distributor Is Primary Relationship
- LPL Financial
- Edward Jones
- Raymond James
Supporting these top five ratings, LPL tops the leaderboard for highest satisfaction score in three categories: financial stability, quality of investment advice, and fees and expenses.
Edward Jones also claims top ratings in three categories: easy to do business with, retirement planning services, and website investment planning tools and resources. Meanwhile, Raymond James tops the distributor list for client satisfaction ratings with “range of investment products and services” and “quality and clarity of statements”, suggesting that the top distributor firms are each taking a different approach in differentiating themselves in a crowded competitive field.