J.D. Power and Associates Reports: Self-Directed Online Investors Make More Trades and Take More Risks

WESTLAKE VILLAGE, Calif., Oct. 24 /PRNewswire/ -- Self-directed investors who make the majority of their investment decisions independent of an investment advisor are more likely to be active traders with an appetite for riskier investments compared with investors who seek financial counsel, according to the J.D. Power and Associates 2007 Online Investor Satisfaction Study(SM) released today.

Among investors who trade securities online, 56 percent describe their investment style as self-directed, meaning that they make all of their investment decisions without the counsel of an investment advisor. Of those self-directed investors, 14 percent say they are aggressive investors willing to assume risks, while 41 percent describe themselves as moderately aggressive. In comparison, only 7 percent of investors who receive some advice from an advisor and only 4 percent who receive all of their advice from an advisor say their investment style is aggressive.

The study finds that self-directed investors spread their investments across more firms compared with investors with traditional full-service firms. Among investors who make some or all of their investment decisions independently, 62 percent of their total investment assets are with their primary online firm compared with 78 percent for investors who rely on advice from their financial advisor.

"Self-directed investors also are more likely to be active traders," said David Lo, director of investment services at J.D. Power and Associates. "Low-cost transaction fees are the norm for online trading, and self-directed investors are far less tolerant of high commissions because they are not taking advantage of the services provided by a financial advisor."

The study notes an evolution in how online investors use trading sites. While these trading sites were once just a means to make investment transactions, investors now also rely on their investment firms' Web sites for information and tips, news, and trading rules and regulations. Online investors in 2007 view their investment firms' Web sites as the primary source for investment information.

"We definitely have seen a major shift in how investors use their online investor firm Web sites," said Lo. "Now, online investors expect to get everything they need online to make informed decisions regarding their investments. Even if they can't get everything they need from their firm's site, investors want to be able to start there and be able to jump to other independent sources such as Morningstar and Standard & Poor's."

Now in its ninth year, the study measures customer satisfaction with online investment and trading firms based on performance in five factors. In order of importance, they are: information resources; cost; trade execution; Web site functionality; and interaction with customer service representatives.

Among the 20 online investment firms included in the study, Scottrade ranks highest in customer satisfaction and achieves the highest rank for the seventh time in eight years. Scottrade achieves an overall investor satisfaction index score of 825 on a 1,000-point scale -- an 11-point improvement from 2006 and performs particularly well in cost and trade execution. Vanguard follows Scottrade in the rankings with a score of 819, performing well in Web site functionality. Charles Schwab, Fidelity Investments and TD Ameritrade also perform above the industry average.

The study also finds that investors who have access to a local branch office are more satisfied, on average, than those who do not have local access. Approximately 42 percent of online investors indicate they have access to a local branch office for support, and these customers provide scores 25 points higher, on average, than investors who do not have access to a branch office. In addition, investors who have access to a local branch office tend to invest more of their assets with that online investment firm and are more tolerant of commissions and fees, compared with investors who don't have branch access.

"That's not to say that every firm should build more branch offices," Lo said. "There are firms such as Vanguard that have high investor satisfaction without them. It comes down to each firm's customer base. Active investors tend to require a higher level of customer 'touch' and therefore utilize a branch office to transact and resolve issues quickly. Less-active investors generally do not utilize those services nearly as often."

The 2007 Online Investor Satisfaction Study is based on responses from 5,024 online investors who invest with one of 20 firms included in the study. The survey was conducted in July 2007. To view ratings on online investment and trading firms, visit JDPower.com.

About J.D. Power and Associates

Headquartered in Westlake Village, Calif., J.D. Power and Associates is an ISO 9001-registered global marketing information services firm operating in key business sectors including market research, forecasting, performance improvement, training and customer satisfaction. The firm's quality and satisfaction measurements are based on responses from millions of consumers annually. For more information on cell phone ratings, car reviews and ratings, car insurance, health insurance and more, please visit JDPower.com. J.D. Power and Associates is a business unit of The McGraw-Hill Companies.

About The McGraw-Hill Companies

Founded in 1888, The McGraw-Hill Companies (NYSE: MHP) is a leading global information services provider meeting worldwide needs in the financial services, education and business information markets through leading brands such as Standard & Poor's, McGraw-Hill Education, BusinessWeek and J.D. Power and Associates. The Corporation has more than 280 offices in 40 countries. Sales in 2006 were $6.3 billion. Additional information is available at http://www.mcgraw-hill.com.

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    Brandware Public Relations     J.D. Power and Associates
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    Overall Customer Satisfaction Ranking
    (Based on a 1,000-point scale)
    Scottrade                 825
    Vanguard                  819
    Charles Schwab            812
    Fidelity Investments      793
    TD Ameritrade             786
    Industry Average          784
    ShareBuilder              781
    T. Rowe Price             760
    E*TRADE Financial         748
    Merrill Lynch Direct      740
    Ameriprise Financial      715

NOTE: Due to changes in study methodology, 2007 Online Investor satisfaction index scores and rankings are not comparable to previous years.

Included in the study but not ranked due to small sample size are: Banc of America Investment Services, Buy & Hold, Cititrade, J.P. Morgan Chase, optionsXpress, Smith Barney Access, USAA, Wachovia, Washington Mutual and WellsTrade.