March 24, 2023

Bucks Blog: User Satisfaction With Online Brokerages Declines

Scottrade moved to the top of the rankings in an annual study of customer satisfaction with online brokerages, but satisfaction with the self-serve tools over all fell from last year.

The study from J.D. Power Associates found that the industry average for customer satisfaction, on an index of 1,000 points, was 752 this year, down from 768 last year. The index measures customer satisfaction of 10 “self directed” brokerages based on several factors, including customer interaction, trading charges and fees, and problem resolution. The findings are based on responses from 3,619 investors who make all of their decisions without help from an investment adviser. The study was fielded in January and February.

Charles Schwab was second and Vanguard third.

The overall decline in satisfaction stemmed broadly from “challenges with effective communication,” according to J.D. Power.

Unlike in the earlier days of online trading, many users of the services are not active traders; about 40 percent of those participating in the study said they had not made a trade in the past 12 months, said Craig Martin, director of the wealth management practice at J.D. Power. “They’re not day traders,” he said. Such users aren’t making hundreds of trades in a year, he said, but are using the accounts for information.

Some sites are offering more tools and information for investors who want to research stocks. But users may actually find it difficult to find the information they want if the Web site isn’t well organized and easy to navigate, he said. Brokerages also can do a better job of communicating with clients in the way they prefer, whether that is by e-mail, telephone or mail, the study found.

Users also seemed frustrated with the way the sites explained their fees. The percentage of investors who say they “completely” understand their brokerage’s fee structure dropped to 35 percent in 2013 from 39 percent in 2012. In addition to per-trade fees, the brokerages may also charge maintenance fees and inactivity fees.

Scottrade did well in communicating with customers, which helped it move from third to first in the rankings, Mr. Martin said. The service scored well in account offerings, trading charges and fees, and interaction. “They help customers completely understand the fees,” he said, and its fee structure is “simple and straightforward.”

The overall industry score suffered from declines in satisfaction at some of the larger players, which pulled down the index because those firms represent a large number of customers, he said. Fidelity, for instance, dropped from fifth place last year ( when it tied with T. Rowe Price) to seventh place this year, although it still ranked above the industry average.

Three firms ranked below average: ShareBuilder from Capital One (formerly owned by ING Direct), Merrill Edge and Wells Trade.

Do you use an online brokerage, and are you pleased with its service?

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A Capitalist’s Dilemma, Whoever Wins the Election

In many ways, the answer won’t depend on who wins on Tuesday. Anyone who says otherwise is overstating the power of the American president. But if the president doesn’t have the power to fix things, who does?

It’s not the Federal Reserve. The Fed has been injecting more and more capital into the economy because — at least in theory — capital fuels capitalism. And yet cash hoards in the billions are sitting unused on the pristine balance sheets of Fortune 500 corporations. Billions in capital is also sitting inert and uninvested at private equity funds.

Capitalists seem almost uninterested in capitalism, even as entrepreneurs eager to start companies find that they can’t get financing. Businesses and investors sound like the Ancient Mariner, who complained of “Water, water everywhere — nor any drop to drink.”

It’s a paradox, and at its nexus is what I’ll call the Doctrine of New Finance, which is taught with increasingly religious zeal by economists, and at times even by business professors like me who have failed to challenge it. This doctrine embraces measures of profitability that guide capitalists away from investments that can create real economic growth.

Executives and investors might finance three types of innovations with their capital. I’ll call the first type “empowering” innovations. These transform complicated and costly products available to a few into simpler, cheaper products available to the many.

The Ford Model T was an empowering innovation, as was the Sony transistor radio. So were the personal computers of I.B.M. and Compaq and online trading at Schwab. A more recent example is cloud computing. It transformed information technology that was previously accessible only to big companies into something that even small companies could afford.

Empowering innovations create jobs, because they require more and more people who can build, distribute, sell and service these products. Empowering investments also use capital — to expand capacity and to finance receivables and inventory.

The second type are “sustaining” innovations. These replace old products with new models. For example, the Toyota Prius hybrid is a marvelous product. But it’s not as if every time Toyota sells a Prius, the same customer also buys a Camry. There is a zero-sum aspect to sustaining innovations: They replace yesterday’s products with today’s products and create few jobs. They keep our economy vibrant — and, in dollars, they account for the most innovation. But they have a neutral effect on economic activity and on capital.

The third type are “efficiency” innovations. These reduce the cost of making and distributing existing products and services. Examples are minimills in steel and Geico in online insurance underwriting. Taken together in an industry, such innovations almost always reduce the net number of jobs, because they streamline processes. But they also preserve many of the remaining jobs — because without them entire companies and industries would disappear in competition against companies abroad that have innovated more efficiently.

Efficiency innovations also emancipate capital. Without them, much of an economy’s capital is held captive on balance sheets, with no way to redeploy it as fuel for new, empowering innovations. For example, Toyota’s just-in-time production system is an efficiency innovation, letting manufacturers operate with much less capital invested in inventory.

INDUSTRIES typically transition through these three types of innovations. By illustration, the early mainframe computers were so expensive and complicated that only big companies could own and use them. But personal computers were simple and affordable, empowering many more people.

Companies like I.B.M. and Hewlett-Packard had to hire hundreds of thousands of people to make and sell PC’s. These companies then designed and made better computers — sustaining innovations — that inspired us to keep buying newer and better products. Finally, companies like Dell made the industry much more efficient. This reduced net employment within the industry, but freed capital that had been used in the supply chain.

Clayton M. Christensen is a business professor at Harvard and a co-author of “How Will You Measure Your Life?”

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