Every brokerage firm is courting wealthy clients, and many of them say that serving the wealthy is what they do best. So just how are these firms doing? A new study based on high-net-worth customer opinions reveals a surprising mix of success and failure at 20 of the most prominent brokerage firms.
Perhaps most surprising is who comes out on top overall: Online brokerage firm TD Waterhouse (now known as TD Ameritrade) beat out full-service powerhouses Smith Barney, UBS, Merrill Lynch and Wachovia, just to name a few, in the overall ranking.
The survey was conducted by the Luxury Institute, an independent research organization that focuses on the high-net-worth consumer and the companies that cater to them. The 2006 Luxury Brand Status Index (LBSI) surveyed 1,000 consumers with a minimum age of 21 and minimum income of $150,000. The average household income for respondents was $616,000 with $3.8 million in net worth. (To link to the Luxury Institute’s Web site, where you can purchase the study, click here.)
Milton Pedraza, CEO of the Luxury Institute, says, “The discount broker/dealers like Schwab and TD are seen as having a more straightforward and more transparent value proposition. The perception is that the interests of the client and broker are more aligned.” Several of the write-in comments to the study reflected this opinion: One respondent said the firm has “low costs, no conflict of interest since no recommendations offered,” another said simply, “cheap prices, solid execution, no thrills, easy to use.”
Respondents were asked to rate on a scale of 0 to 10 just the firms they were familiar with on four different issues: consistently superior quality; unique and exclusive brand; used by people who are admired and respected (which was scored as social status); and the firm’s ability to make the customer feel special across the full customer experience (which was scored as self enhancement). The LBSI was then derived from an average of the four values.
In addition to an overall ranking of brand value, the survey also measured a brand’s “ability to merit a significant price premium,” “the willingness of affluent consumers to recommend the brand to people they care about” and whether consumers felt the brand had increased or decreased in its “status as a premier brokerage over the last 12 months.” Finally, all indices were analyzed with respect to gender, age, income and net worth to further calculate the strengths and weaknesses of each brand.
Ultimately, the overall LBSI numbers awarded to each of the 20 firms on the list don’t differ by wide margins: No. 1-ranked TD Waterhouse (LBSI of 5.57) isn’t far from No. 10-ranked Lehman Brothers (LBSI of 5.41). Says Pedraza: “The scores are close because the industry is fairly commoditized. That said, no one firm dominated every category.” For example, Smith Barney, which ranked second overall with an LBSI of 5.56, ranked seventh in “quality” but shared the No. 1 ranking for “social status” with Oppenheimer (LBSI 5.52, sixth overall). Charles Schwab, the hybrid online/retail broker, ranked third overall, but ninth in social status and 12th in self-enhancement.
An intriguing directional trend noted in the research that should be a wake-up call for all the firms is that nearly all respondents with less than $1 million rated the brokerage firms higher than respondents with more than $1 million. Four firms where this trend was most prominent and statistically significant are Charles Schwab, Fidelity, Merrill Lynch and H&R Block.
Pedraza says the consumer-driven ranking of brokerages is only the beginning. He hopes to be able to poll wealthy consumers about their individual advisors. “It will be a dedicated Web site, a portal where consumers can—for a small fee—rate their advisor and also see the ratings of a few hundred thousand other advisors. It’s coming,” he says.
The top 10 firms from the list of 20 ranked by LBSI are: TD Waterhouse (now known as TD Ameritrade), Smith Barney, Charles Schwab, Fidelity Brokerage, Deutsche Bank, Oppenheimer, UBS, A.G. Edwards, Bear Stearns and Lehman Brothers.