Pandemic-era investors often face more issues than tenured investors: J.D. Power survey | ZDNet

J.D. Power released last week the results of its annual Self-Directed Investor survey. The company found that newer investors, specifically those that joined over the past three years during the COVID-19 pandemic, face more issues and tend to be less financially healthy.

According to the study, of the investors who began investing during the pandemic, 39% are classified as financially healthy compared to 73% of tenured investors. Additionally, 19% of pandemic-era investors experienced problems compared to 13% of tenured investors — investors that have been investing with do-it-yourself (DIY) brokers for longer than three years.

The study specifically looked at financial vulnerabilities like the inability to pay bills on time, debt-management ability and availability of sufficient savings to cover six months or more of living expenses. The survey revealed that investors classified as financially vulnerable felt less satisfied with their investing firm.

Michael Foy, senior director and head of wealth intelligence at J.D. Power, told ZDNet that the difference in percentage between financially vulnerable and healthy is due to factors including age, knowledge, financial environment, and the sheer number of new investors.

“We know that just the fact that there were so many new accounts and investors coming on board in a pretty short period of time, in and of itself, created some customer experience problems,” he said. “But certainly the fact that lots of these folks are younger, do have less knowledge, less financial literacy, is also part of the picture.”

The deck is stacked against newer, younger investors. They have higher student debt, tend to lack cash flow, have less financial experience and face a lack of financial literacy resources. Getting into investing is an uphill battle, so these statistics aren’t altogether surprising.

“There’s definitely a strong need for the industry to play an important role in helping to educate these folks that are really just getting up to speed and learning about investing, and the industry is certainly aware of this,” Foy said.

Not only should these DIY investing companies like Robinhood do more to promote the financial literacy of clients, but they should also offer tools that give them more control of their finances. According to Foy, these could include things like budgeting tools, investing calculators, informational webinars, as well as content that is more geared toward newer investors.

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“If you go to some of these platforms, you might find content about how to execute an options trading strategy, which is really important for sophisticated investors, but many investors, particularly newer ones, are not necessarily in that place, and having content that is more basic like intro investing 101 is really important,” Foy said.

By offering more educational resources, ironing out technical problems during onboarding and beyond, and by increasing the personalization of messaging and user experience, investing firms would likely build more loyalty in investors while also leaving them feeling more overall satisfaction.

If investors felt more loyalty to their investing firms, they could be less tempted to take advantage of how inexpensive it is to move from one investing platform to another. 

“Increasingly, the expectation consumers have is that they’re going to get personalized experiences. Particularly with something like an investing platform where many of them have tools that are intended to help folks with setting goals and priorities and understanding more about risk profile, and so these firms have the ability to, if they don’t already, capture a lot of relevant information that can help them to do a better job of targeting their messaging to individual investors,” Foy said.

And although the survey was conducted from DIY investors, that doesn’t mean they aren’t looking to their firms for a bit of guidance. “[Investors] are certainly looking for tailored advice that reflects their particular situation, their needs, their goals, and their objectives,” Foy said.

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These factors become increasingly important for investing firms as digital engagement continues to rise. And with many consumers dealing with higher prices of everyday items due to rising inflation, some may decide to turn to investing. Investing could give consumers a better place to store their money as it could lead to higher returns than if it were left in a savings account.

“People are recognizing that they need to put their cash to work so as not to lose value because of inflation,” Foy said.

The study found that Vanguard had the highest overall satisfaction rating, while Wells Fargo had one of the lowest. Based on a 1,000 point scale, Fidelity had a satisfaction rating of 730, Robinhood had a rating of 693, and Wells Fargo was rated at 653.  

The study is based on responses from 4,888 investors who make their investment decisions without consulting a full-service financial advisor. It was fielded from November 2021 through January 2022.