Overall customer satisfaction with the big five and midsize banks in Canada has declined this year, due largely to a decline in fee satisfaction, according to the 2012 Canadian Retail Banking Customer Satisfaction Study released Thursday by Westlake Village, Calif.-based J.D. Power and Associates

The decline in satisfaction directly impacted loyalty and advocacy metrics, both of which have dropped year over year. The advocacy metric, or the percentage of customers who say they “definitely will” recommend their bank to family and friends, declined by five percentage points, while customer loyalty, or the percentage of customers who say they “definitely will” reuse their bank in the future, declined by four percentage points, compared with 2011.

In addition to the impact of the decline in satisfaction, loyalty and advocacy rates have also been negatively affected by deterioration in customers’ perceptions of their bank’s brand image, which is most notably reflected in declines in perceptions of reliability and financial stability.

According to the survey, the primary cause of the decrease in fee satisfaction is an increase in the number of changes to fee structures, with 27% of customers experiencing changes, compared with 17% in 2011. As a result of fee structure changes, satisfaction with fees has declined by 25 points to 592 (on a 1,000-point scale) from 2011.

“Not only are customers frustrated with changes to their fee structure, but many are also confused by the changes, leading to the lower satisfaction,” said Lubo Li, senior director of the financial services practice at J.D. Power and Associates.

The shift to digital banking

The survey notes that online usage has increased during the past three years to 86% in 2012 from 80% in 2010. Online usage now exceeds branch usage, which has fallen steadily during the past three years. In addition to increased online usage, mobile phone usage has also increased since 2010 — doubling to 8%.

The increase in online usage hasn’t boosted customer satisfaction. The survey finds that online satisfaction has declined by eight points in 2012, compared with 2011. Online satisfaction is down, due primarily to lower ratings for ease of navigating website and range of services performed online.

The study also finds that despite the shift to digital channels, branch locations continue to be an important driver of satisfaction.

Offering advice is a risk

Financial advisors, included for the first time in the 2012 study, may have a positive impact on satisfaction. Overall satisfaction is 824 when the advice provided by a financial advisor completely meets customers’ needs, compared with 735 when no advisor is assigned. However, overall satisfaction is 700 when a financial advisor provides advice that only partially meets their needs. Customer satisfaction declines even further to 585 when the advice does not meet their needs at all.

“Offering assigned financial advisors is a risk, but one that pays off with highly satisfied customers if the advisor takes the time to fully understand and address the needs of customers,” said Li. “If the right personnel are not on staff, it may be better not assigning anyone.”

The study, now in its seventh year, examines customer satisfaction with their primary financial institution in three segments: big five banks, midsize banks and credit unions. In all segments, customer satisfaction is measured across seven factors (listed in order of importance): account activities; account information; facilities; product offerings; fees; financial advisor; and problem resolution.

TD Canada Trust ranks highest in overall customer satisfaction among big five banks for a seventh consecutive year, achieving a score of 769. TD performs well in all seven factors.

Among midsize banks, ING Direct Canada ranks highest in overall customer satisfaction with a score of 834. ING Direct performs particularly well in four of the seven factors: fees, account information, account activities and product offerings.

The survey is based on responses from nearly 12,000 customers who use a primary financial institution for personal banking. The study includes the largest financial institutions — banks and credit unions — in Canada and was fielded in February and May 2012.