High net worth individuals re-couping losses of 2008 but adopting a cautious attitude to investment, report shows

News - Funds

Written by Ray Clancy

Wednesday, 23 June 2010 13:00

Emerging wealth recovery has nearly recouped losses from 2008 and is returning to levels not seen since 2007, according to a new report.

The world’s population of high net worth individuals is growing at 17.1% and their wealth has increased by 18.9% to $39 trillion, the 14th annual World Wealth report from Capgemini and Merrill Lynch Global Wealth Management shows.

The BRIC countries are continuing to drive regional growth, with Asia Pacific leading emerging wealth recovery, it also shows.

HNWIs are favouring predictable returns and cash flow, as evidenced by a rise in HNWI allocations to fixed income instruments and they are generally seeking higher returns and greater geographic diversification in their portfolios.

However, despite an increase in the number of HNWIs, investors are remaining cautious, with consumer confidence still low. This has lead to changes in investor behaviour, leading to firms and advisors having to incorporate new factors into investment strategies, the report says.

HNWIs have remained cautious. Some 90% give importance to effective risk management, with 93% highlighting transparency and simplicity and the same, 93%, feeling that specialised advice from firms and advisors is a top priority in the current environment.

They are especially keen to work more actively with their advisors to properly understand the nature and potential performance of specific investments, manage their downside risk, and receive advice that is aligned with realistic and appropriate goal-setting, based on their actual risk profile, the research found.

Although HNWI clients have regained trust in their advisors and firms, their trust in regulatory bodies and financial markets has yet to fully recover. Some 59% said they had regained trust in their advisor over the past year, while 71% of HNWI investors have yet to regain trust in the regulatory bodies that are supposed to monitor the markets and protect investors.

Clients are demanding fundamental changes in how they are served and are rewarding firms that can clearly demonstrate a sharper understanding of their emotional and intellectual needs and objectives. To effectively meet the needs of HNWI investors today, firms can differentiate themselves by integrating behavioural finance into investing strategies, the report points out.

The report also reveals that as HNWIs re-entered the financial markets after the global economic crises, they have also returned to investments of passion. When compared to pre-crisis levels, outright global demand in 2009 remained weaker in many categories, including luxury collectibles such as cars, boats, jets; and art and jewellery, including gems and watches. But such demand lifted in the latter half of 2009.

The demand for investments of passion overall is likely to increase in 2010 as wealth levels rebound, evidenced by the fact that auction houses, luxury goods makers and high-end service providers all reported signs of renewed demand toward the end of 2009, and in the early part of 2010, the report adds.