We are now three years on and the signs are that individuals are once again putting their trust in wealth managers but, interestingly, not in regulators or the financial markets.
This is one of the findings from the Merrill Lynch Wealth Management Capgemini World Wealth Report, 2011, that shows how high net worth individuals have grown in numbers and wealth during the course of last year. But in the UK in particular they are still considerably behind their pre-crisis peaks of 2007.
In 2010, 98% of high net worth clients are believed to have trust and confidence in their wealth management advisers, and 88% in their wealth management firms. This compares to 50% who lost faith in their advisers in 2008. Only 44% have faith in regulatory bodies, with nearly one-third still actively distrusting them.
The end result of all this is a change in what high net worth individuals are looking for from their wealth manager – and a distinct change in their approach to how they invest their money.
There has been a lot of talk this year about whether a portfolio should be ‘risk on’ or ‘risk off’ but the high net worth individuals are far more bearish, with 43.5% of their assets held in conservative assets despite watching the equity markets rise by 46.3% in 2009 and a further 18% last year.
“The fact that high net worth individuals still hold a significant portion of their assets in low-yielding instruments clearly demonstrates the effects of the crisis on the investor psyche,” concludes the report.
“They remain uncertain that markets will remain stable and that the financial crisis is over, and they fear that new and unforeseen systemic shocks could emerge.”
The relationship between these individuals and their wealth manager is changing, and looking ahead those running client portfolios may well have to get ready for conversations with a client who is missing out on potential returns as a result of being overly conservative.
The report describes it thusly: “Today’s post-crisis, client-driven paradigm is very different from yesterday’s firm-driven search for synergies.”
In plain English, wealth managers will have to pay even greater attention to their clients who will expect them to put in place a strategy designed to meet very specific goals rather than any arbitrary investment goals.
