How 2008 changed wealthy investors

After the financial crises in 2008 and 2009, high-net-worth (HNW) individuals are cautiously returning to the markets. And, as they do, they are pushing the envelope, increasing their expectations of their wealth managers, requesting more information, more transparency and more specialized advice.

And wealth managers are keenly listening. This emerged during a meeting this week where 80 Chartered Financial Analysts (CFA) gathered in Toronto to learn how to stay competitive in a rapidly changing environment and develop skills and solutions to successfully attract and serve high-net-worth clients.

The CFA designation is the gold standard in the wealth management industry around the world.

“High-net-worth individuals have a cautious pursuit to returns,” says Petrina Dolby, Vice President, CapGemini. Dolby presented findings from the World Wealth Report, a global benchmarking study that monitors HNW investor behavior. They talk to investors advisors from around the world. Dolby says there is a significant difference in investor behavior coming out of the financial crisis.

The biggest change since 2008 is HNW investors are far more engaged in their financial affairs, says Dolby. They’re more conservative, having been personally affected by the financial meltdown. Emotion drives their investments decisions, not so much logic. As a result, they’re not relying solely on their wealth managers anymore. They doing more upfront research, reading product disclosures, asking more focused, educated questions. They know more about fees. They’re not just relying on wealth managers for advice. They’re forcing advisors to do more homework before meeting them. This will raise the bar on client service in the financial services industry.

The wealthy clients have increased their expectations from their wealth managers. Preserve my capital. Provide effective portfolio management. Be transparent with me and help me understand your fee structure (“How much do you make if I invest in this fund, exactly?”). Give me specialized advice. And most important, give me independent, objective investment advice.

Wealth managers are responding by providing a more holistic offering. Expert teams representing all facets on finance meet with HNW clients. Dolby believes full-service firms are most likely to address these expectations, but independent advisors can address independent advice strongest.

HNW investors are defined as those with at least $1 million in investable assets, excluding the primary residence. In 2009, the world’s HNW population increased by 17% to 10 million and the wealth increased by 19% to $39 trillion from 2008. The Asia Pacific region has eclipsed Europe with the number of HNW individuals and the amount of overall wealth. Canada continues to grow and remains in the top 10.

From an investment standpoint, Dolby says wealthy investors are looking for more predictable returns and increasing their investments in fixed income products. She expects to see a return to equities this year, as well.

And they want the world. “When we talk to financial advisors, they say their clients are pushing them to think more globally,” says Dolby. She advised wealth managers to bring in specialized advisors who know where the global markets are going, and where the global organizations are to better serve high-net-worth clients. “We saw a huge increase in HNW clients investing outside of their home market. Europeans invested significantly in Canada in the past year. They are looking for Canadian headquartered organizations who are expanding in to the U.S., so they have some U.S. exposure.”

Dolby says she’s seeing a renewed interest in “passion investments”—art, wines, but also luxury cars, boats and even jets. “They’re collecting it but they’re being more strategic about it, creating smarter exit strategies to sell,” Solby says. However, as the population ages, there is more focus on health and wellness spending, too.

On Philanthropy

North American philanthropic contributions tapered off in 2009, but wealthy clients want their advisors to regularly monitor philanthropic investments and provide assessments on the impact their making with their contributions. This is a new area not seen or requested before, says Dolby. Wealth managers are developing a specialization around philanthropy by building in-house expertise or partnering with third-party experts.

Another interesting trend is that wealthy clients aren’t just giving money away. They’re concerned with how the next generation will manage this level of wealth. To instill responsibility and accountability, they’re microfinancing the next generation with “managing their own passion,” says Dolby. Also, they dabble in angel investing, providing finances to underprivileged entrepreneurs but expecting a return.

This article was originally published on capitalmagazine.ca.