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Population of high net worths growing at 17.1 per cent

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The world’s population of high net worth individuals is growing at 17.1 per cent, according to Capgemini and Merrill Lynch Global Wealth Management’s 14th annual World Wealth Report.

The report indicates that emerging wealth recovery has nearly recouped 2008 losses, returning to levels last seen in 2007.

High net worth wealth has increased by 18.9 per cent to USD39trn.

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

High net worth individuals are favouring predictable returns and cash flow, as evidenced by a rise in allocations to fixed income instruments.

High net worth individuals are generally seeking higher returns and greater geographic diversification in their portfolios.
 
However, despite an increase in the number of high net worth individuals, 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 also reveals that high net worth individuals have remained cautious and point to effective risk management (90 per cent), transparency and simplicity (93 per cent), and specialised advice (93 per cent) from firms and advisers as top priorities in the current environment.

They are especially keen to work more actively with their advisers 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.

Although high net worth individuals have regained trust in their advisers and firms, their trust in regulatory bodies and financial markets has yet to fully recover – while 59 per cent indicated they had regained trust in their advisor over the past year, 71 per cent 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 high net worth individual investors today, firms can differentiate themselves by integrating behavioural finance into investing strategies.
 
The report also reveals that as high net worth individuals 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 (luxury automobiles, boats, jets); art; and jewellery, gems and watches. However, such demand lifted in the latter half of 2009. 

According to the report, 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.

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