Investor psyches have been
changed radically by the financial crisis and now reflect
deep-seated emotional biases. Wealth managers are being urged to
adjust their management models to integrate behavioural finance
into their advice, products and systems in a scalable
way.
Go deeper with GlobalData
Will wealth management business
models have the scalability to deal with increased demands to
integrate behavioural finance into different wealth bands?
That is one of the key questions
coming out of the 2010 Merrill Lynch/Capgemini World Wealth
Report.
Integrating behavioural
finance
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Thank you!
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form
By GlobalDataBehavioural finance uses social,
cognitive and emotional factors to understand the economic
decisions of investors.
The report suggests wealth managers
need to use behavioural finance to strengthen portfolio management
and better understand client’s risk thresholds; however it
anticipates this could present problems of scale to many wealth
managers.
“Behavioural-driven investing
represents a major global socio-economic trend that will create
significant opportunities for industry growth and transformation,”
the report says in its conclusion.
“Behavioural finance can serve as a
potential differentiator for firms and advisers to truly understand
the emotional aspects of client behaviour as a lever in rebuilding
trust and confidence.”
“Wealth management firms and
advisers must incorporate those emotional factors into stronger
portfolio management and risk capabilities so as to properly
support client goals and needs,” it adds.
Ed Merchant, global head of capital
markets at Capgemini Financial Services, says while behavioural
finance is not a new phenomenon, there is a drastic shift to use
profiling on high net worth individuals (HNWIs) with assets between
$1m to $5m.
Merchant said, in the past,
behavioural investing has been offered to clients with $200m in
assets but not to clients with as little as $1m, but demand for
these services was increasing.
Increasing
scalability
Extending behavioural finance
practices to the broader global HNW population will challenge many
wealth management operational models, in particular more
product-centric or investment returns-oriented businesses that will
have to significantly adapt their service delivery model.
Merchant says wealth managers will
now have to decide what part of the HNW demographic they would like
to serve and how scalable their businesses are to accommodate for
changes in wealth.
Nick Tucker, UK and Ireland market
leader at Merrill Lynch Wealth Management, says wealth managers
need to have a behavioural approach to shaping client portfolios
that was more robust and process driven.
The report says engaging more product and risk specialists in
client meetings is one way wealth managers are tackling this
increased risk appetite.
Report highlights
Some other report highlights included:
- Asia-Pacific’s HNWI population rebounded in 2009 to reach 3m,
matching that of Europe’s HNWI population for the very first
time - BRIC countries are continuing to drive regional growth, with
Asia-Pacific wealth surging 31% to $9.7trn - 59% of HNWIs indicated they had regained trust in their adviser
over the past year, but 71% of HNWI investors have yet to regain
trust in the regulatory bodies
Merrill Lynch/Capgemini defined HNWIs as those
with investable assets of $1 million or more, Ultra-HNWIs have
investable assets of $30 million or
more.
