Wealthy investors regained trust in their financial advisors and made investment decisions more emotionally, highighting an increasing focus on behavioral finance, according to the fourteenth annual World Wealth Report from Merrill Lynch and Capgemini.

High net worth individuals regained not only wealth last year, but also trust in their financial advisors, according to the fourteenth annual World Wealth Report, released yesterday by Merrill Lynch Global Wealth Management and Capgemini.

Nearly 60 per cent of individuals with over $1 million in investable assets said they had regained trust in their advisor over the past year, and 56 per cent said they had regained trust in their wealth management firm, according to the survey. (To see yesterday's report on the overall findings, click here).

The trend was especially noticeable in the US, head of US wealth management for Merrill Lynch Lyle LaMothe said at a press conference in New York yesterday.

“Client satisfaction for Merrill clients last year came within one percentage point of the all-time high in 2007, which was over 90 per cent,” LaMothe said. “We invested in providing advisors with the opportunity to earn more industry credentials and we wanted to deepen the channel experience and align the advisors with client needs. It’s a full service model that was designed for conversation and the clients responded.”

LaMothe also noted that while the economic downturn “left a profound impact” on wealthy investors, “we are in fact experiencing a recovery.”

“High net worth investors have emerged more cautious and conservative,” he said, “but they have emerged.”

Behavioral finance and the emergence of emotional factors as a “prominent feature” in the psyche of wealthy investors also emerged as a major trend in the wealth report.

“Investment decisions are being driven more emotionally,” said Bertrand Lavayssiere, managing director, global financial services for Capgemini Group. “A fundamental shift is underway in how wealth management firms are presenting investment advice to high net worth clients. Many firms are beginning to embrace behavioral finance in order to rebuild investor trust and deliver risk-adjusted returns.”

Wealthy clients have in fact become increasingly concerned with non-financial aspects of investing, according to LaMothe.

“In my conversations with clients it’s clear that what they want is simplicity and transparency,” he said. “They’re beginning the process with the end in mind. They’re looking at their life cycle and they want more elaboration. They’re saying ‘I want to know why I’m doing what I’m doing’ versus investing itself.”

As a result, LaMothe said, “advisors are spending a lot of time trying to understand clients’ goals.”

That focus isn’t going away anytime soon, said Ileana van der Linde, a principal within the wealth management practice at Capgemini Financial Services.

“Firms are saying ‘We need to change how we’re going to approach client’s fears and caution and address  their overall holistic needs,’” van der Linde said. “Behavioral finance accounts for emotional tactics in investment decision making and most firms are looking at improving risk profiling and underlying risk needs.  You’re going to see a deepening of individuals’ investment risk outlook going beyond the rational.”