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The Worries Of The UHNW - Spectrem Group Survey

Harriet Davies Editor - Family Wealth Report 23 April 2012

The Worries Of The UHNW - Spectrem Group Survey

Ultra high net worth individuals are still in wealth preservation mode, according to the latest Spectrem Group quarterly survey, with more than half saying it is more important to protect principal than grow their investments.

Ultra high net worth individuals are still in wealth preservation mode, according to the latest Spectrem Group quarterly survey, with more than half saying it is more important to protect principal than grow their investments.

However, willingness to take risk rises among those in the highest wealth segment, with around 53 per cent of respondents in the $15-$25 million segment saying they are willing to take “significant” risk in a portion of their portfolios to achieve a higher return, according to the Investment Attitudes & Behaviors survey.

The sample group

Breaking down the UHNW sample group, which was made up of 482 respondents with a net worth between $5 million and $25 million not including primary residence, shows that nearly two-thirds are retired and around one-quarter are still working, with the remainder being “semi-retired”.

Retirement does not appear to be a worry for this segment, with 90 per cent predicting they will be able to live comfortably through retirement.

Senior corporate executives accounted for 18 per cent of the sample group, followed by entrepreneurs (15 per cent), and professionals such as accountants, doctors and lawyers (13 per cent).

Advisor dependency

It appears that the wealthy are less dependant on advisors than a year ago, with around 16 per cent of individuals ranking themselves as “advisor dependent” (where an investment professional makes nearly all investment decisions), down from 23 per cent last year, the survey found.

While the self-directed segment has remained constant at around 27 per cent, more people now identify themselves in the “advisor-assisted” group, as well as “event-driven”, where they make their own investment decisions but use an advisor for specialized services such as retirement planning and asset allocation or alternatives advice.

Furthermore, 60 per cent of the sample group said they enjoy investing and do not want to give it up, and 58 per cent like to be “actively involved” in the day-to-day management of their portfolios.

Drawing a conclusion from this, Spectrem Group says the UHNW “are likely to enjoy discussing investment strategies with their advisors,” and that advisors should therefore provide well-informed and holistic strategies for discussion.

Younger generations

According to the survey, the young are less concerned about taxes than their older counterparts, with only 73 per cent of the younger respondents (44 and under) saying tax implications are a selection factor in their investments compared to over 80 per cent for all other age groups.

A similar story applies to the level of risk associated with investments, with 76 per cent of younger respondents citing this as a selection factor for investments, compared to over 90 per cent for all other age groups.

Conversely, younger investors are more likely to consider social responsibility as a factor, with 57 per cent of the youngest age group citing the social responsibility of an investment as a selection factor.  

“Socially responsible investing will increase dramatically within this segment,” says Spectrem.

Where did the wealth come from?

Nearly all UHNW respondents to Spectrem’s survey identified hard work as the secret to their financial success, with a full 96 per cent citing this as a factor behind wealth creation. Education also featured highly, cited by 91 per cent, as did smart investing (87 per cent), frugality (75 per cent), and “being in the right place at the right time” (68 per cent). Taking risk was also a factor, as 61 per cent of the wealthy sample group thought this was a factor behind their success.

On the other hand, family connections and inheritance were only cited by 13 per cent and 32 per cent of respondents respectively, indicating that wealthy people tend to feel they have earned their status, rather than had it “given” to them. When responses were broken down by age, younger people were more likely to cite family and inheritance as reasons behind their wealth.

Concerns of the UHNW

Political concerns have risen over the past year, according to the report, with 80 per cent of ultra-wealthy individuals saying they are worried about the political environment, compared to 73 per cent the year before. The national debt was a concern for 82 per cent, up from 81 per cent a year earlier.

The upcoming general election is a worry to around three-quarters of wealthy individuals, according to Spectrem’s survey, while the proportion of wealthy people worrying about tax rises appears to have decreased – from 73 per cent a year ago to 65 per cent today.

Anxieties about inflation also seem to be waning slightly among the rich, with 60 per cent saying this is a concern in the latest survey compared to 65 per cent a year earlier.

But worries about wealth remain…

On the other hand, it seems that even as worries over tax rises and inflation have dipped slightly, concerns about maintaining wealth over generations have not diminished. In fact, two-thirds of survey respondents said the financial situation of their children and grandchildren was a source of worry to them.

“Maintaining their current financial position is one personal concern that has dramatically increased from 2011,” says Spectrem in its report.

The reason for this may be linked to costs associated with education and healthcare, for example, as survey respondents appeared to be more worried than a year ago about issues such as personal health and financing education for descendants. Spectrem also noted that almost half of the UHNW in the survey were financing the education of their grandchildren.

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