Opportunities in a Downturn - Forbes

[Pages:3]in association with:

HNW, INC./Forbes Insights Wealth PulseTM

Opportunities in a Downturn

Almost no American households--even those

with $1 million to $10 million?plus in investible

assets--have remained unscathed during the cur-

rent economic downturn. Yet such times of crisis

can serve as an optimal backdrop to study the

unique attitudes and behaviors of millionaires.

For this Wealth Pulse study, HNW, a strategic marketing firm focused on the high-net-worth segment, and Forbes Insights surveyed 486 individuals with net investable assets of more than $1 million. The goal was to gauge how the recession may be affecting their attitudes toward investing, spending and charitable giving. The responses showed an inherent sense of optimism within this high-net-worth segment; participants maintained a relatively positive take on the current economic crisis.

For example, many respondents indicated that they are still spending in a number of categories at prerecession levels. When this study polled participants with regard to their purchasing activity in 13 areas of goods and services, the majority answered that they did not have plans to cut back. While on the surface this choice could appear to be driven by the spoils of wealth, there's more to the story. In reality, the second most popular response--"have already cut back"--points to the seeming prescience of those wealthy individuals who likely saw trouble up ahead long before others. In preparation, they scaled back their consumption. Now, as headlines talk of belt-tightening families across most social strata, wealthy households have already made their sacrifices and are beginning to focus and react to what they perceive is the next great financial opportunity--a road to recovery in 2009?10.

Figure 1: When will recovery from the current recession begin?

2%

11% 11%

22%

? 2009

? First half of 2010

? By end of 2010

? After 2010

54%

? Don't know

How do you see the current economy in the context of your investment strategy?

14% 31%

19%

12% 25%

It is...

? an opportunity to grow my money ? a time to reassess my investment

strategy

? a time to save as much cash as

possible

? a time to withstand negative

growth

? a threat to my financial security

? Copyright Forbes 2009

Wealth Pulse is a trademark of HNW, Inc.

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The HNW/Forbes survey looked at attitudes and actions in three key areas:

Wealth Management: No change in plans...or planners What they've done: A key indicator of confidence in the economy is a household's overall money management and investment strategy. Survey respondents said they have no intention of changing advisors (79%) or their bank (81%). A majority (58%) report working closely with their advisors to monitor allocations and manage their strategies, though a preponderance of decamillionaires (34%) are according a greater amount of latitude to their advisers to make day-to-day decisions.

Those not using an advisor to manage their investments constituted one of five individuals surveyed.

What's ahead: More than six out of 10 millionaires have no plans to revise their retirement or estate planning strategies, while 56% have made some allocation adjustments within their portfolios in response to the markets' downturn. In fact, 31% of the overall respondents feel that now is a great "opportunity to grow my money," and 63% feel that the recovery is under way or imminent in 2009 (Figure 1).

Of the small group (21%) of respondents who said they are "very likely" or "somewhat likely" to leave their advisers in the next six months, 43% indicated that they plan to manage their assets on their own. Those millionaires on the lower end ($1 million to $4.9 million in assets) and decamillionaires are much more likely to manage their own affairs than those in the $5 million?$9.9 million range.

decided to cut back their expenditures. Now, however, seeing recovery well within their sights, the wealthy no longer feel a need to alter spending strategies.

Figure 2: Have you cut back or increased your household's lifestyle spending in response to the current economic conditions?

Car/motor vehicle

22

9

Home fashion and d?cor

32

15

Food and dining out

26

15

Wine and beverages

20

13

Entertainment (non restaurant)

25

18

Homes or residences

15

9

Personal technology purchases

19

9

? Have cut back spending ? Plan to cut back spending ? No change ? Have increased spending ? Plan to increase spending

60 43 54

60 52

66 58

54 64

4 52 32 55 86

Lifestyle: A positive outlook informs spending habits This survey polled participants on their spending choices in 13 categories of goods and services, including travel and leisure, fashion (including jewelry and watches), home d?cor, and automotive (Figure 2).

What they've done: In every category, "No change" in spending was the leading response. The second most popular answer across the board: "Have cut back spending."

While this is a seeming contradiction, it may be more indicative of how the wealthy have proved to be on the forefront of economic trends. Having apparently seen the current downturn ahead of others last year, these individuals

A word on the word luxury

These spending trends (shown in Figure 2) track nicely with the survey's findings on how participants perceive the concept of luxury. Even in troubled times, 42% do not feel that luxury is "distasteful." They do, however, agree that current economic conditions are redefining luxury in less extravagant terms (50%) and see luxury goods or services as time-savers (45%). They do feel that luxury is exclusive (75%), pampers you (76%), and should be something that's custom or unique (43%). Given these parameters, it makes sense that these households are spending less on visible signs of wealth, such as watches, fine jewelry and accessories. Instead, they are consuming more bottles of fine wine and gourmet dinners or perhaps investing in household technology items such as space-saving digital music systems.

? Copyright Forbes 2009

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What's ahead: Two-thirds of the respondents reported "no change" in home/residence expenditures--the strongest category of all. Other strong showings include autos (60%), dining out and entertainment (59%), wine/beverage spending (68%), memberships (57%), and personal technology. The latter is also the category that respondents said they're more likely to spend more on this year, with 14% planning an increase. Those responding reported the categories of fashion/accessories, home d?cor, jewelry/ watches and art/collectibles among the most likely to see reduced spending activity.

Giving: Tough times can't daunt philanthropists What they've done: Happily, the charitable activities of the millionaires surveyed correspond with their optimistic spending habits in relation to creature comforts--38% of respondents reported no planned changes to their giving plan, while 28% said that they "have cut back."

What's ahead: Again, believing the worst is over, these wealthy individuals are staying the course from here on out. However, this giving may be somewhat more concentrated in terms of the number of charities receiving funds; 49% of respondents reported a previous or intended reduction in the number of charities they support.

Of those who have increased or who are planning to increase their charitable giving (15%), three out of four cited social responsibility or a fear of their causes suffering losses as the primary motivation for increasing their gifts (Figure 3).

A Brighter Future Throughout the survey, respondents clearly showed their positive attitude and ability to see past the current malaise to a brighter and more prosperous future ahead. For those of us who have always considered America's millionaires to be a bellwether for what's to come in our economy and culture, this report brings good news.

Among the wealthy, economic optimism and confidence in the expertise of their advisors abounds--and they're staying the course

with their plans. Those making changes are likely to do so in favor of managing their own affairs. Overall, wealthy

Figure 3: Which statement best describes your reason for increasing your charitable giving?

Overall

41

34

11

14

$1 million?$4.9 million

42

$5 million?$9.9 million

47

$10 million plus

35

16

29

32

39

4

? Because I can ? Because others may cut back and causes will suffer ? For the tax advantage ? Other

13

16

5

22

investors remain open to new opportunities and may not be as daunted as less affluent investors by the recession.

The wealthy are spending as much, if not more, on travel,

entertainment, cars and homes. However, they are cutting back on other visible luxury goods and indulgences, such as big-ticket jewelry, watches, art and other collectibles. Exceptions may occur here with goods or services that they see as credible time-savers or as something that offers unique value and customization.

While the wealthy are still giving to charity, the organizations receiving these donations may feel a bit more competition, since

respondents report giving to fewer causes. Those less likely to be giving cite "the economy" and "prudence" as principle reasons. However, those more inclined to give are doing so out of a sense of social responsibility or obligation.

Methodology

This Wealth Pulse is based on the results of a survey conducted by Forbes Insights for HNW in the first half of 2009. Forbes Insights reached 486 individuals with investible assets of more than $1 million. More than half (53%) of respondents had investible assets of $1 million to $4.9 million; 26% were in the $5 million to $9.9 million range; and 23% had investible assets of $10 million or more.

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? Copyright Forbes 2009

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