Recent financial and economic turmoil has had a notable impact on high net worth Americans, with 74% saying they feel less wealthy than they did a year ago, according to a new study by Phoenix Companies Inc., Hartford.
In comparison, a similar Phoenix Wealth Survey in 2008, in the early part of the recession, found only 47% felt less wealthy than they did a year earlier. A Phoenix study in the relatively benign economy of early 2007 found just 19% of wealthy Americans felt they weren’t as rich as the year before.
The study, the latest of 10 annual surveys Phoenix has done among American households with a net worth of at least $1 million, found only 26% felt wealthier than they were in 2008. That was down sharply from 54% who felt wealthier in the survey of early 2008 and 81% in early 2007.
The 2009 Phoenix Wealth Survey findings are notable because they take in the reaction of wealthy Americans to a deepening recession and the decline of the stock market. The latest study, completed in February, was conducted via the Web among more than 1,700 affluent households by Harris Interactive Inc., Rochester, N.Y.
Among a number of striking trends found by the survey was a drop in the proportion of wealthy Americans who do not receive advice from a primary financial advisor. In fact, the number of those using any type of advisor also declined.
Phoenix found 36% of affluent Americans in 2009 did not have a primary financial advisor, down from 41% in 2008, while 27% did not receive advice from any advisor, down from 33% the year before.
However, the responses to the advisor question in 2009 were still above the levels of a few years ago. In 2006, for instance, 33% said they did not have a primary financial advisor, while 22% said they did not receive advice from any advisor.
Of those who said they had a primary financial counselor in 2009, 85% were satisfied with the advisor, down a bit from 2008, when 89% said they were satisfied.
Yet more respondents than before who had a primary financial advisor said they might be looking for a new one in the next 12 months–13% in 2009, up from 8% the year before.
Of those who were looking for a new primary advisor, unhappiness over investment returns was cited by 38% as their reason for looking elsewhere, which was actually down from 2008, when 42% said this. The advisor’s failure to actively stay in touch was a problem for 37%, up from 26% the year before.
Those who felt the advisor’s fees were too expensive rose to 36%, from 31%; while those who said the advisor was not offering the financial products or services the investor needed rose to 31%, from 16%. The proportion who said they did not like the advisor’s company was 27%, up from 20%.
Half of wealthy investors have been in touch with their advisor about the recent market volatility, Phoenix found, with 27% saying their advisor had initiated the contact and 23% saying they had contacted the advisor first. Of the remainder, 35% said they had not spoken with their advisor as a result of the financial meltdown, while 16% did not have a financial advisor.
Walter Zultowski, a senior vice president at Phoenix, says he believes many wealthy Americans are looking to change their advisor because of unhappiness over the downturn–a fact compounded for advisors who have neglected to stay in touch with them in good time as well as bad.
When times get tight, the quality of advice as well as fees become more of a concern for many, he says.
Investors will remember advisors who stay in touch them, Zultowksi observes. “Advisors must avoid being commoditized.”
Not surprisingly, participants in the latest survey were feeling less upbeat than they did in previous years about how well the economy will fare over the next 1 to 2 years.
Phoenix found 59% in 2009 described themselves as pessimistic about the immediate prospects for the economy. This includes 16% who said they were “very” pessimistic. In 2008, 50% said they were pessimistic, with just 7% describing themselves as very pessimistic. In 2007, 30% described themselves as pessimistic and just 4% as very pessimistic.
Despite the recession, wealthy Americans’ views of their financial future and tolerance for risk remained strong, Phoenix found.
For instance, asked how they felt about their own financial futures, 70% described themselves as optimistic, with 17% saying they were “very” optimistic and 53% “somewhat” optimistic. This was down from 83% who said they were optimistic in 2008–25% “very” and 58% “somewhat.”
The economy has also made quite a few wealthy Americans more conservative in their investments. Although 30% claimed their level of risk tolerance hadn’t changed in the previous 12 months, 40% said they were more risk-averse, on top of another 10% who were “much more” risk averse.
Moreover, 50% said they have been confused lately about how to invest their money, compared to 32% last year and 26% the year before.
Investment concerns were also shifting, with 59% of participants agreeing it’s important to preserve the safety of their capital, even if it means earning less than before, compared to 53% who felt the same way in 2008. Only 41% said it was important to try to get a substantial return on their capital, even if it means taking risks, compared to 47% who felt that last year.
Phoenix also asked participants about their most important financial goals.