Affluent Becoming More Conservative

More high-net-worth and ultra-high-net-worth investors considered themselves “conservative” last year as compared to a year earlier, according to a Spectrem Group survey.

Spectrem Group said in its “Ultra High Net Worth Investor 2009" that the percentage of U.S. households with a net worth of $5 million to $25 million that describe themselves as “conservative” investors increased fivefold in 2009 to 27%, up from 5% a year earlier. The report is based on a survey of 523 households conducted in November.

A second report, “Millionaire Investor 2009,” based on a survey of 1,089 households with a net worth of $1 million to $5 million, found 28% of these households describe themselves as “conservative,” up from 12% a year earlier.

Meanwhile, the number of investors that consider themselves “aggressive” tumbled, down to 13% for the ultra-wealthy and 12% for the $1 million-to-$5 million group, with only 3% of high-net-worth investors listing themselves as “most aggressive” and 2% of $1 million-to-$5 million investors.

Doug Freeman of Freeman, Freeman & Smiley Law Firm said the recession did something that he didn’t really anticipate. “The recession shocked affluent investors into realizing that their affluence will not necessarily guarantee their financial security,” he said. “There are individuals who had retired from their businesses who are now going back into business because they relied to heavily on others or on passive investments and they’re not going to be able to live the life they had anticipated.”

Even those who are affluent feel uncertain about their financial future now that their cash flow has dropped by up to 50%. “There are those on paper who have the financial resources to be independent, but in their mind’s eye they don’t feel secure,” Freeman said.

While affluent investors are becoming more careful on how they invest , they are also more cautious about consulting professional advisers. Spectrem’s report found that ultra-high-net-worth households invest 47% of their assets themselves with no professional help, consult professional advisers but make their own decisions about 35% of their assets, and allow advisers to completely handle and provide no input on 18% of their assets.

“America’s wealthiest investors have backed away from risk during the recession in surprising numbers, with more than a quarter of all ultra-high-net-worth households now considering themselves conservative investors,” said George H. Walper, Jr., Spectrem's president. “They are also keeping a strong hand in the management of their assets, letting advisers handle just 18% independently and managing nearly half by themselves.”