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US survey reveals thinking of HNWIs with USD 25 million in total assets

The 2007 US Trust Survey of Affluent Americans, which focuses this year on a higher net worth demographic, highlights the need for continued investor education around alternative investment vehicles and the importance of having unbiased advice.

Unlike past years' surveys, in which primary residence and income were factors in respondent eligibility, the 2007 survey polled an even more elite sample both in terms of size and composition, consisting exclusively of Americans with more than USD 5 million in total investable assets (high net worth individuals). Also included in the survey is a new focus on Americans with more than USD 25 million in total assets (ultra high net worth individuals).

'As wealth continues to grow in the United States we felt it was important for this survey to reflect the views and concerns of both high net worth and ultra high net worth Americans,' said Frances Aldrich Sevilla-Sacasa, president and chief executive officer of US Trust. 'These findings are particularly relevant if you consider we found the vast majority of these individuals did not grow up with wealth.'

Polling of high net worth Americans revealed the following:

  • 84% when asked about their personal wealth said they had to start from scratch/became wealthy later in life
  • 87% agree about the importance of encouraging entrepreneurial values in children
  • 85% report their portfolios met (45%) or exceeded (40%) their expectations during the past fiscal year
  • 8.85% is the expected annual average rate of return for the US market vs. 9.66% for international stock markets
  • 55% agree that hedge funds enable very good ROI and 51% say they reduce portfolio risk Wealth and the Next Generation.

The survey revealed that respondents are concerned with the effects of wealth on their children and that their children be properly educated in the best ways to handle wealth. Nearly nine in ten (87%) agree with the importance of encouraging entrepreneurial values in children, and eight in ten (80%) agree with teaching children that wealth is a social responsibility. Over half (53%) are concerned about the negative impact of wealth on children, and 43% feel they owe it to their children to leave a sizeable trust.

High net worth parents (96%) also feel it is important to teach children to manage wealth and the majority of parents surveyed (61%) report their children are actively involved in managing their wealth. According to the survey, respondents report 27.4 years old as the average age when their children assume responsibility for managing their own money.

Interest in Hedge Funds
The majority of respondents view hedge funds as delivering a very good ROI (55%) and reducing portfolio risk (51%). However, three out of four respondents agree that hedge funds are difficult to investigate (77%) and that a good fund is difficult to identify (76%). Ultra high net worth respondents appear more likely to include hedge funds in their portfolio saying that hedge funds make up 6% of their portfolio compared to high net worth respondents, who say hedge funds make up only 2% of their portfolio.

'The findings reveal that there is still a limited understanding of hedge funds and other sophisticated products, even among Americans wealthiest households,' said Sevilla-Sacasa. 'More importantly, they also highlight the need for continued investor education around alternative investment vehicles and the importance of having unbiased advice.'

Philanthropy a High Priority
Philanthropy remains a high priority for wealthy individuals. The survey revealed that many respondents are actively involved in their decisions regarding charitable giving. Eightyeight percent say they give because of a desire to return something back to society, and nearly three in four (72%) say they make charitable donations because they want to make a difference in the world. Organizations most likely to receive donations are academic institutions and healthrelated organizations.

About two in three say these are the charities they would consider leaving money to (68% say academic institutions and 66% say health-related institutions). Religious institutions are cited by 43% as a type of charity to which they would consider leaving money. Interestingly, of less concern when making charitable donations are tax considerations, which are among the least cited reasons for wealthy individuals to make charitable donations, as only 33 % of respondents cite this as a reason for donating. Respondents also say that upholding a family tradition of giving to a charity is less of a concern when donating: less than one in four (24%) say they make donations just to uphold their family tradition.

Pleased with Portfolios, But Viewing the US Stock Market as Riskier
Respondents appear pleased with their investment portfolios over the past fiscal year, with 85% claiming that their portfolios met (45%) or exceeded (40%) their expectations during the past fiscal year. A vast majority say that domestic stocks (81%) and real estate (80%) provided the greatest returns on their investments, and had a significant impact in generating wealth.

Although overall economic outlook amongst respondents is generally optimistic, a perception of increasing risk in US stock markets is reflected in an anticipated shift in the distribution of US and international equities within some portfolios. Over half (51%) believe that the US stock market is becoming riskier. A significant proportion (18%) of those respondents who were asked to evaluate the US stock market plan to move out of US stocks, versus only 8% of those who were asked about international stocks, who plan to move out of that asset class.

Top Economic Concerns
The top financial worries of respondents are that the US is losing its competitive edge in the world economy (74%) and that the budget deficit will affect the economy over the longterm (74%). These were followed by concerns that the next generation will have a more difficult time financially, cited by 73% of survey respondents. Seventy-two percent of respondents worry that environmental issues will require more government spending and that taxes will rise significantly over the next few years. Another prominent concern is that high taxes will reduce the value of their estate (71%).

This is the 26th US Trust Survey of Affluent Americans. Those surveyed constitute a representative sample of Americans with total investable assets over USD 5 million. US Trust initiated this series of surveys of the wealthiest Americans in 1993 to better understand and communicate the attitudes of this segment of the US population.

Founded in 1853, US Trust is a leading wealth management company that provides wealthy individuals, families and institutions across the country with innovative planning, investment management, fiduciary and private banking solutions. US Trust, which is headquartered in New York City and serves clients nationwide in 32 offices throughout the United States, has USD 98 billion in assets under management as of December 31, 2006.

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