01/01/2004
Affluent Americans no longer place much credence in the advice they receive from Wall Street firms, according to a recent survey by U.S. Trust. But although we regard banks’ investment recommendations and advice as
tainted, we are nonetheless increasingly optimistic about our investment prospects, especially in light of the nearly year-long bull run in the stock markets. U.S. Trust spoke with individuals with at least $5.9 million in net worth, comprising the wealthiest 1 percent of the nation’s families, in November 2003. The results were not good news for our banks and brokers; the survey revealed deep ambivalence toward the financial services industry overall.
Most of the respondents—83 percent—believed there is an inherent conflict of interest in a firm providing both investment-banking services to corporations and investment advice to individuals. This is a serious perception problem for financial conglomerates to overcome when pursuing our business. Another 79 percent question the reliability of corporate financial statements, and a like number no longer trust the stock recommendations of equity analysts in the wake of the scandals that revealed how they worked to obtain investment banking business, not to serve their ostensible clients, the investors.
Two-thirds of those surveyed no longer trust corporate management and more than 40 percent are wary of investing in public companies. Yet 31 percent believe the market is less risky now than it was a year ago. Slightly more than 40 percent said it was neither more nor less risky.
After shifting assets into conservative, defensive investments for the past three years, nearly two-thirds—64 percent—of the affluent Americans surveyed say they intend to wait and see how the market develops before making any further changes to their portfolios.
| Anxiety over personal security and the safety of our families and friends, combined with our growing mistrust of our financial advisors, made 2003 a fraught year. |
U.S. Trust Executive Vice President Paul K. Napoli said the dichotomy between mistrust and optimism is a "dynamic tension," with anxiety and fear on the rise at the same time that confidence in the stock market is returning. "There’s a powerful level of mistrust," he says. But, he notes, "There’s still a long-term belief in equity markets. People view [the scandals] as a temporary, severe problem, and they’re demanding a solution."
The survey showed strong support for measures intended to prevent corporate governance and Wall Street abuses. Eighty-seven percent called for more stringent laws and regulations governing the accounting firms that audit public companies; 85 percent supported more regulations governing public corporations and their executives; and 84 percent favored high profile prosecutions. (The survey had a margin of error of plus or minus 6 percent.)
The survey also revealed that:
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Affluent Americans worried more about terrorism and security issues in 2003, perhaps due to the effects of the war in Iraq. Eighty-six percent of the respondents were concerned that terrorism in the United States and abroad will have a negative effect on the economy and the securities markets. In U.S. Trust’s 2002 survey, that percentage stood at 76.
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Sixty-three percent of the respondents in the 2002 survey worried about threats to their personal security and to that of their families and friends in the aftermath of 9/11. Those concerns dogged 77 percent of the respondents in the more recent survey.
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More than 70 percent of the respondents thought the healthcare, pharmaceuticals and biotechnology industries and the defense and aerospace industries would be the most attractive sectors in the economy in the coming year. More than half expect real estate valuations to stay strong, but that is a decline from two-thirds in the year-earlier survey.
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The respondents saved, on average, 22 percent of their after-tax income in 2002.
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The respondents gave, on average, 8 percent of their after-tax income to charity in 2002, a figure they anticipate will remain the same in 2003.
Photograph by Jan Tove Johansson/Taxi