“Be proud of who you are”.
That expression of positive mental attitude is aimed at improving the psychological health of anyone suffering from self-doubt. But such phrases can also be aimed at those people who have it made and must deal with the pressures of being financially secure.
Many people would love to have the problems that come with great wealth, but that does not mean the problems aren’t real and don’t require attention.
Spectrem’s new study on the population of investors who have a net worth of $25 million or more examines the attitudes those investors have about their wealth level. The Wealthiest Americans asks those investors to discuss the pitfalls of their wealth and the perception of wealth they carry with them.
Such pitfalls and perceptions can impact how a wealthy investor feels about investing, from attitudes towards risk, wealth transfer and philanthropy.
“It is simplistic to believe the significant wealth brings a relief from all concerns and pressures,’’ said Spectrem president George H. Walper Jr. “The problems associated with great wealth are different than the problems investors with less wealth face, but they are still influencers in the decision-making process of investors, and need to be understood by advisors for that reason.”
The perception of wealth is a multi-faceted influence on how investors proceed with investing and personal finances. These investors with a net worth of $25 million or more were asked to consider the question “are you wealthy?” and place their response on a 0-to-100 scale, with a yes response represented by the 100 end of the scale. On average, those investors rated their average answer at 80.49, which is definitely an affirmative response but still indicates some level of uncertainty about the response, which is hard for anyone not worth $25 million to understand.
The uncertainty level of investors with this level of net worth can impact investment decisions and should be understood by advisors for handling investment recommendations accordingly.
The first step in understanding the mindset of wealthy investors is understanding their overall opinion about the value of great wealth on their lives. It is revealing that 79 percent of $25 million plus investors admit that “I attribute my happiness in large part to the wealth I have accumulated.” That is the sort of statement some people might shy away from, and perhaps some of the 21 percent who did not respond in the affirmative do so just because it does not sound appropriate, but apparently great wealth does provide happiness for most people.
This fact is important to advisors to understand to what lengths investors will go to protect their wealth. Investment decisions may be made to protect wealth rather than extend it because of the value the wealth level has for the investor.
While investors are happy because of their wealth, it also causes them unhappiness, or could cause them unhappiness, based on what happens to that money in the future. Seventy-four percent of $25 million plus investors worry about how the next generation in their family will handle the money they will receive an an inheritance or in a wealth transfer over time.
There is no question this concern can color how an investor approaches wealth transfer and estate decisions. The level of concern about the impact of wealth on the next generation will determine the path the investor takes in passing their wealth along (and might prompt greater charitable donations as a preventative measure).
On a slightly amusing data point, wealthy investors did point out one of the drawbacks of significant wealth. Two-thirds of all investors report being hit up for money by friends and family, and that includes almost 90 percent of investors currently under the age of 38.
Top Takeaways for Advisors
Yes, wealthy people have “first-world" problems, but problems they still are. More importantly from an advisor’s standpoint, an investor’s perception and personal attitude toward their wealth plays a role in investment decisions. Sometimes the effect of the problems is subtle, but sometimes it is right out in the open and needs to be considered when making recommendations.
©2018 Spectrem Group