America’s Millionaires Don’t See the Economy Turning Around Any Time Soon

America’s millionaires are facing the future with uncertainty and lowered expectations, according to the 10^th annual Phoenix Wealth Survey, conducted by The Phoenix Companies, Inc., a leading provider of life insurance and annuities for high-net-worth consumers.

"The continuing economic turmoil has stripped America’s millionaires of their confidence and sense of security; they are feeling far worse off than they did during the last economic downturn in 2003,” said Walter H. Zultowski, Ph.D., senior vice president of Research and Concept Development at Phoenix. "This pessimism has affected their attitudes about their financial future as well as their behaviors.”

More than 1,700 people with $1 million or more in net worth (excluding their primary residence) were polled in January and February of this year by Harris Interactive. Survey highlights include:

Record-high levels of pessimism

The percentage of millionaires feeling pessimistic about their financial future has surged six-fold since the survey began in 2000. In 2009, 30 percent of respondent’s were pessimistic versus 5 percent in the survey’s inaugural year.

Results also show that the high net worth’s view of their financial security has turned upside down in the past few years. In 2007, this group had high levels of optimism, with more than four out of five saying they felt wealthier than they did in 2006. Just two years later, nearly three-quarters – 74 percent – said they felt less wealthy than they did the prior year.

Negative wealth effect

Survey findings indicate a reversal of the "wealth effect” environment of recent years during which consumers were richer – or at least perceived themselves to be. The percentage of high net worth who were "very optimistic” about their personal financial future in 2009 dropped by half in just two years, with just 17 percent reporting that high level of optimism, compared with 34 percent in 2007. The percentage of people who said their wealth was "extremely” or "very secure” for the long term also dropped from 45 percent in 2007 to a scant 28 percent in 2009.

Recovery? Not any time soon

For the high net worth, the long-term view is as bleak as the present. The ratio of pessimists to optimists is about two-to-one, with 59 percent expressing doubts about the state of the national economy in the next one to two years compared to 30 percent of optimists. That "gloom barometer” is nearly double the 2007 findings, when just 30 percent were pessimistic.

According to Dr. Zultowski, the 2009 percentages are particularly stark compared with the last bear market in 2003, when just 37 percent said they were pessimistic about the economy for the next one to two years.

Today’s millionaires are similarly downbeat about the return of the equity markets to more sustainable growth levels. Close to two-thirds see improvement in the next 13 to 36 months. Interestingly, a smaller but significant group – 17 percent – predicts that a return to sustainable growth levels will take longer than 36 months.

Safety is the new investing watchword

Preserving wealth has become the high net worth’s dominant investment priority, and has trumped the goal of achieving a return on assets by the widest margin in ten years.

Half of survey respondents say they have become more risk-averse and significantly more – 59 percent – are investing to preserve assets versus 41 percent for return. In 2000 – the study’s inaugural year – the investing priority for 56 percent of respondents was return with just 44 percent saying their goal was to preserve assets. The prior peak in the high net worth’s interest in preserving assets – 58 percent – was in 2003, the last time the economy skidded.

The investing priority shift has resulted in more people adding bonds and exchange traded funds (ETFs) to their portfolios, with an increase of 5 percent for bonds (52 percent) and 6 percent for ETFs (20 percent).

"Surprisingly, even though the high net worth are taking action, they remain confused about investing,” said Dr. Zultowski. Half of those surveyed say they are confused about the best way to invest their money, a marked increase from 32 percent in 2008 and almost double the percentage in 2007, when just 26 percent of respondents said they were confused.

Catch me if I fall: Home equity loans and lines of credit

Having cash in a crunch is clearly on the minds of the high net worth. The percentage with home equity loans and lines of credit jumped seven percent from 2008, from 34 to 41 percent. While 21 percent have not used the money, 16 percent used it to pay off debts or bills, up from 6 percent the prior year. Many more people are using the money to make an investment in a property or home, up to 19 percent in 2009 from just 2 percent a year earlier.

Goodbye beach house, hello RV: Living with less

Fears about retirement have reached their highest level in the history of the study, with concerns running the gamut, from outliving assets (45 percent versus 36 percent in 2008) to having to modify their current lifestyle (44 percent versus 37 percent in 2008) to needing to replenish their retirement savings (34 percent versus 28 percent in 2008). "Driving the anxiety are worries that poor investment performance will erode assets and inflation will diminish the value of their income,” said Dr. Zultowski. For example, 51 percent cite investment performance as a concern, a jump of 12 percentage points from 2008.

Where are you when I need you? Some feel financial advisors are MIA

Although the high net worth are turning back to advisors, with 73 percent saying they are getting advice from a professional advisor compared with 67 percent last year, the numbers are still surprisingly low given the difficult times, said Dr. Zultowski. Twenty-seven percent do not receive advice from any advisor – a decrease from 33 percent in 2008 – and more than a third do not have a primary financial advisor, down from 41 percent in 2008.

Of the ones who do have an advisor, satisfaction seems to be slipping, with 13 percent saying they expect to seek a new advisor in the next 12 months, up from 8 percent in 2008. Many of these consumers appear to be turned off by what they see as a lack of initiative. More than a third say their advisors are not proactive in maintaining contact, an eleven percent leap from 2008. In response to the current conditions, nearly a quarter say they initiated contact with their advisor, compared with 27 percent who were contacted by their advisor. Most stunningly, 51 percent have had no contact with their advisor or don’t have an advisor.

Contact isn’t the only problem, however. Nearly one-third say their advisor doesn’t offer products or services they need, and that perception appears to be growing. The number of people saying their advisors don’t provide what they need has doubled over the past five years. "These data suggest a missed opportunity for advisors,” said Dr. Zultowski. "The keys to successful client relationships in a negative wealth environment are maintaining contact and bringing them new, innovative solutions for their financial needs and concerns.”

In one ear and out the other?

Despite the wrenching changes in the U.S. economy and the lives of individuals, the high net worth don’t foresee any long-term behavior changes. Sixty-five percent say Americans will save more and borrow less in the near term, but when financial conditions improve, they will return to borrowing more and saving less. Just one quarter see a permanent change.

About the survey

The Phoenix Wealth Survey, first conducted in 2000, monitors the demographics, attitudes and financial behavior of the high net worth in the United States. Created, designed and analyzed by Walter Zultowski, Ph.D., senior vice president, Research and Concept Development at Phoenix, the survey also informs the company’s development of new financial products and services for affluent and high-net-worth individuals and families.

The Tenth Annual Phoenix Wealth Survey was conducted by Harris Interactive between January and February 2009 and comprised online interviews with 1,735 randomly selected high-net-worth individuals (net worth of $1 million or more, minus any debt and the value of their primary home). In all aspects besides their net worth, respondents were demographically representative of the U.S. population as a whole. The survey has a sampling error of +/- 2.2 percentage points. A full methodology is available.

About Phoenix Companies, Inc.

With a history dating to 1851, The Phoenix Companies, Inc. (NYSE:PNX) helps its customers find straightforward solutions to often highly complex personal financial and business planning needs through life insurance and annuities. Phoenix’s products are available through a wide variety of third-party financial professionals and intermediaries, supported by the company’s wholesalers and financial planning specialists. In 2008, Phoenix had annual revenues of $2.0 billion and total assets of $25.8 billion. For more information, visit www.phoenixwm.com.

About Harris Interactive

Harris Interactive^® is a global leader in custom market research. With a long and rich history in multimodal research that is powered by our science and technology, we assist clients in achieving business results. Harris Interactive serves clients globally through our North American, European and Asian offices and a network of independent market research firms. For more information, please visit www.harrisinteractive.com