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Wealthy losing faith in Wall Street

A survey of some of the nation’s wealthiest individuals strongly suggests that the wave of corporate scandals has shaken their faith in the credibility of corporate managers.
/ Source: staff and news service reports

Perhaps the rich are not that different from you and me after all. A survey of some of the nation’s wealthiest individuals, released Wednesday, strongly suggests that the wave of corporate scandals has shaken their faith in the credibility of corporate managers.

According to the survey by U.S. Trust, 79 percent of the nation’s super-rich “question the reliability” of corporate financial statements and do not trust the recommendations of equity analysts. A slightly smaller number, 67 percent, said they do not trust corporate management, and 65 percent do not trust independent auditors.

“There have been a number of scandals that have affected general investor confidence,” the report noted. “These scandals continue to have a profound impact on the investment attitudes of the affluent.”

And even though the survey respondents generally had millions of dollars in assets, many said they would have to work at least five years longer than they previously had planned before they are able to retire.

The survey of affluent Americans, which U.S. Trust has been doing for 22 years, also revealed that rich people have grown significantly more nervous about terrorism and long-term economic prospects over the past year.

The survey found that 86 percent of respondents were worried that terrorism here and abroad will have a negative impact on the economy and financial markets, up from 76 percent last year. And 77 percent said they were worried about threats to the personal security of their family and friends in the aftermath of 9/11, up from 63 percent in 2002. Terrorism ranked as the No. 1 concern in both surveys conducted after the 9/11 terror attacks, followed by the concern that “the next generation will have a more difficult time financially” than the current generation.

Although only 151 people were surveyed to come up with the results, the pollsters who conducted the telephone interviews say they are highly confident the results accurately reflect the views of the nation’s wealthy within about 6 percentage points. To qualify for the survey, respondents were required to report annual income of the more than $325,000 or net worth greater than $5.9 million.

Researchers came up with interview candidates by making randomized telephone calls in zip codes known for high median income.

U.S. Trust, which manages $85 billion in assets, is a unit of Charles Schwab & Co., the largest U.S. discount brokerage. Clients need $2 million in assets, not including their home, to qualify as a customer of U.S. Trust.

The U.S. Trust report said the 2000-2003 bear market has had a “lingering effect” on those surveyed but noted that 69 percent of respondents said their investment portfolios had increased in value over the past year as markets have recovered.

Despite their concerns, most of those surveyed still plan to be active spenders over the next year. More than half were likely to spend any extra cash on expensive vacations, home improvements or big-ticket purchases like furniture or electronic goods. About a third would buy a new car or “luxury” items.

Despite the recovery, 25 percent said they thought they now would have to rely on Social Security in retirement to a greater degree.

“The anxiety levels of this group are quite high,” said Paul Napoli, executive vice president of U.S. Trust. “They are conflicted. They believe times are getting better and there will be positive returns, and yet there is nervousness about what scandal is going to pop up next.”

He added: “Despite the fact the bear market is over, only a small percentage are moving money back to equities. A lot of people are sitting on their hands .... They are not voting with their dollar in the marketplace.”

Napoli said among this group of investors, the average percentage of portfolios held in equities had fallen from around two-thirds of investments in 1999 to about one-third today.

The affluent people surveyed said they set aside about 22 percent of their after-tax income for savings and give 8 percent to charity. And while many of those questioned have had to delay retirement plans, about 21 percent said they do not plan to retire at all.

“These people love to go to work — they love what they do,” Napoli said.

Reuters contributed to this story.