THE RICH ALSO FEAR

What is scaring the wealthy? How afraid are they right now?

It has been reported that, the world’s high-net-worth investors (with $1 million or more) have an extra $10 trillion lying around that they refuse to turn over to their wealth managers.

Granted, these investors have $16.5 trillion invested with private banks and wealth-management firms–up from $14.5 trillion at the end of 2008, largely reflecting market gains.

But Scorpio, a London consulting firm, says wealthy investors actually have more than $26 trillion that they could be giving the banks and wealth-management firms to manage. “This implies there is approximately $10 trillion of high-net-worth assets that could be advised by banks,” the firm says. “Capturing these assets is the real answer for industry recovery.”

That could take a while. The wealthy were burned so badly in the past three years from bad advice and bad investment decisions that they are unlikely to hand over their extra cash anytime soon. And can you blame them?

The banks surveyed in the Scorpio report won on average about $900 million each in new-client assets–a 60% drop from 2008. And that is despite the flood of millionaires created last year.

“Our global HNW data show there are strong signs of wealth creation even in these complex markets and yet new clients are still holding back from opening accounts with the industry,” said Sebastian Dovey, managing partner of Scorpio.

Not all of the blame goes to wealth-management firms. The world’s governments and volatile financial markets are probably the main causes of fear in the rich right now. Still, the industry hasn’t done itself any favors with its performance and lack of transparency.

What do you think is making the wealthy keep their $10 trillion under the mattress?

Source: Robert Frank | The Wealth Report

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AMERICA'S RICHEST - WILLIAM HENRY GATES III

NAME: Bill Gates
AGE: 53
NET WORTH: $40.0 billion
CITIZENSHIP: United States
RESIDENCE: United States
SOURCE OF WEALTH: Microsoft
INDUSTRY: Software




Software visionary is now the world's second-richest man. Net worth still up $13 billion in a year as Microsoft shares rose 50% in 12 months, value of investment vehicle Cascade swelled. 


More than 60% of fortune held outside Microsoft; investments include Four Seasons hotels, Televisa, Auto Nation. Stepped down from day-to-day duties at Microsoft in 2008 to focus on philanthropy. Bill & Melinda Gates Foundation dedicated to fighting hunger, improving education in America's high schools, developing vaccines against malaria, tuberculosis and AIDS.


By: MayorTimo | Forbes.com 

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AMERICA'S RICHEST - WARREN BUFFETT

NAME: Warrren Buffett
AGE: 78
NET WORTH: $37.0 billion
CITIZENSHIP: United States
RESIDENCE: United States
SOURCE OF WEALTH: Berkshire Hathaway
INDUSTRY: Investments


America's favorite investor up $10 billion in past 12 months on surging Berkshire Hathaway shares; says U.S. has survived economic "Pearl Harbor," but warns recovery will be slow. Shrewdly invested $5 billion in Goldman Sachs and $3 billion in General Electric amid 2008 market collapse. 


Recently acquired railroad giant Burlington Northern Santa Fe for $26 billion. "We've put a lot of money to work during the chaos of the last two years. When it's raining gold, reach for a bucket, not a thimble." Berkshire Hathaway book value was up 19.8% to $21.8 billion in 2009. Son of Nebraska stockbroker met value investor Benjamin Graham while studying economics at Columbia. 


Took over textile firm Berkshire Hathaway in 1965, used company as a vehicle to invest in insurance (Geico), food (Dairy Queen), utilities (MidAmerican Energy) and recently green tech (electric-car maker BYD).

By: MayorTimo | Forbes.com

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LIFESTYLE OF THE RICH

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$75 MILLION DOLLAR BEACH MANSION

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LUXURY HOMES - MULTI-MILLION DOLLAR TV MANSION

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GORGEOUS - JAGUAR XF

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LUXURY TOY CLUB

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INDIA TO BECOME TRILLION-DOLLAR WEALTH MANAGEMENT MARKET BY 2012

According to a report the wealth management market in India will have a target size of 42 million households by 2012, as against just about 13 million in 2007...

Indians will have one trillion dollars worth investable wealth by 2012, with the country’s robust economic growth driving a four-fold surge from just about 250 billion dollars in 2007.

According to a report by international consultancy firm Celent, India is set to become a huge hunting ground for wealth managers with the number of their potential clients and size of manageable wealth both expected to grow four-times through 2012.

The wealth management market will have a target size of 42 million households by 2012, as against just about 13 million in 2007, noted the report titled ‘Overview of the Wealth Management Market in India’.

“The wealth management sector is poised to witness tremendous growth. India’s economic growth is making larger sections of the population prospective customers of wealth management providers,” Celent said.

The growth would be seen across all income-levels, but the lower-income segment would record the maximum growth in terms of volume, while high-networth households would contribute the most in terms of wealth size, it noted.

Celent has defined a household with a minimum income of $5,000 (Rs2 lakh) as the lowest end of the target market for wealth managers, while one with at least $30 million (Rs120 crore) of investable income has been put in the category of ultra-high net worth.

The market would see different products being launched for catering to different client segments, Celent’s banking practice and author of the report Ravi Nawal said.

“There is an increasing momentum towards structure in this previously chaotic domain. We should expect some very India specific innovations in the near future,” Nawal added.

The market is currently dominated by unorganized players, whose share is 1.5 times that of the organized market. However, a structural change is taking place and organized players are drawing clients away from the unorganized players.

Wealth management revenues are expected to contribute 32-37% of the total revenue of full-service financial institutions by 2012, Celent said.

According to the report, mass-market (Rs2-10 lakh of disposable income) would be a key driver, accounting for 40% of the overall growth in the number of households.

A majority of wealth managers, except niche players, would target the mass market because of its youth-dominance and this market would see more service providers entering the fray with a ‘own them young’ policy.

The ultra-high net worth households with wealth in excess of $30 million would have a total population of 10,500 households by 2012, while the super high net worth households ($10-30 million) are expected to grow to 42,000.

The population of high net worth households ($1-10 million) would grow to 3,20,000, while there would be 3,50,000 households in the super-affluent category (Rs50-400 lakh).

Besides, 10 lakh new households would join mass-affluent category (Rs10-50 lakh), taking their population to 18 lakh by 2012. However, a vast majority of 39 million households, out of the total 42 million target market population in 2012, would belong to the mass market (Rs2-10 lakh).

Private banks, independent financial advisors and full service brokerages would serve the high networth segment, while ultra high networth households would be served by private banks and family offices.

Posted By: MayorTimo / Source: PTI

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CAUTIOUS MILLIONAIRES PUSH BANKS HARD

Mistrust of regulators' ability to prevent another financial crisis and concerns that markets remain unstable have turned millionaires into conservative and pushy clients of wealth managers.

Nearly three-quarters of rich people around the world have not yet regained trust in financial watchdogs they believe failed to protect them against sharp losses in 2008, according to the latest Merrill Lynch -Capgemini world wealth report. An earlier Reuters report on the same report noted that millionaires increased their wealth in 2009.

This lack of faith is preventing them from investing in higher- risk assets that could speed the recovery of their portfolios if markets remain stable, the report said. Such investing would also yield higher margins for private banks.

But rich investors are now more conservative at a younger age than they were previously.

"While ... investors were encouraged to be aggressive in the markets in their 30s, some 40-50-year-old investors have experienced a lost decade ... and are questioning whether they still have the stomach to ride out possible market swings again," Merrill Lynch - Capgemini said in the report.

The survey provided some cheer for a wealth management industry that has struggled to rebuild its reputation after losing money for clients in 2008. Nearly 60 percent of millionaires said they are regaining trust in their financial advisers, while 56 percent said confidence in wealth management firms has rebounded.

The wealth industry has not seen a return to business as usual, however. Millionaires are more demanding of their wealth managers since the crisis, taking a hands-on approach to their portfolios, and expect greater clarity on risk.

Rich clients also demand simpler products, more frequent updates on their portfolios, and better expertise, making trading conditions for the wealth managers tougher."[Rich] clients are re-evaluating their current wealth management provider relationships," the firms said in the report.

Of global assets belonging to millionaires, 31 percent were held in fixed-income instruments at theof last year, compared with 29 percent in 2008.

Recovering stock markets caused global equity allocations to edge up to 29 percent from 25 percent.Allocations to real estate were unchanged at 18 percent, having increased during 2008 as the rich sought "tangible assets" amid the crisis.

Money in alternative investments stood at 6 percent, down from 7 percent in 2008, with the proportion in hedge funds rising to 27 percent from 24 percent as the sector recovered. Exposure to commodities gained from investors seeking gold as a hedge against inflation.

By: MayorTimo / Source: Allbusiness.com

Copyright 2010 by Reuters. All rights reserved.

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HEDGE FUND MODEL MAY BE GOOD FOR WEALTH FIRMS

Asset-based fees long ago replaced commissions as the preferred method for paying wealth managers, but the financial crisis may have shown the need for a scheme that rewards both investors and advisers.

* Asset-based fees may not reflect adviser's worth

* Fortigent's Welch says hedge fund scheme worth studying

* Says should establish fees for achieving account goals

Asset-based fees long ago replaced commissions as the preferred method for paying wealth managers, but the financial crisis may have shown the need for a scheme that rewards both investors and advisers.

Fees based on account assets are supposed to align everyone's interests -- adviser revenue rises only if the customer gets richer. Such fees are easy to explain and calculate.

Yet the crisis drained trillions of dollars of wealth from investors and eroded income for money managers, even those who did the right things for their clients.

Scott Welch, Fortigent Inc's senior managing director of investment research and strategy, suggests wealth firms may want to take a page from the hedge fund playbook.

"A model that charges an appropriate fixed fee, combined with an incentive-based fee that rewards the adviser if objectives are met or exceeded, is very interesting to consider," Welch told Reuters in an interview.

Hedge funds typically charge a 2 percent management fee plus 20 percent of fund profits. The formula is often criticized as too pricey, but Welch contends it is a step in the right direction.

Wealth managers could assess a fixed fee to cover operating costs, and then negotiate performance awards for meeting a series of goals, including investment performance, said Welch, whose firm provides asset allocation models, portfolio manager selection and other outsource services for banks, trust companies and investment advisers.

Asset management fees ignore other valuable services, he added.

"When applied to wealth management, where investment performance is one component of what you're doing, you start to disconnect," Welch said. "It ties the value of the adviser solely to investment portfolio performance."

During the turmoil of 2008, many advisers moved clients out of some high-flying assets or employed hedging strategies that limited losses. Yet many accounts are still below their peaks, and adviser income remains depressed.

Debates over fees have come as wealth managers work to regain the trust of investors stung by massive losses as well as frauds like the Madoff scandal.

Meanwhile, Congress is close to imposing new rules that would require brokers to always place client interests first, putting conflicts of interests and fiduciary standards into the national spotlight.

"There are conflicts in the way we price services," said Welch, who sees pros and cons in asset-based fees as well as other alternatives such as fixed-fee and retainer plans.

"In a shattered trust environment, can we do better?" he asked. "We should think about a better way to price our services, to bring us into closer alignment with investors."

To be sure, advisers may find it difficult to convince investors they are better off in a plan that would boost pay for advisers in a falling-market environment. Welch, though, said good firms deserve to be rewarded for sound advice.

"When assets dropped precipitously in '08 and '09, that may have been when you (the adviser) were most valuable," Welch said. "Maybe you prevented them from panicking, did some tax-loss harvesting or bought some defensive stocks. Yet your fee for services probably dropped by 20 to 40 percent."

By: MayorTimo I Source: Joseph A. Giannone & John Wallace

Copyright 2010 by Reuters. All rights reserved.

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PRIVATE WEALTH MANAGEMENT

Private Wealth Management (PWM) is the term generally used to describe highly customized and sophisticated investment management and financial planning services delivered to high net worth investors. Generally, this includes advice on the use of trusts and other estate planning vehicles, business succession or stock option planning, and the use of hedging derivatives for large blocks of stock.

Traditionally, the wealthiest retail clients of investment firms demanded a greater level of service, product offering and sales personnel than were received by the average clients. With an increase in the number of affluent investors in recent years, there has been an increasing demand for sophisticated financial solutions and expertise throughout the world. The CFA Institute curriculum on "Private Wealth Management" indicates that there are two primary factors that distinguish the issues facing individual investors from those of institutions.

* First, time horizons are different. Individuals face a finite life as compared to the potentially infinite life of institutions. This fact requires strategies for transferring assets at the end of an individual’s life. These transfers are subject to laws and regulations that vary from locality to locality and therefore the strategies available to address this situation vary.

* A second factor contributing different portfolio management strategies for individuals and institutions is the fact that individuals are more likely to face a variety of taxes on investment returns that vary from locality to locality. Portfolio management techniques that provide individuals with after tax returns that meet their objectives are necessarily going to be specific to these tax structures.

The term was first used by the elite retail (or "Private Client") divisions of firms such as Goldman Sachs or Morgan Stanley (before the Dean Witter Reynolds merger), to distinguish themselves from mass market offerings, but since has spread throughout the financial services industry.

Certain larger firms (UBS, Morgan Stanley and Merrill Lynch) have "tiered" their platforms - with separate branch systems and advisor training programs, distinguishing Private Wealth Management from "Wealth Management", with the latter term used to describe the same type of services, but with a lower degree of customization and delivered to mass affluent clients. At Morgan Stanley, "Private Wealth Management" is the retail division focused on serving clients with greater than $20 million in investment assets, while "Global Wealth Management" focuses on accounts smaller than $10 million.

In the late 1980s private banks and brokerage firms began to offer seminars and client events designed to showcase the expertise and capabilities of the sponsoring firm. Within a few years a new business model emerged - Family Office Exchange in 1990, the Institute for Private Investors in 1991, and CCC Alliance in 1995. These new entities were devoted to educating the ultra wealthy investor and providing a network of peers for the ultrahigh net worth individual and their families. Their growth since the 1990s indicates a market eager to become more informed about private wealth management.

IPI's founder Charlotte Beyer describes the challenge, "The newly liquid entrepreneur has suddenly become the CEO of a new company, My Wealth Inc., a job for which he has had no training. Investors are skeptical of sponsored events because they find it harder to trust that they are getting the full and honest picture of options available to them." Several membership groups often have online communities of investors as well. The first online community was created by IPI in 1998, and today these online groups have proliferated with specialty investor peer groups growing in numbers despite the 2008 bear market.

Wealth Management education for private investors with substantial wealth is offered by several leading universities. The first such program was offered by the Wharton School of the University of Pennsylvania. Since 1999, 520 investors from 29 countries have completed the course. The five-day program is offered twice a year and is a continuing partnership with the Institute for Private Investors. Both The University of Chicago and Stanford University also offer 5 day programs. In 2009, Columbia University offered a three day program on value investing designed for high net investors.

By: MayorTimo / Source: Wikipedia.org

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6 PROVEN WEALTH BUILDING STRATEGIES

Posted By: TimoStevens (Wealth Sage, 2009)

Instance riches come to a few, but most riches are realized after careful planning and effective management of your resources. You can properly prepare for the days ahead by implementing these six proven wealth building strategies today:

1. Pay Yourself First.

If you do not set aside money before you start paying your bills, chances are you will never save any many after you pay these same bills. Enroll in a pension plan (e.g. EPF, 401(k) or 403(b) plan) and set up a reasonable percentage to invest

2. Save Now.

The earlier you start to save in your life, the more you will have later in life. With regards to your income, you can step up your savings until you retire and still have a decent nest egg.

3. Get Rid of Debt.

It's difficult to find any investment that gives you a return that exceeds your debt-rate. As such, it's best to get rid of your debt first before you start implementing an investment strategy and developing a wealth building campaign.

4. Pick The Right Mortgage.

If you plan on holding onto your home for a short period of time, select an adjustable rate mortgage as your rate will be lower than a fixed rate mortgage. Use the amount saved to pay down your mortgage quicker; refinance your home if rates begin to climb.

5. Build An Emergency Fund.

Without an emergency fund your well-laid out wealth plans will be wrecked. You will be tempted to take on debt, cash in your retirement accounts, and sell valuable investments. Thus, its wise to set aside up to six months of your income to live on in times of emergency.

6. Protect Your Assets.

No matter how healthy your portfolio, it can one day disappear into thin air. Take the necessary steps to make sure that all your assets (business, REITs, Stocks, etc) are insured properly. All it takes is one legal judgment against you to wipe out your assets.

Building wealth is as simple as saving a little bit here and a little bit there. You need not have great riches in order to accumulate wealth, but you need to have the drive, determination, and discipline to successfully increase your wealth.

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SEVEN WAYS THE FINANCIAL CRISIS CHANGED THE RICH

It is easy to look at the stock market rebound, the resurgence in the number of millionaires and the luxury bounce as proof that the wealthy are back. Financial Crisis? What crisis?

A closer look, however, reveals that the rich have been badly shaken. Their fortunes may be returning, but they have lost their sense of stability, control and trust in institutions. And such changes could have a big impact on their spending, investing and philanthropy in the coming years.

The Economist Intelligence Unit, with sponsorship from Société Générale, has produced one of the best summaries to date of these potential changes.

The report, titled "The New World of Wealth: Seven Key Trends for Investing, Spending and Giving Among the Very Rich," argues that some impacts from the financial crisis may be endure. “My impression is that most of the very wealthy are feeling completely at sea right now,” said one wealthy investor interviewed for the report.

Here are the seven trends:

No. 1–Trust no one. After the crisis, “The very wealthy have found that trust
and transparency are more important than high returns, and in the future they will be asking more questions and in some cases taking more of an active role in managing the investments themselves,” the report said.

No. 2–Simple is beautiful. “When it comes to where the very wealthy are investing their money, the pendulum has swung from extreme complexity such as hedge funds and derivatives to extreme simplicity such as cash.”

No. 3–Giving is still good. “The recession has caused an overall downward trend in philanthropic giving, but most very wealthy individuals intend to maintain or increase their level of donations.”

No. 4–More Venture Philanthropy. “Despite maintaining their giving levels, the very wealthy have continued to adopt a more business-like approach to philanthropy that is focused on verifying positive societal outcomes and improving accountability in the charitable sector.” This was happening before the financial crisis, but it now is accelerating.

No. 5–Exporting philanthropy. “Philanthropy in emerging markets such as India and China is maturing as wealth increases and as governments see the value of harnessing the expertise of wealthy entrepreneurs.”

No. 6–-Conspicuous consumption lite. “The so-called new austerity does not apply to the very wealthy. They will continue to spend much the same amount as they did before the downturn, but they will be less flagrant.”

No. 7–Less Bling, more experience. Wealthy consumers want “want better, longer-lasting and more environmentally sensitive products. They will pay for experiences and service rather than strictly for products.”

Do you know of any other big wealth trends stemming from the crisis?

By: Robert Frank, The Wealth Report

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WOMEN EXCEL AT PRESERVING WEALTH, BUT LAG BEHIND SELF-MADE BILLIONAIRES

Two data points this week point to some interesting differences between the wealth-making abilities of men and women.

Bloomberg News

Author J.K. Rowling

A survey by the research firm MDRC of high-net worth investors in Britain found that wealthy women outnumber men in the U.K. Women now account for 51% of British people with more than £500,000 ($740,750) to invest.

The main reason is life expectancy: women live longer than men, so they are more likely to outlive their wealthy spouse than the other way around.

But the report said another reason is that women were more conservative with their investments going into the global financial crisis, so they lost less. Men were more aggressive and more likely to hold shares in high-flying banks like Royal bank of Scotland Group and Lloyds Banking Group, which plummeted in value.

At the same time, the new Forbes list of self-made women billionaires is surprisingly short. According to the list, just 14 of the world’s more than 1,000 billionaires in the world are women. That is less than 1.4% of total billionaires, and about 2% of all self-made billionaires.

The list is filled with big achievers: Oprah, Meg Whitman of eBay (and now California politics), author J.K. Rowling, Spanish apparel magnate Rosalia Mera, Gap co-founder Doris Fisher and Benetton’s Giuliana Benetton.

Five of the 14 women started businesses with their husbands.

According to Forbes, women in the U.S. start their own businesses at roughly twice the rate of men, though the rate is far less in other parts of the world.

So why aren’t there more women billionaires? If women seem to be better at preserving their wealth by investing conservatively, are men better at striking it mega-rich?

Is it the male risk-takers versus the female risk-averse? Their different emphasis on money? The result of a male-dominated finance and lending culture? Or is it all about testosterone and risk-taking?

By: Robert Frank, The Wealth Report

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THE WORLD'S MOST EXPENSIVE SUIT

These days, the truly rich never wear suits. Suits are for the people who work for the wealthy.

Unless, of course, you are talking about the new line of suits from Britain’s Richard Jewels. Mr. Jewels is a Manchester tailor who is selling a cashmere wool-and-silk blend, two-piece suit for £599,000–-or roughly $890,000 to you and me.

That makes it the world’s most expensive suit, easily topping the $103,000 suit from Amosu that used to hold the top position.

What makes it worth so much? Well if you have to ask….

According to the Stuart Hughes website, the suit is embellished with 480 diamonds (half-carat each), stitched into the suit by jeweler Stuart Hughes. The whole suit took 600 man hours to make.

He already has sold one to a customer in France (size 41, long fit). Mr. Jewels plans to make only three.

“I hope to establish a luxury brand that will not only capture the eyes but the hearts of the consumers,” Mr. Jewels said in The Sun. “The emphasis on our products is to solidify one’s individuality.”

Lest you think an $890,000 suit is indulgent excess at a time of financial worry, Mr. Jewels assures that 10% of the purchase price will go to a Haiti relief fund.

Is this all marketing hype? Of course. Luxury companies can always find three people to buy almost anything. But the suit is yet another sign that mad, conspicuous consumption is creeping back.

What is the most you would ever pay for a suit?

By: Robert Frank, The Wealth Report

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MONEY CAN BUY SATISFACTION – IF NOT HAPPINESS

Posted By: Mayor Timo

The old saw that money can’t buy happiness always struck me as too vague.

What kind of money? What kind of happiness? Is it money that takes a person from $1 to $1 million, or from $100 million to $200 million? And is it happiness as in freedom and fun? Or happiness as in inner peace?

Bloomberg News

The flood of happiness research is finally providing more specifics. A new analysis of Gallup World Poll data, surveying 136,000 people across 132 nations from 2005 to 2006, suggests that income is much more highly correlated to happiness (or at least a form of it) than previously thought.

The study divided happiness into two varieties: “life satisfaction,” and the other “enjoyment of life.”

When asked about life satisfaction, those with higher incomes invariably ranked themselves higher than those with lower incomes.

“Money is an object that many or most people desire, and pursue during the majority of their waking hours,” wrote study researcher Ed Diener of the University of Illinois and the Gallup Organization.

Since most people want money, they use their financial success as a measure of overall success and a reference for how “good” their lives are, he wrote.

What was interesting about the study was how universal the desire for financial success was across the world. “People in Togo and Denmark have the same idea of what a good life is, and a lot of that has to do with money and material prosperity,” Daniel Kahneman, professor emeritus of psychology and public affairs at Princeton University, told the Washington Post. “That was unexpected.”

That doesn’t mean money makes everything better. The study found that income had far less correlation to the more emotional “enjoyment of life,” which include things like laughing, joy, and connections to family and friends.

“What we didn’t know before is the extent to which life evaluation and emotional well-being are so distinct,” Mr. Kahneman said.

In short, when measuring their life in comparison to others, incomes mattered most. When measuring their inner life, money has less of an impact.

Do you think income effects your “life satisfaction” more than your enjoyment of life?

Source: Robert Frank, The Wealth Report

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