Top 5 Concerns for Affluent Investors

Call it a tale of two mindsets for high-net-worth investors, as spring 2018 beckons on Wall Street.

Affluent market mavens have merged a pair of conflicting sentiments – short-term optimism with anxiety over the longer-term direction of the U.S. economy.

That’s the finding from Spectrem Group’s most recent Millionaire Investor Confidence Index and Spectrem Affluent Investor Confidence Index. Both indices are in “mildly bullish territory,” according to the company.

“Recent tax cuts have driven a resurgence in investor interest in actively participating in the markets,” said Spectrum President George H. Walper, Jr. “However, the reduced household outlook is an indicator that investors are uncertain about longer-term prospects for the overall economy, perhaps because of the new tax regime’s impact on the U.S. budget deficit.”

Those are the big macro-level issues concerning wealthier Americans these days – but they’re not the only ones. Here are five more economic and money management-based issues that could be keeping affluent clients up at night – never a good scenario for investment advisors:

Taxes: A troubling tax picture in the aftermath of last December’s tax reform bill is getting increased attention in more affluent U.S. households.

“I don’t hear much concern on tariffs and trades or the deficit from my clients, but I am hearing about taxes,” said Andrew Rosen, owner of Diversified, an advisory firm in Wilmington, Del. “Many of these people are really losing on the new tax bill due to the inability to itemize deduct as much as could before the bill became law.”

Proper tax planning: Deep-pocketed investors seem to be worried about the absence of quality tax planning services from their financial advisors.

“Every affluent investor I speak with states that they receive absolutely no tax planning,” said Scott Thompson, a financial planner with Bridge Business Consultants in Mooresville, N.C. “In the entire CPA training modules, there is only one page dedicated to tax planning, but there are numerous books and publications dedicated to tax planning that affluent investors can utilize.”

 

The problem is that when you ask your CPA to implement the strategies, they’re either unfamiliar with them, or they are too embarrassed to admit they should have recommended the strategy years ago, Thompson said.

“It's so bad that one CPA told his client that one tax strategy was only for rich people and she should just go ahead and pay the tax,” he noted. “You know tax planning is available, especially when Warren Buffett states that on a percentage basis he pays less in tax than his secretary. The wealthy utilize tax planning and so should everyone else.”

Rising interest and inflation rates: Rising interest rates are worrying investors, said Matthew S. Eads, a financial advisor with Eads & Heald Wealth Management in Atlanta.

“Higher rates compress bond values,” Eads explained. “That said, they’re good for those earning interest on their investments.”

Investors worry about inflation as well.

“Inflation is still low by historical standards, but the fear of rising inflation can cause market volatility, which concerns investors,” Eads said.

Potential Fed moves: The Federal Reserve has both a new chief on board (Jerome H. Powell) and a lot on its plate for 2018, and affluent investors want to know what moves the Fed will make.

“The issue that is most pressing for affluent investors right now is the impact the Fed will have on the economy and investments in the near term as it raises rates this year,” said Adham Sbeih, chief executive officer at Socotra Capital, a real estate investment and lending firm based in Sacramento, Calif.

Leveraging and arbitrage have been effective tools for increasing cash flow and profits, Sbeih pointed out.

“As the Fed raises rates, it is likely to cause deleveraging, as investors weigh the risks and narrowing rewards of the decreasing spread between debt and returns,” he said. “That’s a concern that investors should keep a particularly close eye on in the near term.”

Wealth transfer issues: Affluent Americans also want to get a better grip on future generational asset money moves.

“One main concern for my high-net-worth clients is ensuring the value of their investments when the time comes for wealth transfer,” said Thomas Archer, CEO of The Archer Financial Group. “What I always advise is that they maintain a diversified portfolio, which includes not only the standard forms of investment - such as stocks, bonds, and real estate - but also by putting in place a life insurance plan.”