Millionaires fear they'll outlive assets
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As if the economy hemorrhaging 600,000 jobs a month weren't depressing enough, here comes more disheartening news courtesy of The Phoenix Companies: The recession is plaguing America's millionaires.
Phoenix's 10th annual survey of the wealthy finds that 30 percent of them are pessimistic about their financial futures, 74 percent feel less wealthy than they did a year ago and 44 percent fear they will outlive their assets.
"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, senior vice president of Hartford, Conn.-based Phoenix, which sells insurance and annuities to high net worth individuals.
Dr. Zultowski has never seen such bearish sentiment in the 10 years he's conducted the survey.
"This high net worth group is a pretty good reader of what's going on in the marketplace," he said.
The "affluent" that Phoenix surveyed in January and February had net worth of $1 million or more, minus debt and the value of their home. About two-thirds had net worths of $2 million or less, hardly putting them in the same league as the victims of Ponzi practitioner extraordinaire Bernie Madoff or dethroned Merrill Lynch CEO John Thain (he of the $35,000 toilet).
However, with the toll of those who lost their jobs since the recession began at more than 5 million and counting, distinctions between the "less affluent" and the "filthy rich" are lost on those trying to finance the base level of Maslow's hierarchy of needs.
Mel Fugate, a Southern Methodist University professor who specializes in management and leadership issues, believes that most will respond to the problems of the affluent with "very little sympathy and certainly no empathy." The assets of the affluent "are far beyond what the average American can comprehend," he said.
"When bad things happen to wealthy people, the average person sees that as the fault of the wealthy," Dr. Fugate added.
Witness the magnitude of the outrage over bonuses at taxpayer-owned AIG. Or the lack of tears shed over the departure of GM Chairman and CEO Rick Wagoner, who took a corporate jet to make his bailout plea to Congress last fall.
There is another perspective. Some Chrysler bondholders are outraged over the Obama administration's suggestion they settle for less than they would be entitled to in a bankruptcy so that union workers can get more than they would get in bankruptcy -- unless of course the bankruptcy is federally financed. And AIG executives argue that even if the money is coming from taxpayers, the fact of the matter is their bonuses are based on legally binding contracts.
It is human nature for those who perceive themselves to be disadvantaged to seek payback from those they perceive to be advantaged. And it is human nature for the advantaged who are familiar with the law and have the resources to pursue their claims to do so. The recession hasn't changed human nature. It has only magnified the consequences of it and contributed to the level of mistrust stymieing efforts to reinvigorate the economy.
What will it take to restore a measure of that trust?
"I would like to see the wealthy making very significant efforts and gestures that would turn this thing around," said James Weber, who teaches business ethics at Duquesne University. "All stakeholders in an organization should share in the belt-tightening."
In that regard, U.S. Steel and MSA announced last week that their CEOs will take 20 percent salary cuts in response to the global recession. To what extent the measures will engender a feeling that "we're all in this together" -- particularly at U.S. Steel, where 7,000 hourly workers have been laid off since last fall -- remains to be seen.
Dr. Fugate says such actions can instill confidence among the taxpayers and workers whom corporate leaders must rely on to respond to the recession.
"For everybody responsible for executing the [policy] changes, strategies and regulations, trust will be consequential in determining how much commitment they get," he said.
The issue of pain-sharing aside, Dr. Weber says the wealthy have the resources and spending habits that will be critical to putting the economy on sounder footing. Dr. Zultowski agreed: "This is the group that is going to have more disposable income for financial products and services .... So it is important to get this group of people's confidence back."
Many of the economic problems facing U.S. policymakers require radical change, Dr. Fugate says. But he believes that whatever solutions are agreed on probably will not reflect a radical shift of wealth or influence from the affluent to the less affluent.
"It would be the naive individual who believes that whatever changes come to pass will be at the expense of the wealthy," he said. "The wealthiest folks have most of the power, most of the authority. That's not going to change."
First Published May 3, 2009 12:00 am