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Advice-Giving Banks Seen as Ideal For Pessimistic Wealthy


Banks, private banks, and trust companies are well positioned to gain market share in an environment that, for the first time in four years, is dominated by pessimism among the wealthiest investors, says an executive of U.S. Trust Corp., the private banking arm of Charles Schwab Corp.

The wealthiest 1% of Americans have soured on the stock market by comparison with last year, according to an annual survey by U.S. Trust Corp., whose index of affluent investors' assessment of market conditions declined sharply, to 48 from 66 the year earlier. It was the first decline in four years.

Paul K. Napoli, an executive vice president and head of personal wealth management at U.S. Trust in New York, said this situation is ideal for banks that offer wealth management advice.

"We have a good opportunity as an industry to increase our market share among the affluent," Napoli said.

Long Cycles of Advice'

"We have gone through long cycles of advice with wealthy families," he said. "We have provided advice in markets that have been overvalued and undervalued, and we have proven that we can give long-term strategic advice to affluent investors."

Though 81% of the survey respondents saw portfolio growth in the past year, 34% said stock investing had become riskier; only 14% said it was less risky now.

"Investors are focusing on being pessimistic," Napoli said, after five years marked by terrorism, a recession, mutual fund scandals, rising energy prices, and a weak dollar.

"Their confidence in the markets has diminished. They are being very short-term and very defensive."

36% on the Sidelines

In fact, affluent investors are keeping 19% of their portfolios in fixed-income products, the survey found, and 17% in cash.

This conservative approach must change, Napoli said. "The economy has rebounded, [and] corporate profits are excellent," U.S. Trust's personal wealth chief said. "This is really the flip side of the 1990s. We have taken off our rose-colored glasses and put on dark-colored ones. Investors should start to move investments to more money-making categories."

Analysts said banks could take advantage of conservative investors' bias for conservative investment vehicles but that, in the long term, banks should be more creative in order to develop share.

"Advice is the key to developing good, long-term relationships, but banks aren't the only firms providing advice," commented Burton J. Greenwald, president of B.J. Greenwald Associates in Philadelphia.

Ultimate Success

"The firms that will ultimately succeed will be the ones that can patiently advise and then wait for the investors to be ready to invest rather than just force products on them," Greenwald continued.

Napoli said that as the wealthiest investors grew pessimistic about market conditions and the outlook, they also grew worried about retirement and providing for their heirs. Concern that the next generation will have it tougher financially has replaced terrorism as the wealthy's top concern, the survey said.

Wealthy investors also worried about Social Security reform - despite the government program's accounting for only 7% of their retirement nest eggs.

Ninety percent said Social Security's problems must be addressed now, though 71% think the program might not run into trouble for years. More than two-thirds supported private accounts within Social Security.

"Our survey reveals that the affluent are less concerned about the methods used to bolster Social Security than they are with the President and Congress addressing the soundness of the system now, before serious problems develop," Napoli said.

All these concerns give banks, private banks and trust companies a chance to get in the front door by offering advice, he said, even if wealthy investors are skeptical about buying products right now.

Now is the Time' To Meet Affluent Needs

"Wealthy investors need professional advice to help get them over the hump and get them focused on what will ultimately drive value and develop assets," Napoli offered. "We have to help them develop trust. Now is the time to develop a relationship."

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