Affluent Families Put Cash Back Into Play
Affluent families have coped with the global financial crisis by converting their assets into cold hard cash, but they're starting to warm up to the idea of putting this money into play, according to one industry observer.

Moreover, they're taking a more active role in dictating where their assets are invested, he said.

"I think definitely their world view is that things are getting better," said Norman Jones, CEO of WealthTouch, which provides wealth-reporting services for more than 400 high-net-worth families, with average account sizes of about $170 million.

Wealthy families reacted to the 2008 crash by holding more of their assets in cash and spreading out the rest of their investments among a wide array of custodians, managers and investments, he said.

"The amount of cash reserves families have on hand now is almost double what they had coming into the financial crisis," Jones said. "There is a lot of cash on the sidelines waiting to invest because of nervousness."

Based on his conversations with clients, Jones believes the affluent are poised to put their cash back into long-term investments. One of the primary areas they're looking at, he says, is equities-specifically blue chips.

Unlike more mainstream investors, who appear to be gravitating to investments such as gold and commodities, the affluent-and the family offices and private banks that serve them-are showing an interest in the stocks of big, healthy, multinational companies.

These types of blue-chip stocks, he said, are viewed by the wealthy as safe, long-term holdings that provide international exposure.

"It's not speculative. This is buy-and-hold stuff," he said. "They want to buy Coca-Cola and basically look at it in three years' time."

There is also continued interest in hedge funds and private equity, but wealthy families are more discriminating now, wanting to ensure that the hedge funds they use are actually using hedging strategies.

This newfound interest in equities, however, relates to another trend observed by Jones: The ultra-wealthy are taking a more active role in how their assets are managed.

"A lot of families feel they outsourced the management of their wealth too much before 2008," Jones said. "Real clarity and control was pretty much nonexistent."

So instead of leaving their money in the hands of hedge fund managers and private bankers, wealthy families are taking a hands-on approach to their investments, he says. As a result, Jones is also seeing a lot of families retrench and focus investments on industries they know well-the businesses that made them wealthy, for example.

"I think there's been a marked difference in the behavior of the [wealthy]. They are a lot more involved in how their money is managed and getting a lot more involved in actually doing it themselves," he said.

Study: Donors Take On Less Risk
Philanthropic giving has remained relatively stable this year, with donors less willing to expose their charitable assets to market risk, according to a new survey.

"Pleasantly surprising" data showed that while 31% of wealthy donors exhibit a willingness to tolerate above-average levels of risk in their personal investing, only 19% report the same risk tolerance with their philanthropic investing, according to Claire Costello, national foundation executive for Bank of America Merrill Lynch, which recently released the 2010 High-Net-Worth Philanthropy Study, the third such biennial report since it was first published in 2006.

"This tells us that donors seem to appreciate that their philanthropic assets are not their own, but are to be used for the common good, and should therefore be invested with appropriate levels of risk," Costello said.

The study also found low levels of usage of social or charitable goals-based investment tools and approaches among high-net-worth donors (e.g., donor programs or socially responsible investing). Some 73% are aware of such options but do not currently use them, and nearly 20% have no idea they exist, according to the study. At the same time, 95% of high-net-worth households have some or a great deal of confidence in nonprofit organizations, and 90% have similar confidence in individuals.

As for decision-makers at home in America, two out of five confer with their partner or spouse and then make joint decisions about charitable giving, while 16% go it alone.

The 2010 survey reflects the responses of more than 800 randomly selected donors with a household income greater than $200,000 and/or a net worth of at least $1 million, excluding their primary residence.

"The study enables advisors to offer donors more astute counsel about their giving and helps nonprofits be more effective in generating support for their missions," said Una Osili, director of research for the Center on Philanthropy at Indiana University, which participated in the study. 

The study will be published in December and will be available at www.bankofamerica.com/philanthropic.