Whatever caution the wealthy may have shown during the recession has begun to ease up over the last year, as if some see the light at the end of the tunnel.
“In the last 12 to 18 months, we’ve come back to a point where a lot of people are a little bit less price conscious,” says Robert Tuchman, president of Goviva!, a New York-based company that puts together exotic travel experiences for the ultra-wealthy. “I don’t think we’re back to the freewheeling days of prior years, where people didn’t even look at a price tag, but people have taken the lessons learned and are starting to spend again.”
This past summer, for instance, he received a lot of calls from customers wanting to go to the Olympics. And there’s been renewed interest in Super bowl packages, something that’s waned a bit in recent years, in part because people were embarrassed to have money and to be doing so well, he says.
“There was definitely a segment that held back because they were afraid of how it looked. A lot of clients work for major corporations, and there’s that stigma, that they’re going to this event, and that their company was promoting it,” he says.
Of course not everyone held back, even in the lowest point of the recession. Tuchman says his firm actually received a request from a company back in 2008 asking for him to arrange a trip for its executives to the Final Four NCAA Men’s Basketball Championship, at a time when those executives were in Washington asking Congress for bailout money.
“I won’t name the company, but we got that request literally the same day they went before Congress,” Tuchman says.
While people are still holding off from purchasing additional homes or larger yachts, they’ve begun to buy collectibles again, like antique cars, vintage wine, jewelry and artwork, according to Jerry Hourihan, executive vice president and chief marketing officer for U.S. Personal Lines at AIG. Hourihan would know. He insures those assets.
“In the last two or three years, in those sections of collectibles, we’ve seen strong results and faster growth than in the rest of our portfolios,” he says. “Clients have said anecdotally that they feel more comfortable investing in things they’re passionate about and already have experience investing in.”
In 2011, for instance, $981 million in collector cars were sold in auction, according to Sports Car Market magazine. That figure was just $551 million in 2009. In terms of wine, Christie’s sold $47.1 million in the second quarter of last year, a 120% rise over the comparable period in 2010, according to Bloomberg News. Sotheby’s sold $53 million, a 49% rise over the prior year.
“People are traveling more now than they were last year. All the vendors are saying that hotel sales have really picked up. 2012 was a really big year,” says Erica Jackowitz, president of Roman & Erica, a lifestyle management firm in New York.
They may not take a private jet to get there, but they’re still spending at the top level hotels. Jackowitz says many are already booked for the holidays.
Places like the Four Seasons Nevis or Hotel Saint-Barth Isle de France on St Barths, for instance, are all pretty much sold out and these are places that require 10- to 14-day minimum stays and have rates ranging from $1,400 to $5,000 a night, she says.
“We’re doing a lot of events; we’re buying art for several hundred thousand dollars. The new restaurants—the NoMad Hotel in New York, The Chef’s Table at Brooklyn Fare—they’re sold out,” she says, noting that dinner at the Chef’s Table, with wine pairings, can cost $1,000 for a couple.
But while it may seem like the recession is over for the wealthy, it’s not been forgotten. Gone are the wanton days of reckless spending as if the good times would last forever. The rich are spending again, but far more judiciously, concierge specialists say.
“I definitely see fewer people not looking at their bills,” Jackowitz says. “They’ll notice that their car for dinner was $600 for the night, and they’re more likely to say, ‘I’ll get into a taxi.’ If the restaurant is across the street from the hotel, they’ll say, ‘We’ll walk.’ ”
Clients now look at their bills to see what things cost, they’re comparing rates on the Internet, like the rest of the general population, and instead of paying $16,000 for first class, they’re more likely to use their frequent-flier mileage, Jackowitz says.
Teresa Watkins, an executive lifestyle manager in Philadelphia, has a client who is a baseball player. It used to be that whenever he went down to Florida for spring training, he’d ask Watkins to ship him his Maserati. He would also ask her to fly down his whole family to visit him, on a private jet. When the family went on vacation, they’d sometimes spend a week at a resort in Anguilla, paying $1,495 a night for just the hotel.
“They’re not doing any of that anymore,” Watkins says.
The baseball player’s not alone. The ultra-wealthy are still staying where they want to stay, eating where they want to eat, sitting where they want to sit, but they’re being more cognizant of the value, and the “value adds” they’re getting, such as a free breakfast, an upgrade at the time of confirmation or upon arrival at the hotel, or a spa voucher—things that make people feel like they’re getting more for their money.
They’re not flying privately as much as they used to. In the past, if they didn’t have a private jet, they might have spent $100,000 for a 25-hour jet card, giving them 25 hours of flying time. Nowadays, more clients are opting for commercial flights—though they still fly first class.
Luxury car service has also been curtailed. Watkins says she recently had a client fly down to Miami and she was surprised when he told her he didn’t want his car service waiting on the other end. Instead, he rented a car, something he’s been doing a lot more often lately, she says.
“They’re reserving things like private jets or luxury car service for special occasions, like courting a prospective client or if they want to project a certain image,” Watkins says. “I now have to ask clients whether they’re going to fly private or commercial, and whether they’re going to rent or they want car service. It’s no longer a default.”
They’re cutting costs wherever they can, she says. One client used to have a full-time, in-house executive assistant, but he found that he was at his office so infrequently, he let her go and outsourced that function to Watkins’ firm. He still has a receptionist at his office in order to greet people who come in, but by replacing his $70,000-a-year executive assistant with Watkins’ firm, he’s saving about $30,000 a year.
“People are looking for ways to become more efficient in the way they run their businesses,” Watkins says.
No one likes to waste money, regardless of how rich they are, says Maxine Andrew, owner of Instead of You!, an events-planning company in the San Francisco Bay area. Andrew says prior to the recession, her clients were living large. Two bought private jets and decorated them. Several others asked her to plan events that included fireworks and even skywriting. But once the recession rolled in, everyone took pause, whether it was because they were concerned about their finances or about appearances, she says.
“No one wanted to be seen spending money, or if they were, it had to be for a good cause,” Andrew says.
Some clients have cancelled corporate events or drastically scaled them back. Others have asked her to re-spin private celebrations into opportunities to raise money for their favorite charities.
When they take luxury vacations now, they’ll ask, is that the lowest price? She has one client who in the past would happily pay $120,000 to rent a villa for a month on St. Barts. This time around, knowing there were savings to be had, the client had Andrew see if she could procure it for less, and indeed she could: for $80,000.
“They’re smart consumers, like everyone else,” Andrew says. “They’re aware things can cost less in today’s economy.”
Denise Baron, a lifestyle expert in Philadelphia, says the wealthy are still having parties, but instead of having a guest list of 250, they might reduce it to 100. Those who would have spent as much as $2 million on a bat mitzvah are reining in their budgets to, say, $500,000, she says.
“People are realizing they really don’t need all this excess,” Baron says. “They still want to be elegant, but instead of polishing the silver three times a month, they’ll do it maybe once a month.”
Sherrie Mathieson, a style consultant and shopper for the wealthy in Scottsdale, Ariz., has had clients who, if they liked a Hermes handbag, would want her to buy five or six of them. They might have bought a similar number of Prada or Bottega Veneta, if they were OK with that price point. Now, they’re buying the same brands, but not as many of them. And they’ve asked her to keep an eye on sales.
“A greater part of my job now is trying to make my clients aware of when these wonderful brands have sales and trying to snag good items when they do go on sale,” Mathieson says.
The recession has also given wealthy families an opportunity to pause and re-evaluate how they’ve been handling matters at home, and the result is that they’re looking at all of their assets more holistically to see if they can manage them more efficiently, says Natasha Pearl, CEO of Aston Pearl, a New York-based lifestyle management advisor to family offices.
“There’s very little you can do to control your investments. So what people are doing is they’re looking around and saying, I can actually do a better job of managing my six homes, my planes and my automobiles. I can do a better job with schooling for my kids and with elder care,” Pearl says. “That’s the biggest thing happening. People are saying, ‘Let’s look around at what I can control.’”
Fleet management is one trend that has emerged. Traditionally, a family’s vehicles are handled piecemeal. The captain might take care of the yacht. A property manager or butler might oversee the cars located at a particular property. Perhaps management of the planes is outsourced. But that isn’t the most effective way of handling things. The vehicles are spread across a variety of states and countries, and all of them must be registered, have insurance policies that are up to date, and have gas.
“I guarantee the process to register and insure all of those vehicles in all of those countries is completely different. How’s someone going to keep track of that?” Pearl says. “There may be property managers at each place, but there’s turnover, or maybe someone forgets, and then all of a sudden, someone is driving one of the family vehicles, and there’s a fender bender, and guess what? That car hasn’t been registered and the insurance isn’t current.”
Increasingly, wealthy families are turning to their family offices to manage their fleets, Pearl says. They want someone to take care of everything more comprehensively.
Wealthy families are also taking a more holistic view of their staffing needs, in some cases pulling full-time staff from houses they don’t use as much, says Peter Mahler, owner of Mahler Enterprises in Milwaukee, a firm that handles the staff hiring for wealthy families. They’re looking at ways to be more cost effective and thinking, if they’re not at a particular house often enough, why not just hire a part-time cleaning service or bring staff from another property when they stay there, Mahler says.
“These are intelligent, cautious people. They value a dollar,” Mahler says. “I work with 200 of the Forbes 400, and I don’t have people saying, ‘I don’t have to pay attention to what I spend.’”
The recession has also made the wealthy more scrupulous about vetting prospective employees; they are making sure background checks don’t just include criminal checks but also credit checks. If someone is under water financially, the last thing the family wants is an employee who is always asking for money or is desperate enough to steal, Mahler says.
New laws in California and Illinois, however, have made it illegal to not hire someone on account of poor credit, unless that person works directly with money. For that reason, employers are making sure their job descriptions stipulate that the position will require direct access to money.
The wealthy are also changing the way they use their household staff, in light of new laws in New York and California passed since the recession that govern how help should be paid and terminated. For instance, staff must now be paid hourly, instead of weekly, and that means a housekeeper who might have worked 11 hours one day and four hours the next would now have to be paid overtime for the 11-hour day. The result is that families are adjusting workers’ schedules accordingly, to avoid paying overtime, Mahler says.
“Our clients are dotting their i’s and crossing their t’s and following all of the wage and hour rules in the states in which they live,” he says. “Prudent deployment of employees has become a recurring theme. People want to know, ‘How do I use my resources more intelligently?’”
Affluent families need to be vigilant about following the rules because household staff are more litigious than ever before, Mahler says.
“Employers are finding themselves being sued more often these days, for terminating someone or for not following the rules,” Mahler says.
Security has also become a greater concern. It’s not surprising. Since the start of the recession, crime has gone up, the number of home invasions has gone up, and the criminal threats against the affluent have been rising, says Paul Viollis, CEO of Risk Control Strategies.
“What more and more affluent families have done, because of the rise in home invasions, is to increase and fortify the level of security in their homes,” he says.
His firm has seen it firsthand. Revenue has risen more than 200% from ultra-wealthy individuals trying to beef up security, either to their person, their home or their computer, he says.
“[They’re] making security much more of a front-burner issue,” he says. “We’ve seen a significant uptick in terms of the amount of phone calls we’re getting, and the revenue generated.”
Family offices are also analyzing and assessing the level of security they’re providing for families, from the physical security of the building in which they’re housed, to the data server they have to protect their clients’ proprietary financial information and the personnel who have access to it. To that end, they have been installing more alarms and cameras and doing better background investigations into all their staff, vendors and contractors who have access to family information. And they’re incorporating a much higher level of encryption to store all of the family’s information, he says. Where his firm serviced 32 family offices in 2011, that number doubled to 74 in 2012, he says.