2014 U TS. . RUST INSIGHTS ON WEALTH AND WORTH...• Blended families have unique needs for wealth...

2014 U.S. TRUST INSIGHTS ON WEALTH AND WORTH®

Annual survey of high-net-worth and ultra-high-net-worth Americans

TABLE OF CONTENTS

Introduction ..............................................................................................................................................1

Overview ................................................................................................................................................... 2

A picture of wealth: a profile of survey respondents ............................................................. 3

Highlights .........................................................................................................................................4 – 20

Diverse family structures add complexity to wealth management .................................................4

The great intergenerational transfer of wealth ...................................................................................8

Using wealth for meaning and impact ................................................................................................ 12

Investing for prudent growth and borrowing opportunistically .....................................................15

U.S. Trust Insights on Wealth and Worth® is one of the most in-depth studies of its kind to explore the wealth management challenges confronting high-net-worth and ultra-high-net- worth individuals in the United States. U.S. Trust has conducted surveys of wealthy Americans periodically since 1993.

The modern American family is more complex and diverse than it once was, adding to the challenges of wealth management for high-net-worth investors. Changing family structures and roles among multiple generations of immediate and extended family members affect the way family members interact, communicate and manage their wealth.

The 2014 U.S. Trust Insights on Wealth and Worth survey reveals the ways in which complex family dynamics affect wealth and, in turn, how increased wealth alters family relationships, attitudes and behavior. The study also shows how high-net-worth investors of different genders and generations view the opportunities and responsibilities that come with wealth — and sheds light on the direction and purpose of the more than $15 trillion* that will be passed across generations in high-net-worth families over the next two decades.

*Cerulli Associates, “Wealth Transfer: Sizing, Trends & Opportunities,” 2010.

01

2014 U.S. TRUST INSIGHTS ON WEALTH AND WORTH

INTRODUCTION

Investment products:

Are Not FDIC Insured Are Not Bank Guaranteed May Lose ValuePlease see end for additional important disclosure information.

02

OVERVIEW

U.S. Trust found that family dynamics, including change in family structures and roles among men, women and multiple generations, affect both immediate and extended family members. While families grow more complex, so do their challenges.

A concerning trend among modern high-net-worth families is assuming financial responsibilities for immediate and extended family members, and encountering family circumstances that they are, in many cases, unprepared to handle. Traditional approaches to wealth management need to evolve and incorporate the diverse perspectives, roles and contemporary needs of the modern American family.

The changing dynamic of the modern American family coincides with a substantial amount of family wealth changing hands in the coming years. However, the majority of wealthy parents question whether their children will be adequately prepared to handle the inheritance planned for them.

In fact, almost half of Millennials have already received an inheritance. And these young, wealthy entrepreneurs are starting businesses and are committed to making a positive impact on the world. Millennials are also putting their wealth to use in distinctively different ways, and their approach is innovative, individualized and opportunistic.

Regardless of age, the wealthy feel strongly about putting their financial success to work in a way that is meaningful and will create positive social change. They rank “giving back to society” among the most important uses of their wealth, and would like to help foster greater income equality and opportunity in the country.

As markets have improved, high-net-worth investors are feeling more optimistic and willing to take on more risk. But distinct generational perspectives are reflected in the widely varied investment outlook and approaches among the wealthy, with implications for investment returns, asset allocation and strategic approaches to debt.

There are now nearly 1.8 million households in the U.S. with $3 million or more, including 950,000 households with $3 million to $5 million, 600,000 households with $5 million to $10 million, and 250,000 households with more than $10 million in assets.*

All respondents to the 2014 U.S. Trust Insights on Wealth and Worth survey have at least $3 million in investable assets as follows:

• 34% have between $3 million and $5 million

• 32% have between $5 million and $10 million

• 34% have greater than $10 million

Although the average age of survey respondents was 52 years old, these wealthy individuals represented four distinct generations:

• Millennials or Generation Y (age 18–32): 13%

• Generation X (age 33–48): 22%

• Baby Boomers (age 49–68): 45%

• Age 69+: 20%

Men represented 57% of our sample and women 42%. A large majority (79%) were married or cohabiting, and 66% had children. More than three-quarters of respondents earned the majority of their wealth on their own versus inheriting it.

03


*Cerulli Associates, “Wealth Transfer: Sizing, Trends & Opportunities,” 2010.

A PICTURE OF WEALTH: A PROFILE OF SURVEY RESPONDENTS

The modern American family is more complex and diverse than it once was, creating additional challenges for high-net-worth investors and their advisors. Changing family structures, shifting roles among men and women, and the co-existence of multiple generations of immediate and extended family members create dynamics that transform the way we look at relationships, communication and family wealth.

AN EVOLVING DEFINITION OF FAMILY

The traditional family — that is, two parents in a single, lifelong marriage with children — is still predominant; more than three-quarters of high-net-worth investors are in their first marriage and two-thirds of them have children (an average of two).

Still, the concept of family is evolving, and is shaped by a variety of structural layers. Twenty percent of our sample have remarried following divorce or widowhood, and a similar number are in a blended family with children from previous relationships. Ten percent live in a multigenerational household including children, parents and grandparents. Four percent are cohabiting, and 3% are married or living with a same-sex partner.

Nontraditional families face their own unique challenges in managing wealth. In general, people in blended families are more likely to say that increased wealth makes life more complex and that disagreements about the use of money, when they occur, represent a significant risk to wealth.

04 Highlights

H IGHLIGHTS

Diverse family structures add complexity to wealth management

6% Divorced, separated

1% Widowed

76%

Married or living with opposite- sex partner

Marital status

14% Single, never married

3% Married or living with same-sex partner

76%In first marriage

Current relationship status

20% Remarried

4% Cohabiting

69%

31%

11%

Have children

No children

Stepchildren

Children or stepchildren

69

31

11

The modern American HNW family

WHAT TO CONSIDER

• Blended families have unique needs for wealth and estate planning. Wealthy investors with complex family structures may wish to consult an advisor to make sure their estate plan transfers wealth to current and former spouses, children and other heirs in the manner and proportion they desire.

• Multigenerational trusts can also be helpful in supporting current needs while planning for an eventual tax-efficient transfer to the next generation. High-net-worth investors may wish to ask their advisors about ways to generate income for older members of the family while ensuring long-term financial security for younger ones.

• Despite advances in the seventeen states that now recognize same-sex marriages, challenges remain for same-sex couples no matter the legal status of their relationships or where they live. It is important that they develop a plan that considers their specific circumstances by working with an advisor who has knowledge of state and federal tax law, as well as an understanding of the types of estate planning vehicles that can provide security to same-sex couples.

• Incorporating the need to support extended family members into financial plans is important to help ensure that providing support does not derail other objectives.

GENERATIONAL AND GENDER DIFFERENCES

Different generations are shaping the concept of family in their own distinct ways. Among Baby Boomers and those over 69, divorce and remarriage affect a significant proportion of the population. One-third (34%) of people over age 69 have been divorced and one in four currently live in a blended family. About 20% of Baby Boomers live in a blended family.

Women are making significant contributions to family wealth, and playing an active role in wealth planning and decision-making. More than half (52%) of women came into their marriage or relationship with financial assets equal to or greater than their spouse’s or partner’s, and one-third (33%) of women are now the primary income earner or contribute equally to household wealth.

For Millennials, families often include multiple generations. Nearly a third of this group’s members live with a parent or grandparent.

Millennials are also more likely than any other generation to be married to or live with a same-sex partner. The absolute numbers are small, at 4% of the Millennial group, but that is four times the rate for those over 69, and twice the percentage of Generation Xers.

SUPPORT FOR FAMILY MEMBERS

Across all age groups, high-net-worth individuals are engaged in supporting both their immediate and extended families. Nearly six in 10 wealthy people have provided financial support to an adult member of their immediate and extended family.

Highlights 05


06 Highlights

Among these individuals, nearly one-third (30%) of wealthy parents and grandparents have provided financial assistance for adult children and grandchildren, while nearly as many adult children (29%) have financially supported their parents or in-laws. Two in 10 of all high-net-worth investors have financially assisted siblings or siblings’ children. Millennials are twice as likely as any other generation to expect to support their parents.

One-third of respondents are providing ongoing support to family members, yet only 3% have a financial plan that accounts for this type of support. For nearly four in 10 (37%), providing financial support to a family member comes at the expense of meeting personal financial goals.

59

33

38

UT2949_Chart_ppt11a.eps

59%

33%

38%

Ever providedfinancial support

Provide ongoingfinancial support

Provideda substantial loan

Percent who have provided financial support or a substantial loan to an adult family member

37%

33%

42%

66%

57%

23%

26%

Total

Male

Female

Millennials

Gen X

Baby Boomers

Age 69+

37

33

42

66

57

23

26

UT2949_Chart_ppt11b.eps

Percent whose financial goals have been negatively affected by providing financial support to an adult family member

WHAT TO CONSIDER

• If they haven’t done so already, wealthy investors should consider discussing with their advisor how they might create a detailed plan that addresses the financial, health and residential-living needs of their parents and other elderly family members.

• Wealthy individuals should consider documenting for themselves and for other appropriate parties the names and contact information of key advisors and professionals, the location of important records and details of accounts, including online passwords. Having these records in one location will aid in making decisions and removing stress if the information is needed in an emergency.

• Wealthy families should also review their estate plans to determine their risk exposure in the event of a disruptive event such as a divorce, untimely death or medical crisis. An advisor can help structure assets to protect loved ones from the unexpected — and to delegate decision-making responsibilities in the event of a sudden change in circumstances.

• Wealthy individuals in blended families may wish to consider discussing how they would like to provide for the various members of their household now and in the future. An advisor can help structure wealth so that it is distributed as the family head intends. These same strategies can protect family wealth from ex-spouses and other unwanted claimants.


EVEN WEALTHY FAMILIES MUST WEATHER CRISES

Nearly half of all high-net-worth families in our survey have experienced significant disruptions in family structure, due largely to divorce or the untimely death of an income earner. The majority of those who have experienced these events say that it has caused at least some risk to family wealth.

Medical problems affect nearly half of our high-net-worth sample, yet few have planned ahead to meet the cost of a serious health issue. About a third (32%) of married couples have a financial plan to address the cost of long-term care for both themselves and a spouse. Only 17% have a plan for themselves, and fewer than one in 10 have established a financial plan to address the cost of long-term care for their parents or other aging relatives. Millennials are most likely to have a plan to address long-term-care costs for themselves and their parents.

Highlights 07

The most common disruptions that affect high-net-worth families

24%Financial problems

24%Family disagreement

• 13% Isolation or mistrust of a family member

• 11% Disagreement about the use of money

• 9% Disagreement over inheritance or distribution of family assets

43%Medical problems or crises

• 26% Medical crises

• 17% Addictions/impulsiveness

• 12% Mental illness

• 11% Children with special needs

46%Disruption or change in family dynamic

• 36% Divorce or separation

• 17% Blended family

• 11% Untimely death or disability of a primary income earner

Types of financial or family plans in place

32 17 10

36 16 8

27 20 13

25 25 17

18 17 18

40 15 6

35 19 1

UT2949_Chart_ppt15.eps

10% 8%

36%

16%20%

27%

13%

17%

25%

25%18%

17%

18%

6%15%

40%

1%

19%

35%

17%

32%

Total Male Female Millennials Gen X BabyBoomers

Age 69+

Cost of long-term care for aging or infirm parents or other aging relatives

Cost of long-term care for yourself

Cost of long-term care for yourself and your spouse/partner

08 Highlights

While the majority of wealthy Baby Boomers surveyed grew up in middle-class or lower families, and 61% are the first generation in their family to be wealthy, their children and grandchildren are growing up wealthy and are more likely to inherit large sums of wealth.

THE IMPORTANCE OF LEAVING A LEGACY

Nearly six in 10 wealthy people thought it was important to leave a financial legacy to the next generation. Baby Boomers were least likely to say that creating an inheritance was important to them (53%), while Millennials (65%) and those over 69 (68%) were the most committed to the idea.

While parents do wish to leave an inheritance, they are concerned about when their children will be mature enough to receive one. Insights on Wealth and Worth found that 96% of wealthy parents think their children won’t be able to handle an inheritance of money until at least the age of 25, and 37% think the ideal age is between 30 and 34.

Possibly the source of this concern, only four in 10 (38%) wealthy parents have fully disclosed their financial status to adult children over the age of 25, and only 38% of wealthy parents strongly agree their children will be well prepared to handle the inheritance planned for them.

We also found important differences between blended and traditional families. While blended and unblended families are equally generous to their heirs, blended families are slightly less confident in their children’s ability to handle wealth and achieve financial success. As a result, the heads of these families are less forthcoming about the details of their family wealth.

The great intergenerational transfer of wealth

WHAT TO CONSIDER

• Wealthy parents should discuss with their advisor financial education resources that can provide their children and grandchildren with a solid understanding of financial topics and help prepare them to be good stewards of wealth.

• High-net-worth individuals who have not already talked to their children about their wealth and their future inheritance should consider setting up a family meeting with an advisor. The advisor might be able to facilitate a productive discussion about the resources that will someday be available to the children and about the responsibilities that come with substantial wealth.

• Millennial high-net-worth individuals may need help in investing and managing the inheritances they have received — or are likely to receive — from their older relatives. An advisor can help these younger family members manage their assets to support their broader goals, while providing for the security of their own children and other loved ones in the future.

• Millennial inheritors may wish to seek out an advisor who understands the challenges that significant wealth can bring, as well as the complexities of trusts and other vehicles that their inheritance may involve.


Highlights 09

YOUNGER GENERATION RECEIVING BIGGER INHERITANCES

Even though parents say they prefer to transfer assets to older, more mature children, the younger Millennial generation is capturing a large share of inheritances. The average of all legacies for high-net-worth investors is $907,000.

REASONS FOR ESTATE PLANNING

High-net-worth individuals of all generations are as involved in creating legacies as in receiving them, and so are likely to engage in a variety of estate planning strategies.

The most important reason they cite for estate planning is to ensure that the financial needs of a spouse or significant other are met. However, beyond that basic goal, high-net-worth families say that their two most important motivations for estate planning are minimizing taxes and reducing the administrative burden of settling the estate.

As always, there are generational differences in their responses. Millennials and Gen Xers ranked “to prevent discord among family members” higher than Baby Boomers and those over 69.

FAMILY AND FRIENDS ARE NAMED AS EXECUTORS AND TRUSTEES, WITHOUT REGARD FOR THEIR CAPABILITIES

More than three-quarters of respondents name a family member or friend to oversee their estate. Most often, these individuals name their spouse, though nearly a quarter of our respondents hadn’t chosen an executor or trustee at all. More men appoint their spouse than women do, perhaps because women are statistically likely to outlive their husbands. Women, in turn, are twice as likely to appoint a friend. Nearly one in four (22%) have not named anyone as a trustee, because they have not established a trust. These individuals leave their final wishes in a will, or in some cases, do not have a will at all.

27%11%

9%

12%

25%

16%

$25K–$49.9K

<$25K

$1 million+

$50K–$99.9K

$100K–$499.9K

$500K–$999.9K

$907K(Average)

Value of inheritance received

Ranking of most important reasons for having an estate plan

1. To ensure the financial needs of spouse or significant other are met

2. To minimize taxes on estate

3. To minimize the administrative burden of settling estate

4. To protect assets from abuse or falling into the wrong hands

5. To ensure the financial needs of children from current or previous marriages are met

6. To treat all heirs equally

7. To preserve family wealth for future generations

8. To carry out philanthropic wishes

9. To prevent discord among family members

10. To influence the behavior or decisions of heirs

10 Highlights

Trust, financial knowledge and objectivity were the top qualities wealthy people named when choosing executors and trustees. Less than 20% consider the emotional state, mental health or availability of time that the person has to make to fulfill responsibilities. Yet these are critical variables for the people serving as executors and trustees. When asked about the most difficult parts of their role in administering an estate, the commitment of time required was the number one response. Other highly ranked difficulties were having access to knowledge about where records and information are kept, having sufficient legal and financial knowledge, and managing the varying expectations of and disagreements among heirs or beneficiaries.

29%29%

20%

26%

22%

19%

11%

11%

Commitment of time required

Having access to or knowledge about whereabouts of

records and information

Having sufficient legal/financial knowledge

Managing expectations/disagreement among heirs

or beneficiaries

Filing tax return

Paying bills or debts owed

Distributing assets without clear instructions from

the deceased

Determining the value of assets

Not compensated adequately for time

Sharing decision-making with co-executor

29 29

20 28

26 25

22 25

19 23

11 14

11 13

11 13

13 10

17 9


28%

25%

25%

23%

14%

13%

11%13%

13%10%

17%9%

Trustee Executor

Among those who have served

Most difficult part of serving as executor or trustee

WHAT TO CONSIDER

• Wealthy investors should review their estate planning documents and assess whether the individuals selected to serve as trustee or executor have the time, skills and knowledge to effectively carry out their duties.

• Then they can discuss with their advisor alternatives that would permit these individuals to continue serving while engaging others who can provide the needed skills, knowledge and resources. Alternatives might include appointing a co-trustee, co-executor, agent for trustee or agent for executor who has the requisite technical skills and knowledge to complement the family knowledge of the individual named as trustee or executor.

“ When asked about the most difficult parts of their role in administering an estate, the commitment of time required was the number one response.”

CREATING AND SUSTAINING WEALTH OVER GENERATIONS

Nearly six in 10 (58%) high-net- worth people are the first generation in their family to be wealthy. This is particularly true of the older generations in our survey. A smaller proportion of families have managed to pass wealth between generations. About a quarter (26%) had sustained wealth for two generations, 13% for three and 3% for four generations or more.

Nearly three-quarters of those over 69, and 61% of Baby Boomers, were the first generation to accumulate significant wealth. Among the younger Millennial generation, inherited wealth is more common. About two-thirds are from families in which they are the second, third or fourth generation to be wealthy. Despite becoming wealthy sooner than other generations, these Millennials are highly motivated to create their own wealth and make a positive impact on the world. They are earning incomes, starting businesses and giving philanthropically.

More than half of our survey respondents grew up in middle- or lower-class households. Again, older high-net-worth individuals were more likely than younger ones to have climbed the economic ladder. About six in 10 Baby Boomers came from middle-class or lower families, as compared to roughly four in 10 for Millennials and Generation X. These beginnings shape perceptions and attitudes about wealth significantly.


Highlights 11

Socio-economic status growing up

26%

13%

3% Four generationsor more

58%

Second generation(parents)

Third generation (grandparents)

First generation

Generations of sustained family wealth

8%

37%

36%

16%

3%

Wealthy

Upper middle class

Middle class

Lower middle class

Poor

8

37

36

16

3


12 Highlights

Using wealth for meaning and impact

The wealthy rank giving back to society through charitable giving or volunteerism as a very important use of their wealth, second only to providing for family and achieving financial security. This commitment is reflected in their investment priorities, too.

HIGH-NET-WORTH INVESTORS SEEK SOCIAL IMPACT AND RETURN

One-third of all high-net-worth investors and nearly two-thirds of Millennials currently own or employ social impact investment strategies. Four in 10 agree that investing is a way to express their social, political and environmental values, while six in 10 say that it’s possible to invest based on social or environmental impact while achieving a market rate of return. Two-thirds of wealthy investors prefer that their socially responsible strategies take a positive, proactive approach, seeking out companies that add social, political and environmental value, rather than eliminating those that have a negative impact.

Investor attitudes about social impact investing

67%44%

36%34%

73%75%

62%62%

73%61%

58%47%

My investment decisions are a way to express my

social, political or environmental values

I would rather invest incompanies that have

a positive social orenvironmental impact than

avoid investments in companies that are harmful

It is possible to achieve market rate returns

investing in companies based on their social or

environmental impact

67 44 36 34

73 75 62 62

73 61 58 47


Millennials

% who agreeBy gender and age

Gen X

Baby Boomers Age 69+


Highlights 13

MILLENNIALS HAVE THE STRONGEST COMMITMENT TO VALUES-BASED INVESTING

One-half (50%) of high-net-worth investors, including 75% of Millennials and 63% of wealthy women, say they consider the social and environmental impact of the companies they invest in to be an important part of investment decision-making. Two-thirds (67%) of Millennials view their investment decisions as a way to express their social, political or environmental values, and eight in 10 (79%) believe that private capital from socially motivated investors can help hold public companies and governments accountable for their actions.

TOP PRIORITIES FOR SOCIAL IMPACT

The top five areas that matter most to the wealthy when it comes to values-based investing are healthcare quality and access; disease prevention, treatment or cure; environmental protection and sustainability; access to education; and the development of children and youth.

WHAT TO CONSIDER

• Wealthy investors may wish to discuss ways to align their investment strategies with their personal values through impact investments and socially screened vehicles.

• These investors might consider reviewing their current portfolio holdings with an advisor to identify areas where their investments align or fail to align with their priorities for social impact.

• They can also discuss with their advisor how different charitable vehicles such as a foundation or a donor-advised fund might be used to activate their interest in creating social change.

14 Highlights

A COMMITMENT TO EQUALITY AND OPPORTUNITY

A strong majority of the wealthy believe they can play an important role in helping others and the economy to advance. Nine in 10 (89%) wealthy Americans say they would help foster greater income and opportunity in the country primarily by financially supporting programs that support employment and education opportunities, paying more in taxes, creating jobs, and/or supporting legislation to reduce regulation and taxes on small businesses and entrepreneurs.

Strong interest in creating income and opportunity equality

53%

48%

39%

23%

15%

Help create jobs and incomefor others by starting/

expanding a business and/orpromoting business

ownership by supportinglegislation to reduce

regulations and taxes forentrepreneurs and

business owners

Support programs that support opportunity

advancement byvolunteering time/skills

Support organizations thatcreate employment andeducation opportunities

through directphilanthropic contributions

Pay more taxes to fundeducation opportunities

Pay more taxes to fundgovernment-funded

social programs

53

48

39

23

15



Investing for prudent growth and borrowing opportunistically

As markets have improved, high-net-worth investors are feeling optimistic and willing to take on risk, but their investment outlook varies greatly. Only 40% feel bullishly optimistic. Others describe themselves as pessimistic (10%); fearful of losing money (12%); highly opportunistic in down markets (12%); don’t want to know, but hopeful (9%); and unsure which way the market is headed but following the herd (6%).

WEALTHY INVESTORS ARE FOCUSED ON RISK-MANAGED GROWTH

After shifting focus from asset protection to growth in 2013, high-net-worth investors continue to take a more aggressive stance. Six out of 10 of our survey respondents say that growth is a higher priority than asset protection. Yet these wealthy investors are still wary of risk. In a separate survey question, 58% said that they would pursue lower-risk strategies, even if it meant giving up some return. Women were slightly more risk-averse than men, and older generations more risk-averse than younger ones.

Highlights 15

61 39

UT2949_Chart_ppt27a.eps

61%

39%

Grow assets

Preserve assets

Growth vs. preservation

42 58

UT2949_Chart_ppt27b.eps

42%

58%

Pursue higherpotential return,higher risk

Pursue lower risk, lower

potential return

Risk vs. return

Investment priority for managing wealth

“ Six out of 10 of our survey respondents say that growth is a higher priority than asset protection. Yet these wealthy investors are still wary of risk.”

16 Highlights

LARGE CASH POSITIONS SUGGEST UNCERTAINTY ABOUT THE FUTURE

Yet though most wealthy investors seem to feel marginally more positive about the future, a few are still holding significant proportions of their portfolios in cash. While 40% of survey participants feel secure, and hold less than 10% in cash, 41% are feeling slightly uncertain, with 10% to 24% in cash, and 19% are feeling very uncertain, with 25% or more held in cash. Women were more likely than men to have large cash positions.

Slightly more than half (55%) of investors plan to keep their current allocation to cash about the same. However, among investors with more than 25% of their assets in cash, about half were dissatisfied with their results. A third (34%) said they had missed the market rally of the past few years, and two-thirds felt that they were not on track to meet their personal goals and expectations.

Plans for cash

Percent of portfolio held in cash How do investors with large cash positions feel about their strategy?

11%35%34%

44%55%

66%

23%52%52%

Missed out on themarket rally

Not on track to meetpersonal goals

Plan to invest cash over the next

four years

Percent of cash on the sidelines

11 35 34

44 55 66

23 52 52


0%–9% 10%–24% 25%

17 24 55 4

18 27 50 5

14 20 61 4

13 34 50 2

16 32 48 3

18 21 56 5

15 11 69 6

UT2949_Chart_PlansForCash.eps

4%

50%

5%

18%

27%

20%

14%

61%

4%

50%

2%

13%

34%

48%

3%

32%

16%

56%

5%

21%

18%

6%

69%

15%

11%

55%

24%

17%

Total Male Female Millennials Gen X BabyBoomers

Age 69+

Move more into cash

Keep where it is

Move in next 2–4 years

Move in next 12 months

41%

14%

5%

40%

10%–24%

25%–49%

50%+

0%–9%

UT2949_03_Chart_p53_Pie.eps

14 5 40 41


INTEREST IN NONFINANCIAL AND ALTERNATIVE INVESTMENTS

Most of the wealthy either own or are interested in owning specialized assets that do not correlate with the broad market.

The most popular types of alternatives included tangible assets like land, real estate and timber (41% own, 27% are interested in owning); structured products (21% own, 31% are interested in owning); and private equity (18% own, 31% are interested in owning).

Millennials showed the most interest in private equity (51%), hedge funds (40%) and tangible assets (46%).

STRONG DESIRE TO MEASURE PERFORMANCE BY PERSONAL GOALS AND VALUES

The wealthy are overwhelmingly focused on meeting long-term goals (81%) versus short-term goals (19%). As a result, they have a strong interest in measuring investment performance not against standard benchmarks but in terms of how well they are meeting personal goals and expectations.

This preference was particularly pronounced among women (67%) and Millennials (71%). Men and investors over age 69 placed greater emphasis on broad market indices such as the S&P 500.

Highlights 17

Innovative investment strategies

18 31

24 51

26 39

15 24

10 15

13 23

23 40

20 36

9 16

8 8

41 27

35 46

45 33

45 20

28 20

18 16

28 22

13 23

16 11

19 11

Currently own Interest in owning

Total

Age 18–33

Age 34–49

Age 50–68

Age 69+

18% 31%

24% 51%

26% 39%

15% 24%

10% 15%

UT2949_Chart_InvestStrategies.eps

Private equity

Total

Age 18–33

Age 34–49

Age 50–68

Age 69+

13% 23%

23% 40%

20% 36%

9% 16%

8% 8%

Hedge funds

Total

Age 18–33

Age 34–49

Age 50–68

Age 69+

41% 27%

35% 46%

45% 33%

45% 20%

28% 20%

Tangible assets

Total

Age 18–33

Age 34–49

Age 50–68

Age 69+

18% 16%

28% 22%

13% 23%

16% 11%

19% 11%

Fine art

18 Highlights

WHAT TO CONSIDER

• Wealthy investors and their families should have active discussions with their advisors, so those professionals understand evolving attitudes about growth, risk and diversification and can adapt the wealth management strategy appropriately.

• Individuals holding large amounts of cash should review their portfolios to help ensure they are likely to meet their current and future needs. An experienced portfolio management team can provide detailed cash flow and income projections, and suggest ways to align investment strategies to help meet needs, while also maintaining appropriate risk protection.

• High-net-worth investors who have an interest in investments in tangible assets like real estate, commodities, farmland or timber should talk to their advisors about how to incorporate these assets into a comprehensive wealth planning strategy.

FOCUS ON TAX-MANAGED INVESTING HAS DECLINED SLIGHTLY

In 2014, slightly fewer than half of our survey respondents said that they preferred pursuing tax-managed investment strategies, rather than aiming for higher returns regardless of tax. The emphasis on reducing taxes has declined somewhat since 2013, when 57% said that minimizing taxes was an investment priority.

Women and the wealthiest investors (those with $5 million or more in investable assets) were most likely to feel that minimizing taxes was a priority.

Investment priority

51 4960 4038 62

UT2949_Chart_InvestmentPriority.eps

60%

40% 62%

38%

51%

49%

Total Male Female

Making investment decisions to minimize taxes

Pursuing a higher return regardless of the taxesyou may pay on the gain

2014 U.S . TRUST INSIGHTS ON WEALTH AND WORTH

THE WEALTHIEST USE CREDIT TO THEIR ADVANTAGE

The wealthy use credit strategically to their advantage. U.S. Trust Insights on Wealth and Worth found that the wealthiest households (with more than $10 million in investable assets) and youngest (Millennials) are two groups that include credit as part of their overall wealth management strategy.

WEALTHIER FAMILIES BORROW MORE

Two-thirds of wealthy families have less than 10% liability on their personal balance sheet, though the very wealthiest tend to borrow more. Among individuals with more than $10 million in investable assets, one-half have more than 10% liabilities. The youngest and the wealthiest are most likely to agree that borrowing enables them to put their own money to better use.

Highlights 19

Percent of total balance sheet represented by liabilities

72 18 9 270 21 6 147 22 17 11


9%21%

70% 22%

47%

17%

11%

72%

18%

$3–$4.9M $5–$9.9M $10M+

0%–9% 10%–24%

25%–50% more than 50%

2%1%

6%

20 Highlights

WHAT TO CONSIDER

• Credit can be an important component of an overall wealth plan, providing flexibility and tax savings.

• Wealthy investors may wish to ask an advisor about customized financing solutions to facilitate purchases of yachts, aircraft, residential and commercial real estate or fine art.

HIGH-NET-WORTH INVESTORS USE CREDIT IN A VARIETY OF WAYS

A significant number (42%) of the wealthy investors we surveyed have used credit by borrowing against their existing assets in order to gain liquidity for other needs. Millennials are by far the most likely to use credit to finance opportunistic investments. About 30% of them do so, versus just 19% for the general high-net-worth population. Other common reasons to use credit include buying a home or second home, funding education expenses, starting a business or paying taxes.

How wealthy investors are using credit

45%

19%

12%

9%

6%

5%

4%

1%

Buy property

Invest opportunistically

Fund a divorce settlement

Fund education expenses

Start/Further invest in a business I own

Buy asset (e.g., yacht, art)

Pay taxes

Make a charitable contribution

45

19

12

9

6

5

4

1


Important disclosures

All sector recommendations must be considered by each individual investor to determine if the sector is suitable for their own portfolio based upon their own goals, time horizon and risk tolerances.

Trading in commodities, such as gold, is speculative and can be extremely volatile. There are special risks associated with an investment in commodities, including market price fluctuations, regulatory changes, interest-rate changes, credit risk, economic changes, and the impact of adverse political or financial factors. Tangible assets can fluctuate with supply and demand, such as commodities, which are liquid investments unlike most other tangible investments.

Nonfinancial assets, such as closely held businesses, real estate, oil, gas and mineral properties, and timber, farm and ranch land, are complex in nature and involve risks including total loss of value. Special risk considerations include natural events (for example, earthquakes or fires), complex tax considerations and lack of liquidity. Nonfinancial assets are not suitable for all investors.

Investments in real estate securities can be subject to fluctuations in the value of the underlying properties, the effect of economic conditions on real estate values, changes in interest rates and risks related to renting properties, such as rental defaults.

Information in this material is not intended to constitute legal, tax or investment advice. You should consult your legal, tax and financial advisors before making any financial decisions. If any information is deemed “written advice” within the meaning of IRS Regulations, please note the following:

IRS Circular 230 Disclosure: Pursuant to IRS Regulations, neither the information, nor any advice contained in this communication (including any attachments) is intended or written to be used, and cannot be used, for the purpose of (i) avoiding tax-related penalties or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.

Always consult with your independent attorney, tax advisor, investment manager and insurance agent for final recommendations and before changing or implementing any financial, tax or estate planning strategy.

Credit and collateral subject to approval. Terms and conditions apply. Programs, rates, terms and conditions subject to change without notice. Equal Housing Lender.

METHODOLOGY

The 2014 U.S. Trust Insights on Wealth and Worth survey is based on a nationwide survey of 680 high-net-worth and ultra-high-net-worth adults with at least $3 million in investable assets, not including the value of their primary residence. Respondents were equally divided among those who have between $3 million and $5 million, $5 million and $10 million, and $10 million or more in investable assets. The survey was conducted online by the independent research firm Phoenix Marketing International in February and March of 2014. Asset information was self-reported by the respondent. Verification for respondent qualification occurred at the panel company, using algorithms in place to ensure consistency of information provided, and was confirmed with questions from the survey itself. All data have been tested for statistical significance at the 95% confidence level.

U.S. Trust operates through Bank of America, N.A., and other subsidiaries of Bank of America Corporation.

Bank of America, N.A., Member FDIC.

Please visit ustrust.com/survey for more information.

ustrust.com

© 2014 Bank of America Corporation. All rights reserved. | ARKWY39L | BRO-05-14-0651 | 00-21-4172NSB | 6/2014

10% post-consumer content.

MANAGING YOUR WORTH WITH U.S. TRUST Your wealth is not measured by numbers alone, but by the extraordinary opportunities and complex challenges that define your life. At U.S. Trust, we apply our deep insight and broad expertise to help you make the most of the things that matter most to you.

We begin by listening to you, learning about your life, and we work with you to understand your priorities. Your advisor and your team of specialists then build a wealth plan that aligns with your personal values and family goals.

When we serve as your fiduciary, whether we are managing your portfolio or administering a trust, our focus is on what best meets your objectives and expectations. Together, we develop personalized solutions that address the dimensions of your worth today and the legacy you’re building for future generations.

2014 U TS. . RUST INSIGHTS ON WEALTH AND WORTH...• Blended families have unique needs for wealth...

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