Merrill Lynch Global Wealth Management E X A M I N I N I N G T H E V A L U E S, F I N A N C I A L P R I O R I T I E S A N D C O N C E R N S O F A F F L U E N T A M E R I C A N S ABOUT THE AFFLUENT INSIGHTS SURVEY Merrill Lynch is a report examining the values, financial priorities and concerns of affluent Americans. The latest findings from this research series, which began in 2009, reveal that families are cautiously optimistic and regaining control of their financial lives. Adjusting to the new normal Forty-four percent of affluent Americans view today s economic uncertainty as a new reality, and many are taking steps to gain greater control of their financial lives in this environment, including reining in spending and lowering debt. The survey also finds a notable shift toward less conservative investing. Greatest future and family concerns While health care costs and funding retirement remain their greatest sources of concern, many families have the added challenge of financially supporting a parent or adult-age child. The survey looks at behaviors within these families, revealing shifts in how financial decisions are made and discussed. Table of Contents Introduction...1 Adjusting to New Normal..2 2013 Outlook: Cautious Optimism..3 Conservative Investing...4 Health Care Concerns.5 Financial Goals and Help 6 Financial Conversations...7 Weighing Family Commitments....8 Financial Advisor......9 METHODOLOGY The survey was conducted via phone by Braun Research in August 2012 on behalf of Merrill Lynch Global Wealth Management. The nationally representative sample consisted of 1,000 affluent Americans (ages 18+) with investable assets in excess of $250,000. At least 300 affluent Americans were also oversampled in five target markets including Atlanta, Chicago, Dallas, Detroit and South Florida. The margin of error is +/- 3.1 percent for the national sample and +/- 5.7 percent for the oversampled markets, with both reported at a 95 percent confidence level. 1
Adjusting to a New Normal Close to half (44 percent) of affluent Americans view today s economic uncertainty not as a passing period of heightened volatility but as a more permanent reality here for the foreseeable future. We define this in the survey as the new normal. The vast majority of respondents (94 percent) who believe we are in a new normal environment also believe they are better prepared today to cope with economic uncertainty. In fact, despite ongoing uncertainty, more than half of all respondents (58 percent) feel a greater sense of stability in their financial lives today than they did one year ago. Concerns about the economy remain, however, with 54 percent worried about the impact of the economy on their ability to meet their financial goals, and 50 percent concerned about the lingering unemployment rate (50 percent). As for what they can control, within affluent families one-third (33 percent) of couples have felt in control of their financial lives during the last year, while half (50 percent) have taken steps to gain greater control, including more vigilantly sticking to a budget (32 percent), making more joint investment decisions (29 percent) and setting tangible goals for their future (28 percent). Similarly, 33 percent of respondents said they are living more within their means. 2
2013 Outlook: Cautious Optimism Affluent Americans outlook on 2013 can best be described as cautiously optimistic, with one in three (30 percent) feeling optimistic, and nearly half (45 percent) feeling hopeful about their financial situation during the year ahead. Anticipating their financial situation for 2013, 35 percent believe it will improve, while 41 percent expect it to remain about the same. Additionally, men (43 percent) are more likely than women (28 percent) to believe their financial situation will improve next year, and among all age groups those ages 18 to 34 have the most 30% of affluent Americans feel optimistic, while 45% feel hopeful about their 2013 financial situation positive outlook, with nearly two-thirds (62 percent) believing that their financial situations will improve. Among respondents who believe their financial situation will improve, ability to take advantage of investment opportunities was cited as the number one reason. Conversely, of those who believe their financial situation will not improve next year, 61 percent cite the impact of ongoing market volatility as the key barrier women (68 percent) believing this more than men (54 percent). This is followed by the fact that their dependents, be they children, parents or other family members, continue to be a drain on their finances (23 percent). Whether they believe their financial situation will improve or not, most affluent Americans have concerns about the current economic environment. When asked what their expectations are for the economy in 2013, 49 percent said they believe it will improve, but 43 percent feel it won t. 3
Fewer Define Investment Approach as Conservative When asked to define their tolerance for risk, 30 percent describe themselves as conservative investors, gravitating toward lower risk investments and savings vehicles such as mutual funds, bonds, and savings and money market accounts. This is down from previous years. This shift toward less conservative investing can be seen most among affluent investors under the age of 50. Today, 23 percent of younger investors ages 18 to 34 describe themselves as conservative, compared to 52 percent two years ago; while 23 percent of those ages 35 to 50 describe themselves this way, compared to 45 percent two years ago. 4
Health Care Costs Believed to Pose the Greatest Threat to Retirement For three years, health care costs have remained a top financial concern among affluent Americans. Today more than three-quarters (77 percent) cite it as their top concern, jumping to 83 percent among those over the age of 65. Health care is more than just a concern, 44 percent view it as the greatest threat to the life they want to live in retirement (36 percent men, 51 percent women ). Additionally, many are concerned about the challenges presented by the continued market volatility (24 percent). With the U.S. Presidential election right around the corner, 45 percent of affluent Ameri- cans don t intend to change their investment strategy regardless of who is elected, while one in five (19 percent) will likely change their strategy if the candidate they vote for does not get elected. Another 27 percent are waiting to evaluate their investment strategy until after the election. 5
Concern About Accomplishing Financial Goals Before Retirement Four out of five (80 percent) respondents worry that they just won t be able to accomplish certain fi- nancial goals before they retire. Related to these concerns, half (50 percent) of affluent Americans cite the need for help in addressing specific areas of their financial lives. 6
Financial Matters More Present in Everyday Conversations 89% of married couples are choosing to manage their finances collaboratively, involv- ing their spouse in financial decisions. Personal finances are becoming a more popular conversation topic. One in four (25 percent) affluent Americans cited that their family and friends are speaking with them more openly about their financial situations today than they did before the recession, especially those age 18 to 34 (49 percent). In addition to discussing financial matters more among a trusted network, decisions about finances at home are becoming more of a team effort. Finances aren t just sparking conversation between couples, but sometimes contention. Fifty-seven percent of married couples admit to arguing over financial matters in the past year, with one quarter (25 percent) citing everyday expenses as the topic that caused the most contention between them and their spouse or partner. Furthermore, nearly one in three (29 percent) who have been or are currently divorced cited that differences over fi- nances was one, if not the main, factor that led to their divorce. 7
Weighing Commitments to Helping Adult Children and Parents This study finds respondents are often turned to by family members for financial support, with 27 percent of affluent Americans supporting either an adult child or a parent. This reality is exacerbated today with many parents living longer than ever before, and younger generations facing a difficult job market. As we continue to live longer, the affluent are worried about having to care for a parent in their later years (35 percent). And some parents are equally concerned, with 27 percent of women citing becoming a financial burden on their children as their greatest concern with regard to their retirement. Among parents financially supporting adult-age children, 48 percent are willing to do so for as long as they need. However, only 38 percent of parents today paid for or plan to pay for the full cost of their children s college education down from nearly half (48 percent) just one year ago. When asked about their ability to fund their children s college education, 16 percent of these parents say that there was a time when they planned to pay for more but their financial situation kept or will likely keep them from doing so, while 19 percent say that they chose not to pay for the full amount so that their children would appreciate their education more. One thing that hasn t changed is parents high expectations for their children s future. When asked if they expect their children to reach a higher level of financial suc- cess than they did, 60 percent of parents say they already have or they will. Still, not all parents are so optimistic, with one out of five (21 percent) confident that their chil- dren will never reach a higher level of success than they did. 8
Trust and a Deep Understanding of Goals and Concerns Key to a Lasting Relationship When affluent Americans with a financial advisor were asked what qualities their advisor possesses that keeps them working together, top qualities cited were: Understands their risk tolerance and helps them plan around it (66%) Being backed by a firm they trust (60%) Understands and respects how they wish to communicate (53%) Understands their goals, dreams, and personal values (48%) Has a deep understanding of their family s financial situation and helps them to navigate issues (46%) Provides relevant research and market insights that helps them feel in control (35%) Generates exceptional investment performance for my portfolio (28%) Provides advice beyond investing in areas ranging from insurance, long-term care and loans (27%) When those with a financial advisor were asked how successful their advisor has been in helping them address the potential impact of various current events, they responded: Planned or potential changes to tax laws (52%) Uncertainty around Social Security benefits (44%) European financial crisis (44%) U.S. government s budget deficit (43%) 2012 U.S. Presidential election (42%) Consistently high unemployment in the U.S. (41%) 9
About Bank of America and Merrill Lynch Wealth Management Merrill Lynch Global Wealth Management Merrill Lynch Global Wealth Management is a leading provider of comprehensive wealth management and investment services for individuals and businesses globally. With more than 17,500 Financial Advisors and $1.8 trillion in client balances as of June 30, 2012 1, it is among the largest businesses of its kind in the world. Within Merrill Lynch Global Wealth Management, the Private Banking & Investment Group provides tailored solutions to ultra affluent clients, offering both the intimacy of a boutique and the resources of a premier global financial services company. These clients are served by more than 150 Private Wealth Advisor teams, along with experts in areas such as investment management, concentrated stock management and intergenerational wealth transfer strategies. Merrill Lynch Global Wealth Management is part of Bank of America Corporation. About Bank of America Bank of America is one of the world's largest financial institutions, serving individual consumers, small- and middle-market businesses and large corporations with a full range of banking, investing, asset management and other financial and risk management products and services. The company provides unmatched convenience in the United States, serving approximately 56 million consumer and small business relationships with approximately 5,600 retail banking offices and approximately 16,200 ATMs and award-winning online banking with 30 million active users. Bank of America is among the world's leading wealth management companies and is a global leader in corporate and investment banking and trading across a broad range of asset classes, serving corporations, governments, institutions and individuals around the world. Bank of America offers industry-leading support to approximately 4 million small business owners through a suite of innovative, easy-touse online products and services. The company serves clients through operations in more than 40 countries. Bank of America Corporation stock (NYSE: BAC) is a component of the Dow Jones Industrial Average and is listed on the New York Stock Exchange. Merrill Lynch Wealth Management makes available products and services offered by Merrill Lynch, Pierce, Fenner & Smith Incorporated (MLPF&S) and other subsidiaries of Bank of America Corporation. Banking products are provided by Bank of America, N.A. and affiliated banks, Members FDIC and wholly owned subsidiaries of Bank of America Corporation. Investment products: MLPF&S is a registered broker-dealer, Member SIPC and a wholly owned subsidiary of Bank of America Corporation. 2012 Bank of America Corporation. All rights reserved. 1 Source: Bank of America. Merrill Lynch Global Wealth Management (MLGWM) represents multiple business areas within Bank of America s wealth and investment management division including Merrill Lynch Wealth Management (North America and International), Merrill Lynch Trust Company, and Private Banking & Investments Group. As of June 30, 2012, MLGWM entities had approximately $1.8 trillion in client balances. Client Balances consists of the following assets of clients held in their MLGWM accounts: assets under management (AUM) of MLGWM entities, client brokerage assets, assets in custody of MLGWM entities, loan balances and deposits of MLGWM clients held at Bank of America, N.A. and affiliated banks. 10