Affluent Insights Survey

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 ABOUT THE AFFLUENT INSIGHTS SURVEY ABOUT THE AFFLUENT INSIGHTS SURVEY ABOUT THE AFFLUENT INSIGHTS SURVEY

Merrill Lynch Affluent Insights Survey™ 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” Adjusting to the “new normal” Adjusting to the “new normal” Adjusting to the “new normal” – Forty-four percent of affluent Ameri- cans view today’s economic uncertainty as a new reality, and many are taking steps to gain greater control of their financial lives in this envi- ronment, including reining in spending and lowering debt. The survey also finds a notable shift toward less conservative investing.

♦ Greatest future and family concerns Greatest future and family concerns Greatest future and family concerns 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.

METHODOLOGY METHODOLOGY METHODOLOGY 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.

Table of Contents

Introduction IntroductionIntroduction

Introduction.………..1111 Adjusting to New Normal

Adjusting to New NormalAdjusting to New Normal

Adjusting to New Normal.……….222 2 2013 Outlook: Cautious Optimism……..3 Conservative Investing

Conservative InvestingConservative Investing

Conservative Investing.…….…….4444

Health Care Concerns Health Care ConcernsHealth Care Concerns

Health Care Concerns……….5555 Financial Goals and Help………6 Financial Conversations………...7 Financial Conversations………...7 Financial Conversations………...7 Financial Conversations………...7

Weighing Family Weighing Family Weighing Family Weighing Family

Commitments Commitments Commitments

Commitments...……….8888 Financial Advisor ………...………...99 99

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Merrill Lynch Global Wealth Management

Affluent Insights Survey

September 2012

Adjusting to a “New Normal”

Adjusting to a “New Normal”

Adjusting to a “New Normal”

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 be- lieve 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 econo- my 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 per- cent).

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 invest- ment decisions (29 percent) and setting tangible goals for their future (28 percent). Similarly, 33 per-

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2013 Outlook: Cautious Optimism 2013 Outlook: Cautious Optimism 2013 Outlook: Cautious Optimism 2013 Outlook: Cautious Optimism

Affluent Americans’ outlook on 2013 can best be described as cautiously optimistic, with one in three (30 percent) feeling opti- mistic, and nearly half (45 percent) feeling hopeful about their financial situation during the year ahead. Anticipating their finan- cial 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

positive outlook, with nearly two-thirds (62 percent) believing that their finan- cial situations will improve. Among re- spondents 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 on- going market volatility as the key barri- er – women (68 percent) believing this more than men (54 percent). This is followed by the fact that their depend- ents, 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 af- fluent Americans have concerns about the current economic environment.

When asked what their expectations are for the economy in 2013, 49 per- cent said they believe it will improve, but 43 percent feel it won’t.

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30%

30% 30%

30%

45%

45%

45%

45%

Fewer Define Investment Approach as ConservativeFewer Define Investment Approach as ConservativeFewer Define Investment Approach as ConservativeFewer 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.

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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, com- pared 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.

Health Care Costs Believed to Pose the Greatest Threat to Retirement Health Care Costs Believed to Pose the Greatest Threat to Retirement Health Care Costs Believed to Pose the Greatest Threat to Retirement 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. To- day 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 chal- lenges presented by the continued market volatility (24 percent).

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With the U.S. Presidential election right around the corner, 45 percent of affluent Ameri- With the U.S. Presidential election right around the corner, 45 percent of affluent Ameri-With the U.S. Presidential election right around the corner, 45 percent of affluent Ameri- 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 cans don’t intend to change their investment strategy regardless of who is elected, while cans don’t intend to change their investment strategy regardless of who is elected, while 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 one in five (19 percent) will likely change their strategy if the candidate they vote for does one in five (19 percent) will likely change their strategy if the candidate they vote for does 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 not get elected. Another 27 percent are waiting to evaluate their investment strategy until not get elected. Another 27 percent are waiting to evaluate their investment strategy until not get elected. Another 27 percent are waiting to evaluate their investment strategy until

after the election.

after the election. after the election.

after the election.

Concern About Accomplishing Financial Goals Before Retirement

Concern About Accomplishing Financial Goals Before Retirement Concern About Accomplishing Financial Goals Before Retirement Concern About Accomplishing Financial Goals Before Retirement

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Four out of five (80 Four out of five (80 Four out of five (80 Four out of five (80 percent) respondents percent) respondents percent) respondents percent) respondents worry that they just worry that they just worry that they just worry that they just won’t be able to ac- won’t be able to ac-won’t be able to ac- won’t be able to ac- complish certain fi- complish certain fi- complish certain fi- complish certain fi- nancial goals before nancial goals before nancial goals before nancial goals before

they retire.

they retire.

they retire.

they retire.

Related to these concerns, Related to these concerns, Related to these concerns, Related to these concerns, half (50 percent) of affluent half (50 percent) of affluent half (50 percent) of affluent half (50 percent) of affluent Americans cite the need for Americans cite the need for Americans cite the need for Americans cite the need for help in addressing specific help in addressing specific help in addressing specific help in addressing specific areas of their financial lives.

areas of their financial lives.

areas of their financial lives.

areas of their financial lives.

Financial Matters More Present in Everyday Conversations

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.

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Finances aren’t just sparking conversation between couples, but sometimes contention.

Finances aren’t just sparking conversation between couples, but sometimes contention.

Finances aren’t just sparking conversation between couples, but sometimes contention.

Finances aren’t just sparking conversation between couples, but sometimes contention.

Fifty Fifty Fifty

Fifty----seven percent of married couples admit to arguing over financial matters in the past seven percent of married couples admit to arguing over financial matters in the past seven percent of married couples admit to arguing over financial matters in the past 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 year, with one quarter (25 percent) citing everyday expenses as the topic that caused the year, with one quarter (25 percent) citing everyday expenses as the topic that caused the 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 most contention between them and their spouse or partner. Furthermore, nearly one in most contention between them and their spouse or partner. Furthermore, nearly one in 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- three (29 percent) who have been or are currently divorced cited that differences over fi-three (29 percent) who have been or are currently divorced cited that differences over fi- 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.

nances was one, if not the main, factor that led to their divorce.

nances was one, if not the main, factor that led to their divorce.

nances was one, if not the main, factor that led to their divorce.

89%

89%

89%

89%

decisions.

decisions.decisions.

decisions.

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 af- fluent 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 col- lege education – down from nearly half (48 percent) just one year ago.

When asked about their ability to fund their children’s college educa- tion, 16 percent of these parents say that there was a time when they planned to pay for more but their fi- nancial 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 edu- cation more.

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One thing that hasn’t changed is parents’ high expectations for their children’s fu- One thing that hasn’t changed is parents’ high expectations for their children’s fu- One thing that hasn’t changed is parents’ high expectations for their children’s fu- One thing that hasn’t changed is parents’ high expectations for their children’s fu- ture. When asked if they expect their children to reach a higher level of financial suc- ture. When asked if they expect their children to reach a higher level of financial suc- ture. When asked if they expect their children to reach a higher level of financial suc- ture. 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 cess than they did, 60 percent of parents say they already have or they will. Still, not cess than they did, 60 percent of parents say they already have or they will. Still, not 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- all parents are so optimistic, with one out of five (21 percent) confident that their chil-all parents are so optimistic, with one out of five (21 percent) confident that their chil- all parents are so optimistic, with one out of five (21 percent) confident that their chil-

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September 2012

When affluent Americans with a financial advisor were asked what qualities their When affluent Americans with a financial advisor were asked what qualities their When affluent Americans with a financial advisor were asked what qualities their When affluent Americans with a financial advisor were asked what qualities their

advisor possesses that keeps them working together, top qualities cited were:

advisor possesses that keeps them working together, top qualities cited were: advisor possesses that keeps them working together, top qualities cited were:

advisor possesses that keeps them working together, top qualities cited were:

• Understands their risk tolerance and helps them plan around it (66%) Understands their risk tolerance and helps them plan around it (66%) Understands their risk tolerance and helps them plan around it (66%) Understands their risk tolerance and helps them plan around it (66%)

• Being backed by a firm they trust (60%)Being backed by a firm they trust (60%)Being backed by a firm they trust (60%)Being backed by a firm they trust (60%)

• Understands and respects how they wish to communicate (53%)Understands and respects how they wish to communicate (53%)Understands and respects how they wish to communicate (53%)Understands and respects how they wish to communicate (53%)

• Understands their goals, dreams, and personal values (48%)Understands their goals, dreams, and personal values (48%)Understands their goals, dreams, and personal values (48%)Understands their goals, dreams, and personal values (48%)

• Has a deep understanding of their family’s financial situation and helps them to Has a deep understanding of their family’s financial situation and helps them to Has a deep understanding of their family’s financial situation and helps them to Has a deep understanding of their family’s financial situation and helps them to navigate issues (46%)

navigate issues (46%) navigate issues (46%) navigate issues (46%)

• Provides relevant research and market insights that helps them feel in control Provides relevant research and market insights that helps them feel in control Provides relevant research and market insights that helps them feel in control Provides relevant research and market insights that helps them feel in control (35%)

(35%) (35%) (35%)

• Generates exceptional investment performance for my portfolio (28%)Generates exceptional investment performance for my portfolio (28%)Generates exceptional investment performance for my portfolio (28%)Generates exceptional investment performance for my portfolio (28%)

• Provides advice beyond investing in areas ranging from insurance, longProvides advice beyond investing in areas ranging from insurance, longProvides advice beyond investing in areas ranging from insurance, longProvides advice beyond investing in areas ranging from insurance, long----term care term care term care term care and loans (27%)

and loans (27%) and loans (27%) and loans (27%)

When those with a financial advisor were asked how successful their advisor has When those with a financial advisor were asked how successful their advisor has When those with a financial advisor were asked how successful their advisor has 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 been in helping them address the potential impact of various current events, they been in helping them address the potential impact of various current events, they been in helping them address the potential impact of various current events, they

responded:

responded:

responded:

responded:

• Planned or potential changes to tax laws (52%)Planned or potential changes to tax laws (52%)Planned or potential changes to tax laws (52%)Planned or potential changes to tax laws (52%)

• Uncertainty around Social Security benefits (44%)Uncertainty around Social Security benefits (44%)Uncertainty around Social Security benefits (44%)Uncertainty around Social Security benefits (44%)

• European financial crisis (44%)European financial crisis (44%)European financial crisis (44%)European financial crisis (44%)

• U.S. government’s budget deficit (43%)U.S. government’s budget deficit (43%)U.S. government’s budget deficit (43%)U.S. government’s budget deficit (43%)

• 2012 U.S. Presidential election (42%)2012 U.S. Presidential election (42%)2012 U.S. Presidential election (42%)2012 U.S. Presidential election (42%)

• Consistently high unemployment in the U.S. (41%)Consistently high unemployment in the U.S. (41%)Consistently high unemployment in the U.S. (41%)Consistently high unemployment in the U.S. (41%)

Trust and a Deep Understanding of Goals and Concerns Key to a Lasting Relationship

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