Subdued consumption, giving and social investment

FWR Staff

29 December 2008

Market-research firm sketches emerging trends for UHNWs in the coming year. In the face of reversals in the fortunes of many consumers this year, conspicuous consumption is on the wane -- even among those who can still afford to indulge. So says a new report out of the Luxury Institute, a New York-based market research that tracks the spending habits and preferences of the ultra-wealthy. The good news for wealth managers: while ostentatious displays of wealth may be waning, advisors who have won the trust of their high-end clients now have opportunities to serve them as guides to prudent spending, effective philanthropy and "socially responsible" investing.

"In the midst of this financial crisis and populist backlash unearned financial-service wealth, many wealthy consumers are a bit confused and feeling a tad defensive about luxury, even if they have money to spend," says the Luxury Institute report Luxury Trends: 2009 and Beyond.

Curation

It's easy to surmise reasons this. For one thing, having "money to spend" is a relative concept. With the S&P 500 down about 40% from its 52-week high, the REIT-tracking NAREIT Index 48% off its 12-month high and the immeasurable effects of hedge-fund erosion, few of those with cash to burn have as much of it as they did a year ago. And the lucky few who find themselves ahead of the game for now might be feeling a bit diffident about flashing Judith Leiber bags and Harry Winston watches under the noses of peers who may be facing financial ruin.

As a consequence, luxury spending may be reserved for the home front, with the ultra-wealthy "selectively looking for a few playful indulgences in their favorite categories that they can enjoy in privacy with family and friends," according to the Luxury Institute. "Personal shoppers, travel agents, realtors, car dealers, interior designers and others who have earned the ironclad trust of clients over the years will have the advantage of 'curating' customer experiences that indulge, but don't overreach, for their loyal clients."

The Luxury Institute sees another trend impacting wealth managers: a rise in Milken-style philanthropy. In addition to ultra-wealthy imitators of big-league givers like Bill Gates and Warren Buffet, "we now also expect many discredited Wall Street executives to turn a new leaf in an effort to save family legacies and reputations and get into the high-end philanthropy game," says the Luxury Trends report. "It's not much fun for kids to have the wealthiest parents in private school when everyone knows they made their money in a Ponzi scheme that brought the world economy to its knees," the Luxury Institute adds in a hyperbolic but still illustrative burst. "Repentant wealthy executives have begun to carve out new family legacies by engaging in serious philanthropy."

Similarly, the Luxury Institute sees a rise in socially responsible spending -- and, by easy implication, socially responsible investing. "The global crisis of confidence in governmental, financial and other institutions will drive luxury consumers to demand that luxury brands serve not just them, but society as a whole," according to the report. "They will require luxury brands to be ethical with all constituents, charitable in ways that make a difference to their beneficiaries, and eco-friendly in ways that can be documented."

Socially responsible mandates account for about 11% of the U.S. investment marketplace today, according to the Washington, D.C.-based Social Investment Forum. -FWR

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