October 16, 2008 / 12:10 AM / 10 years ago

America's wealthy feel bite of financial crisis

NEW YORK (Reuters) - For the past two weeks, Kathryn Morrison and her husband have been shaken awake at night by visions of crashing stock markets and evaporating retirement plans.

SunStar Inc. CEO Kathryn Morrison sits in her office in Alexandria, Virginia October 15, 2008. REUTERS/Kevin Lamarque

Harvey Goldberg liquidated his account when the Dow Jones industrial average was at 12,300, but his financial advisor persuaded him to reinvest. Since then, the Dow has fallen about 20 percent.

Wealthy Americans like Morrison and Goldberg were relatively insulated from the global financial crisis until just a few months ago. Now, falling stock markets are slashing their investments, and some are even starting to panic.

“I’m a little angry that I didn’t trust my own gut, my own instinct to stay on the sidelines and wait,” said Goldberg, 57, an executive coach who lives in Washington. “I’m angry at myself.”

Of course, reaction to the financial crisis differs from person to person and even from husband to wife.

“My husband’s approach has been ‘Oh my God, I’ve got to sell, we’re mature people and there goes our retirement’,” said Morrison, 59. Morrison, who lives in Alexandria, Virginia, and runs a PR firm, has about $2 million in investable assets.

“I can’t quarrel with his reaction — he needs to sell for his comfort.” She said it doesn’t matter if he loses money if he’s late in getting back into the market. “So what, if it helps him sleep now?”

She, on the other hand, is taking the market drubbing as an opportunity to look for bargains in the wreckage.

“I’m thinking, ‘Oh my gosh, it’s the sale of the century’,” she said.

For those of a steely disposition, there are no doubt some bargains. After eight days of losses, Wall Street roared back with an 11 percent gain on Monday, October 13, after governments pledged to pour in cash to stabilize struggling banks.

Investors who bought at the lows on the Friday would have made a substantial sum. But stocks were down sharply again on Wednesday and the dangers of volatility are all too apparent.

“Chances of being able to time this right is minimal,” said wealth manager Dan Genter of RNC Genter Capital Management in Los Angeles, whose clients range from celebrities to business owners.

Genter said he manages his accounts conservatively, using large-cap equity and high-dividend strategies. But he has become even more careful recently.

“You do have to make sure you are plugging up the leaks in the boat. If you have fixed income obligations that have run into trouble, if you have weak financials, then you have to get rid of them.”

Lenox Advisors in New York has been fielding panicked calls from its clients.

“We are doing a lot of handholding right now and acting as a financial psychologist for our clients,” said vice president Rob Burger.

“When things are going really well, people tend to look at their statements, be happy, and go to sleep at night,” Burger said. Lenox has been telling clients to sit tight and “take your statements and stick them in your drawer.”

Wealthy people are buying gold, cash and government bonds — at the expense of the modern art, private planes and yachts which were more in vogue during the boom years, private bankers and asset managers said at the Reuters Wealth Management Summit this week.

Goldberg said he was keeping his money in the stock market. “I don’t think there is anything I can do but wait for the market to come back,” he said. “I’m not scared, I’ve lost quite a bit of money, but I would never bet against the American economy.”

But he concedes that his high net worth was a cushion without which he’d be more worried.

Goldberg, who has holdings of about $2 million, said that when the market recovers, he plans to change his financial adviser and perhaps even manage his money himself.

Others share his frustration. According to a recent Prince & Associates survey, 81 percent of investors with $1 million or more in investable assets plan to dump their current financial adviser, with 86 percent planning to tell other investors to avoid the advisor.

Some want to sue their brokers. Jake Zamansky, founder of New York-based Zamansky & Associates one of the leading law firms specializing in securities fraud and financial services arbitration, said he has seen a large spike in calls in the past several weeks from high net worth individuals across the United States who are worried about losses in their retirement and savings accounts.

“They’re mad as hell, they want to sue their brokers and they want to change firms. I’ve seen a whole pattern of that recently,” Zamansky said.

Many are complaining that brokers pushed them into preferred and common shares of financial stocks, which have declined sharply in value, Zamansky said.

“We are bringing arbitration cases against the firms for unsuitable recommendations. We are hearing people complaining about Fannie, Freddie, Lehman, Wachovia and that there is an overconcentration of bank stocks in their portfolios,” he said.

“I view this as similar to when brokers were pushing excessive amounts of high tech stocks in the dotcom era.”

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BelAir Investment Advisors’ chairman Todd Morgan, who manages the money of some of Los Angeles’ wealthiest people, said he had more calls last week than at any other time he can remember in his 38 years in the business, with anxious clients calling at night and on weekends.

“They are very worried that this environment is so unprecedented that they could lose a lot more money than they have so far,” Morgan said.

“They’re worried it will change their lifestyle.”

Reporting by Kristina Cooke; Editing by Eddie Evans

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