Boston, US: Thought the ultra-rich were immune to the market meltdown and ensuing recession? Think again.

It turns out that a little more than a year after the collapse of Lehman Brothers, they have been tightening their belts too, their wealth managers say.

Of course, while your average American might be cutting back on eating out, magazine subscriptions or premium cable channels, the new frugality is a little different for the wealthy.

Some of them are bidding a tearful adieu to stewardesses on their private jets, fancy champagne on the aft deck, or even putting that fourth beach house or mountain lodge on the block.

“Fewer airplanes, absolutely. Fewer private airplanes,” PricewaterhouseCoopers national partner in charge of wealth transfer solutions Richard Kohan told the Reuters Global Wealth Management Summit in Boston. “Yachts too,” he added.

Clients are selling private jets, US$60 million ($83 million) yachts, and third, fourth and fifth homes, another manager said.

“It’s not so much you need to sell it in order to get rid of debt, because there’s no debt on the home, or you need to sell it because you’re going to have a crisis in your own finances,” said Keith Whitaker, managing director of Wells Fargo & Co’s Family Wealth division.

“There’s a sense of relief just shutting down a home because you’re not spending an extra US$500,000. And then when it sells, it’s ‘Oh, well, I’ve materialised US$40 million that was tied up in something I didn’t really need.”

Staycations

Clients are also examining total household spending, dropping expenses from US$700,000 to US$600,000 a year, he said.

But such changes may not be strictly necessary.

Most of the ultra-wealthy – normally defined as people who have at least US$30 million in investable assets – do not really need to change their lifestyles. But even they feel pressure from dwindling investment portfolios as well as a society that looks less kindly on conspicuous consumption.

“It’s certainly the higher percentage of the remaining resources and a higher percentage of the ongoing income...But also there’s this aspect of ‘should we?’ It can seem uncomfortable,” said Thomas Rogerson, managing director of BNY Mellon’s Family Wealth Services.

Cuts have also included swapping luxury vacations to Asia for staycations and skipping a new car entirely – or eyeing an Acura rather than a Rolls-Royce or Mercedes, managers said.
 
“You can afford anything, you just can’t afford everything,” said Robert Elliott, senior managing director at Bessemer Trust.

“You should rationally be thinking about cutting down a bit. Fewer fresh flowers is probably a reasonable example. Maybe you buy a plant. That might last longer. And water it,” he advised.

Portfolios of the ultra-rich have been hard hit, taking an average loss of 24 percent at the end of 2008, compared with a 19.5 percent loss by those with more than US$1 million to invest, according to the World Wealth Report by Capgemini and Merrill Lynch.

That has made everyone, even society’s traditional high rollers, a lot more cautious, said Silvercrest Asset Management Group Chief Executive G. Moffett Cochran.

“However you accumulated that amount of liquidity, there is at least a question mark after a year like ‘08 as to whether you could do it again, whether you could build it back,” he said.