Now It's Serious; Yacht Owners Feel the Pinch

Lean times lead wealthy Americans to cut back; Who needs his own Bugatti?


August 29, 2008— -- Poor and struggling middle-class Americans aren't the only ones affected by the declining U.S. economy. Wealthy Americans' behavior indicates they are starting to feel the pinch also, according to those who study and cater to the affluent.

A case in point: About a year ago, Loren Simkowitz noticed increasing numbers of wealthy yacht owners were calling to see if he could sell half their boat.

The requests themselves weren't unusual: Simkowitz's business, Florida-based Monocle Fractional Yachts, specialized in splitting up ownership of boats up to 150' long among a small group of buyers, and then managing the vessels' schedules and crew for the new consortium. The deals give the former owners a bunch of cash out of their boats, freedom from most of the boats' costly maintenance fees and crew salaries, and continued use of the vessels a handful of weeks a year.

It was the number of inquiries that struck Simkowitz – as well as the "exponential" increase in traffic to his firm's web site -- from potential sellers as well as buyers who are looking for a more frugal option than owning an $8 million boat outright.

"I hate to say, it's been good for our business," said Simkowitz of the economic downturn. (The high price of oil has helped, also, he noted. "To fill up one of these boats is $20,000 or $30,000 worth of fuel.")

The wealthy's new frugality doesn't stop at yachts, says expert Hannah Shaw Grove, who studies the behavior of the ultra-affluent. Many are flocking to fractional ownership of jets instead of buying their own. Some are even trying fractional ownership of an exotic car, buying a share in a Bugatti or a Lamborghini instead of owning one outright, according to Grove.

They are also taking their frustrations out on their financial advisors. A recent survey Grove co-authored concluded that about 70 percent of wealthy respondents said they blamed their money managers for their shrinking returns, despite the fact that nearly all surveyed believed the economy was in a recession and things were only going to get worse.

Most respondents in Grove's survey said they were pulling some or all of their cash out of their advisors' control and giving it to someone else to handle; many said they were actively discouraging their friends from using their old money managers.

In general, Grove said, the "ultra-affluent" – think $20 million and above – are cutting back on spur-of-the-moment purchases of luxury goods, and generally planning to spend less in the coming year.

Exclusive London-based concierge service Quintessentially has felt that trend, according to its Chief Operating Officer, Edward Rosenthal.

Rosenthal's firm does everything for clients from arranging travel and booking tables at exclusive restaurants to flying pairs of shoes on private jets for clients' wives, finding albino peacocks for their weddings, and even "chopper[ing] a bongo drum out to their yacht," he explained.

"The people who have been affected by the current economic conditions are playing it a little closer to the vest," he said, noting that sales of his firm's lower-tier memberships – starting at around $1,800 annually, which appeal to individuals with worth in the low millions – have dropped off.

Not everyone is feeling that pain, Rosenthal noted. Higher-tier memberships at Quintessentially – running up to $45,000 annually, and targeting the "uber-wealthy," as he described them – have remained strong, a trend that was also apparent at competitor Mint Lifestyle, another high-end concierge service headquartered in Los Angeles.

At Mint, memberships start at $50,000 a year and services include "buying and selling hockey teams" and "selling private islands" in addition to hiring and managing house staff, arranging travel and more, according to chief marketing officer Kristen Schmitt.

"To be honest, no. Their lifestyles are not changing given the economic downturn," Schmitt said of her firm's clients. Schmitt would not disclose the average net worth of Mint's clientele, but it is believed to be in the hundreds of millions of dollars.

"They're aware of the rising price of jet fuel, things going on in financial markets. But that hasn't affected their spending or their lifestyle."

That meshes with what Chicago-based wealth psychologist Gary Shunk is seeing in his clients, wealthy families he counsels "on challenges that are unique to them," according to his Web site.

"From anyone that's got $50 million to $100 million and up – they're not as touched by" the downturn, Shunk said. Likewise, the value of their luxury homes and estates, with values of $10 million and higher, "stay pretty stable."

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