Spectrem Group says its Affluent Investor Index fell to a neutral reading in January, reversing course after a strong December bounce into mildly bullish territory.

In a separate report Wednesday, the Chicago-based consulting firm also warns that investor trust has declined over the past few years.

With January’s decline, the affluent index returned to the same neutral stance it had maintained for five of the final six months of 2004. The index, which measures the investment outlook of U.S. households with $500,000 or more in investable assets, had jumped into bullish territory in December, after languishing since July, the firm said.

Spectrem’s Millionaire Index stood unchanged in January, its fourth straight month at mildly bullish levels. The divergence between the two indexes in January represents the largest gap between them since their inception in February 2004. Millionaires have been more bullish than the overall affluent population throughout the indexes’ existence. The narrowest gap between the two occurred in both February and September 2004.

“Affluent investors saw their optimism wane considerably in the first month of the New Year, raising questions about the significance of the strong rebound witnessed in December. In the months leading up to the presidential election, we noted significant uncertainty among affluent investors that certainly played a role in their neutral stance through most of late 2004. Now, we have to ask whether their post-election optimism was a temporary phenomenon or whether January’s decline is simply a pause amid a broader return to bullishness. The growing spread between the optimism of millionaires and the affluent population suggests the latter, but the ultimate trend remains unclear,” said George Walper Jr., president of Spectrem Group.

In response to an open-ended question about the factors most impacting their investment plans, affluent investors cited: stock market conditions (18%), household cash flow (11%), the economy (10%), retirement (7%), household income (4%), low investment/interest returns (2%) and jobs/job security (2%) as their key concerns. When this same question was last asked in October, the election ranked as their fourth-greatest concern at 7%.

The index is based on 250, 10-minute telephone interviews each month, giving the data a margin of error of plus or minus 6.2 percentage points. Interviews are conducted with the financial decision-makers in households with $500,000 or more in investable assets. The millionaire index is based on a subset of the overall survey.

Separately, Spectrem reports that trust has declined among 38% of affluent investors over the past few years and remained unchanged for another 52%. Just 10% of affluent investors say their level of trust has increased. This is of particular concern because wealthy investors cited “honest/trustworthy” as one of the top attributes when asked to design their
ideal financial advisor.

Declining trust has prompted 25% of affluent investors to move at least some of their business to new financial services providers, according to the new research.

“The rolling scandals that have battered the financial services industry are finally taking a toll,” said Catherine McBreen, managing director of Spectrem Group.

“Affluent investors, an important group for the health of the industry, are simply not as trusting as in the past. They see conflicts of interest and cookie-cutter advice more quickly than before and are walking away from those providers. Critically, trust lost is difficult to regain. These clients are likely gone for good.”