the many millions, defying easy categorisation. A new attempt is
being made to segment the wealthy by a range of predictors into
groups that include the up-and-comers, early arrivers, millionaires
next door and the established wealthy.
The initiative, by Phoenix Wealth Management, breaks down the
wealth management market into four distinct segments by age and net
worth – major predictors of needs, concerns and behaviour. The
study is claimed to yield a comprehensive picture of the movement
of wealth so advisors can understand how to meet their high net
worth clients’ needs.
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Walter Zultowski, senior vice-president of research and concept
development at Phoenix, divides the HNW into four groups: the
up-and-comers, early arrivers, millionaires next door and
established wealthy. The study was conducted in conjunction with
Rochester, New York-based research company Harris Interactive. The
companies screened households countrywide with $1 million or more
net worth, defined as those with net worth in excess of $1 million,
exclusive of debt and primary residence.
Each group represents a unique opportunity for private bankers, and
each offers a set of recognisable traits that can be used to tap
into the segment, the study asserts. Several of the study’s
eye-opening findings demonstrate the opportunities available to
wealth managers.
The research found that two-thirds of HNW households are over age
45, and nearly two-thirds (60 percent) of those households have net
worth of between $1 million and $2 million.
Next-door’s millionaires
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By GlobalDataThe largest subgroup is the older, less wealthy consumers, commonly
known as the ‘millionaires next door’ in a nod to Thomas Stanley’s
and William Danko’s classic book. This group is driven mainly by
its focus on retirement, according to Zultowski. There are more
middle managers and fewer business owners and senior executives in
this group. They’re concerned about retirement – that’s why they’ve
been good savers all their lives – and are now starting to worry
about their healthcare costs in retirement. By a 60/40 split, their
current investment priorities are focused more on preserving their
nest egg than on generating high returns.
Overall, the millionaires next door are the least wealthy and the
most concerned with running out of assets. The study urges advisers
to forgo discussions of tax talk and shift the conversation to
annuities, healthcare and long-term care discussions.
Up-and-comers
The up-and-comers have an average age of 36 and earn $169,000
annually. “The important thing with them is to set up trigger
points in the plans – be it be major life events like births of
children,” said Zultowski. Advisers are urged to set up plans to
incorporate estate planning, long-term care insurance sales, wealth
transfer and charitable giving.
Of the up-and-comers who responded to the Phoenix survey, 42
percent are non-Caucasians, and 12 percent of them or their spouses
are not US citizens. While retirement security is on their radar,
it is not their singular financial concern. This group is still
looking for ways to finance their children’s college education and
to minimise income and capital gains taxes. They have a long-term
investing perspective: 59 percent of them are focused on investment
return rather than preservation of assets.
In many ways, the up-and-comers can be considered the future
established wealthy, the study said. Today, nearly one-half say
they are less than “fairly knowledgeable” when it comes to
financial matters, so they need basic financial plans and programs.
Putting such plans in place may not provide advisers with
significant revenue today, but they do carry the seeds for a future
harvest.
Up-and-comers seem ripe for working with advisers. In addition to
admitting to a general lack of financial knowledge, one-third agree
that they’re “confused about the best way to invest”. However, the
younger members of this group are less likely to turn to an
adviser, saying they “make their own financial decisions after
seeking opinions from family and friends”. In other words, this
segment is influenced by word-of-mouth comments, which means
advisers will need to develop strong relationships in their markets
to succeed with them.
The most fascinating segment may be the early arrivers –
individuals who have been highly successful very early in their
working lives. While still forming only 17 percent of all HNW
households, they are the most rapidly growing of the four segments.
Studying them provides many insights into the HNW consumer of the
future.
The early arrivers have an average age of 32, yet more than 20
percent of the group has more than $10 million in net worth. They
also have the highest average income, at $203,600, are the most
racially diverse of the four segments (46 percent of households are
non-Caucasian), have the highest percent of singles (33 percent)
and are well represented in the ranks of professionals (42 percent)
and business owners (31 percent).
Although they are often known for handling their own financial
future, Zultowski said, they are in need of portfolio allocation
advice as well as new product suggestions. Advisers should focus
attention on retirement-related products and strategies including
permanent life insurance, charitable trusts as well as long-term
care insurance, the study said.
Established wealthy
The last group, the established wealthy, was highlighted by the
study as being the most responsive to financial help. With the
average age being 60, and an average annual income of $198,600,
this group seeks advice on how to care for pre-existing products
and plans.
This is also an accomplished group, with the highest percentage of
graduate degrees (44 percent), and the highest percentage of senior
corporate executives (22 percent). They also have the
second-highest percentage of business ownership at 22 percent.
Retirement income is no longer a financial concern; rather, they’re
interested in estate plans, tax plans, philanthropy and wealth
transfer.
Overall, the study found that few wealth managers are offering the
services their clients want. This includes tax planning, estate
planning, wealth transfer techniques and healthcare planning. The
survey found that one in four clients looking for a new advisor is
doing so because the current adviser “does not offer the products
and services that I need”.
