Welcome to my new blog, the companion for my column in Investment Advisor also called The Affluentialist. Webster’s New Millennium Dictionary of English tells us “affluential” is an adjective combining the words “affluent” and “influential” and simply means ‘rich and powerful.’
I’ll be updating this blog frequently to help you keep tabs on items that are of critical value to your business—including actionable research, developing trends, and outside expert analysis—in particular, as it pertains to the high-net-worth client.
The numbers are clear. By the year 2010, 10% of America’s households –more than 11 million families—will have a net worth of $1 million or more, investable assets of more than $500,000, and increasingly complex financial lives. Not since the baby boom generation transformed retirement planning a decade ago have we seen a “pig in a python” like today’s emerging affluent middle-class. We’re in for a “wealth boom.” They are rich (the top 10% of American wealth accounts for more than $30 trillion in assets) and they are powerful—but not the conventional stereotype of power as a mysterious, shadowy force. Their power comes from their numbers. Eleven million families have enormous influence on everything from commerce to society to government and politics to the environment.
For the past two years, I’ve been studying this growing population for a new book I’m writing called The Middle-Class Millionaire. The revealing findings in the book come from original interviews with nearly 600 millionaire households. When the book comes out in January 2008, you’ll be hearing a lot more about the “middle-class millionaire,” including the way they blend their middle-class values with their substantial wealth to create an entirely new behavior pattern. As readers of this blog, you’ll be ahead of the curve when it comes to this lucrative demographic.
When I talk about the book and the research, one of the most common responses I hear is that a million dollars is hardly wealthy anymore. This brings up important questions: What is wealthy these days? What is middle-class? When we surveyed those 600 households with net worths of between $1 million and $10 million, not one described themselves as wealthy. Instead, one-third (33.1%) chose “middle-class” and two-thirds (66.9%) chose “upper middle-class” as their “social status” designation.
We also surveyed 3,000 “middle-class” households, defined as having household incomes of $50,000 to $80,000. While demographers generally think of $45,000 to $50,000 as the median household income, more than twenty percent (20.7%) of our middle-class sample called themselves “upper middle-class” while the rest chose “middle-class.” Class values are not so much technical categories as self-descriptions. Not surprisingly, people label themselves as middle-class based on how they were raised, not the size of their bank accounts. The new affluent do not wear their net worth on their sleeves, so traditional prospecting methods may not work very well. But with nearly one in 10 households claiming a seven-figure net worth, they most likely represent the future of your practice.
Because this is a blog, you’re welcome to share your opinion with everyone on the topics we discuss. So let’s begin at the starting point: Do you have middle-class millionaire clients? If so, how do you spot them?
Moreover, you’re invited to join a new community at InvestmentAdvisor.com. If you are an advisor currently serving the high-net-worth community or have high-net-worth clients you want to serve better, click here and tell us a bit about yourself.
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I have several clients who are, as you say, middle-class millionaires. One that comes to mind still lives in the same neighborhood but has built a McMansion on a .3 acre lot. He certainly stirred up some strong feelings about this in the community but he said he can afford to live elsewhere but he chooses to live here.
I recognize these clients. They are some of my first clients who, over the past 10 years or so, have really hit their stride. My biggest client is perhaps one that is least likely to have had that kind of wealth. He owns a mailing list company that is highly profitable. But he doesn\’t act like it. I only know about it because we have a mutual friend. I haven\’t yet re-visited his assets though.
What about inflation? Aren’t people becoming middle class millionaires from that alone? Or just owning a house? Primary residence real estate inflation alone has made many of my clients wealthy today.
This sounds a little like “the millionaire next door.” Are these the
folks who drive 10 year old chevys?
You wrote:
You wrote:
“What about inflation? Aren’t people becoming middle class millionaires from that alone?”
Inflation alone cannot account for the double-digit growth of net worth in America. While real estate is definitely a factor in wealth creation, keep in mind that net worth takes into account assets and liabilities. A $1 million home with a $800,000 mortgage doesn’t make you a millionaire.
It’s true that home-ownership is a critical factor in reaching higher levels of wealth but that doesn’t explain why households with less than $500,000 are SHRINKING while households with more than $500,000 are GROWING.
American business owners, stock owners, home owners and retirement investors are awash in a sea of money that’s unprecedented in history.
Emil, you wrote:
“This sounds a little like “the millionaire next door.” Are these thefolks who drive 10 year old chevys?”
Hardly. Along with these high net worths are expensive lifestyles. I call them the “working rich.” While they may not be driving italian sports cars, they spend what they make on their lifestyles.
In fact, they report that losing their wealth is one of their biggest concerns and they question how long they can keep their lifestyles going without their current income.
That’s substantially different from the penny-pincher portrait identified in “The Millionaire Next Door”
Self-perception is also radically different from IRS designations of “wealthy”. Many of us know that the top 10% of wage earners pay nearly 70% of the taxes in the US. What you may not know is that a mere $100k gross will put your clients in that top 10% category.
Is it any wonder the new millionaires are concerned that they won’t have enough for retirement–especially after Uncle Sam takes his cut? (And don’t forget about the mess we call Social Security! How many of your clients are relying on that for their retirement?)
You mention that there are many millionaires, however, I wonder how many have obtained that distinction through retirement assets which are not easily accessible. 25 years in the workforce putting the maximum in a 401(k) with decent returns is enough to put many in that category – however, unless they’re borrowing it to support their lifestyle I am not surprised that the wealth doesn’t translate into the “Italian sports car”. We all know they’re rather drive a Hummer H3 or Cadillac CTS!
You write:
“You mention that there are many millionaires, however, I wonder how many have obtained that distinction through retirement assets”
It’s true that there’s a gap between net worth and liquidity. I think this is going to represent the biggest opportunity for the high net worth advisor going forward: How to advise a client to take advantage of their entire net worth, not just their liquid assets. See my blog installment for 4/18/07 about derivatives for the high net worth.