The Affluentialist

I recently read about a subsidized housing development in Santa Barbara, California, that, like most housing developments, comes with a maximum income limitation for residents. In this case, to be considered eligible you must have an income that is less than 2.7 times the median income of a Santa Barbara household. That comes to $177,660 for a family of four. The target range of incomes is between $130,000 and $145,000.

While six-figure income families are not what one thinks of when one imagines publicly subsidized housing, the geography of Santa Barbara is part of the story. With the Santa Ynez mountains to the east and the Pacific Ocean to the west, there’s a limited amount of real estate available.

The other culprit is the rising affluence of California’s coastal towns. In an article in The New York Times on March 18, the Santa Barbara housing authority executive director was quoted as saying that “Santa Barbara is getting Gucci-fied. If we don’t do something, we’ll lose our middle class.” With an average home price of $1.2 million, even a well-employed professional would have a hard time competing in the housing market.

The category “middle class” is a moving target. Read the rest of this entry »

Demographers and journalists point out that, years ago, some folks believed wealth and leisure were connected in that the well-off would work less than 40 hours a week while the less well-off would pick up all the slack. Instead, it appears the opposite is happening. This finding is echoed in the original research I did for my forthcoming book, The Middle-Class Millionaire. We surveyed more than 3,000 people who had an annual household income between $50,000 and $80,000 and more than 500 people who had a net worth of between $1 million and $10 million. According to our survey, those with net worths that were north of $1 million worked 42% more hours than our middle-class sample.

On the flip side, there are more ways for your clients to spend their wealth in order to live both better and longer.

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The premiere (May 2007) issue of Portfolio magazine, the $125 million business journal from the people who bring you The New Yorker and GQ magazines, opens with a story about the modern derivatives market, or as the magazine calls it, the “$300 trillion time bomb.”

Derivatives—financial contracts whose value is determined by, or derived from, an underlying asset—have indeed become a huge market on Wall Street, responsible for significant profits globally. While this article raises some valuable concerns about the unknown implications of these instruments, the derivative market has only been around for about 25 years, substantially less time than hedge funds, and there’s much that remains to be done with this exciting new tool.

Derivatives are overwhelmingly used by institutions and large businesses that deal with assets in the hundreds of millions or billions of dollars. But I’ve been hearing some stories about derivatives being used to help individual high-net-worth clients directly. I thought I’d share one with you…
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I’ll be talking about what it takes to become your client’s most valued financial counselor by becoming his “problem-solver” over the next several months. In the meantime, here are a few non-traditional requests made of problem-solvers recently:

• “A client asked me to assist in the appraisal of their pop-art collection”
• “A client asked me to help them navigate the private school admissions process for their children”
• “I evaluated the financial benefits of working with a concierge healthcare specialist”
• “I reviewed fractional jet ownership programs”

For the most part, these advisors approach problem-solving the same way:

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Tons of ink have been spilled prosecuting the “me” generation over the years, but the new wealthy show a tendency toward power philanthropy that’s a far cry from traditional, less rigorous “checkbook charity” and resembles more the Rockefeller school of giving It’s not just Bill and Melinda Gates who add shape to their philanthropic efforts with bold goals and thorough due diligence. Increasingly, the emerging affluent middle class are going beyond bequeathments in their wills, activating giving strategies much earlier and looking for areas that both stimulate their interests and capitalize on their unique talents. This business-savvy approach allows them to participate in their gift-giving and track the results of their efforts.

Continued growth is expected. According to a report from The Foundation Center, independent and family foundations—which account for nearly nine out of ten foundations—raised their giving by 10.3% in 2006, the first double-digit increase since 2001. The Center attributes this increase both to rising wealth and the increasing rate of foundation establishment in America.
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