Blog: Are You a 'Middle-Class Millionaire'?

In “Cultivating the Middle-Class Millionaire - Why Financial Advisors Are Failing Their Wealth Clients And What They Can Do About It.” (Wealth Management Press, 2005) Russ Alan Prince and David A. Geracioti  explore the fascinating disconnect between High Net Worth (HNW) clients and the Advisors who serve them.  They teamed up with The New Yorker magazine and surveyed 1,417 of their HNW readers.  The respondents were asked a wide range of questions on financial issues, everything from their biggest financial concerns to their interest in various financial vehicles, such as hedge funds.  

Then they used a database provided by Primedia Business Information, publishers of Registered Rep magazine, and surveyed 512 professional financial advisors for their attitudes and perceptions of their HNW clients.  This is where it gets interesting.  Compare the results of the two--the interests, concerns and beliefs of the HNW clients versus the perceptions Advisors have of them--and you find some stunning gaps.  

The first thing to understand is that, as a group, the HNW respondents did not think of themselves as “rich.”  In fact, the survey of the 1,417 HNW readers showed that 42.6% saw themselves as “middle class”.  The other 57.4% described themselves as “upper middle class.”  The difference was largely due to net worth.  But, none of them considered themselves wealthy.  Hence, the title of the book.

Nearly nine out of ten of the middle-class millionaires (88.6%) are “very concerned” about losing their wealth.  Many HNW clients are engaged in a balancing act with their finances.  In truth, they are often only a few steps aways from significant financial reversals.  As a result, they tend to worry about making sure they maintain their lifestyles.  

The disconnect between advisors and clients begins here.  Only 15.4% of the financial advisors surveyed believed 20% of their HNW clients were “very concerned” about losing their wealth. 

Apart from not losing their wealth, middle-class millionaires confront a wide variety of issues.  Prince and Geracioti divide these issues into three categories:

• Taxes
• Personal interests and responsibilities
• Investment management

Taxes

Advisors vastly underestimate the nature and extent of their middle-class millionaire clients concern about taxes.  The biggest tax disconnect has to do with middle-class millionaire concern about estate taxes.  49.2% of the middle-class millionaires wanted help mitigating estate taxes.  Only 8.2% of advisors thought it was an issue.  

Advisors vastly overestimated the middle class millionaire’s concern over capital gains taxes at 77.9% whereas only 49.2% of the middle class millionaire’s felt the need to mitigate capital gain taxes.

Advisors also got income taxes wrong, but not by much.  84.7% of the middle-class millionaires want help mitigating income taxes.  Advisors came in at 77.9%.  Clearly, Advisors are from Mars.

Personal Interests and Responsibilities

With the exception of having adequate medical insurance (79.3%), many Advisors tend not to recognize the concerns of their middle-class millionaire clients. 

Areas of Concern/Interest

 MCMs

 Advisors

Making sure your heirs are taken care of

 79.2%

  40.8%

Having adequate medical insurance

 77.3%

  79.3%

Having enough money in retirement

 71.5%

  52.1%

Paying for children’s or grandchildren’s education

 48.3%

  28.5%

Being sued

 47.3%

   9.4%

Losing your job or business

 40.0%

   8.4%

Having high quality personal security & risk management

 28.2%

   2.5%

Taking care of parents

 28.1%

   2.5%

Making meaningful gifts to charity

 27.8%

   1.8%

Investment Management

72.7% of middle-class millionaires said that working with a high-quality investment advisor was a major concern.  11.9% of middle-class millionaires were concerned about diversifying their portfolios.  

Financial advisors tend to not be quite in synch with their middle-class millionaire clients.  Relatively speaking, the financial advisors placed more emphasis on the desire of affluent investors to work with a high-quality investment advisor (83.2%) and to diversify their portfolios (33.4%).

Clearly, everyone wants to work with a high-quality investment advisor.  What Prince and Geracioti observed was a matter of emphasis.  The middle-class millionaire is just more focused on the investment advisor than the investments.

Practice Implications

These findings aren’t surprising when you consider the manufacturing culture of most, especially the biggest, financial services companies.  Their focus is on the product; its creation/management and its distribution.  That focus is abundantly clear in the findings.

What I take away from this is reinforcement for my belief that wealth planning is an “inside out” process.  To truly serve a client is to know them from the inside out.