By Walter H. Zultowski

Will Rogers once commented that its not what we dont know that hurts us, its what we know that isnt true. With all the attention thats been focused on the high-net-worth market in recent years, the same observation can be made today in regard to marketing to the high net worth.

By conducting an annual survey and working closely with advisors who serve the wealthy, my company has been keeping its finger on the pulse of this market for several years now. In this tough economy we have seen several myths developed regarding the high net worth that need to be addressed.

Myth #1: The last three years have decimated the ranks of the high net worth.

The three-year bear market has affected the net worth of nearly all Americans, and the high net worth have not been immune to this impact. Nevertheless, two important points need to be made regarding this. First, this fallout has not been equal across the spectrum of high-net-worth households. There has been proportionately greater decline at the lower end than at the middle and upper ends.

Moreover, it should be noted that households falling below the $1 million net-worth mark havent disappeared. Now, theyre “merely affluent.” Its likely to assume that they have the interest and motivation to return to their former millionaire status.

Most importantly, however, it needs to be pointed out that the economy and the stock market are not the primary drivers of wealth in this country. Rather, the primary driver is demographics embodied in such trends as the aging of the baby boom and the expected inheritance boom, projected to be $41 trillion over 50 years. And unlike the cyclical economy and stock market, these are permanent trends backed by already accumulated wealth, which will be driving the growth of wealth in this country for the next several decades.

Myth #2: The high-net-worth market is undifferentiated.

“Seen one millionaire, youve seen them all.” Nothing could be further from the truth. The high-net-worth market is a highly differentiated market that requires segmentation and special approaches to succeed in penetrating the various segments comprising it. Through annually surveys of the high net worth, we have found it useful to divide the market into segments comprised of business owners, senior corporate executives and high-net-worth families–many of whom are already retired.

The segments are as different as night is from day in terms of demographics, financial needs and concerns, and buying behavior. Not surprising, they also differ in terms of the advisory approaches to which they respond.

Another useful view of this market is to segment it in terms of amount of net worth, with a significant inflection point being $5 million or the so-called penta-millionaire level. It is at this point that our survey tells us about significant changes in financial issues, products owned and financial behavior.

Myth #3. The high-net-worth market is saturated.

Here one is reminded of the Yogi Berra line, “nobody goes there because its always so crowded.” Or, more to the point with the high-net-worth market, its perceived to be crowded. While the high-net-worth market is certainly targeted by advisors, the following selected results from Phoenixs 2002 Wealth Management Survey clearly show that there is ample opportunity remaining for product and service sales to this market (see table).

Moreover, more than one quarter of high-net-worth households in the same survey (26%) say that they currently dont have someone who they consider to be their primary financial advisor. One factor contributing to this myth is likely the fact that many companies say that they target the high-net-worth market when what they do, mostly, is sell second-to-die life insurance for estate plans.

True wealth management companies that respond to the high-net-worth markets accumulation, preservation, income distribution and transfer needs on an integrated basis are much more difficult to find.

Myth #4. The high-net-worth market is only interested in investment management and tax planning.

Perhaps this myth comes from the fact that the term “wealth management” has traditionally been associated with the investment management function as largely delivered through trust organizations. And while investment management and tax planning are on the list of what the high net worth are looking for in terms of financial products and services, they are not on the top of the list.

Interestingly, the wealth management survey found the single most important financial issue for the market is that of “assuring a comfortable retirement.” This not only speaks to the diversity of the financial wants and needs in this market but also points out a significant unmet need–retirement income distribution planning. Expect to hear significantly more about this topic in the years to come.

Myth #5: High-net-worth clients are very upset with their advisors today.

This is perhaps the most insidious myth on this list. This is because it has led in recent years to inactivity on the part of financial advisors relative to their high-net-worth clients. This is simply not true. For example, 79% of the respondents in the 2002 Phoenix Wealth Management survey reported that they are satisfied with their primary advisor, and less than one out of ten (9%) foresee themselves looking for a new primary financial advisor in the upcoming year.

Moreover, 60% say that theyd like to have contact with their advisor once a month or more frequently. All of this may seem surprising in light of whats happened to consumers investment portfolios in the last three years, until you delve further into the financial psyche of this market.

Specifically, when it comes to financial decisions, they clearly indicate that they seek advice but that they make the ultimate financial decision. Thus, they are not totally blaming their advisors for their financial results over recent years–they share the blame. Advisors on the other hand, seem to shoulder more blame than necessary during down markets. They probably also take too much credit during up markets.

Walter H. Zultowski, Ph.D. is senior vice president, marketing and market research for The Phoenix Companies Inc., Hartford, Conn. He can be reached at walter.zultowski@phoenixwm.com.


Reproduced from National Underwriter Edition, May 5, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved. Copyright in this article as an independent work may be held by the author.