Know your customer. Those sustaining words of wisdom, advisors say, should well position you to serve not only the top of the economic pyramid, the high-net-worth individual, but also a burgeoning class: so-called “mass affluent” boomers who hold between $100,000 and $1 million in investable assets.

Experts caution against taking a one-size-fits-all approach to the newly wealthy. Recommendations, they point out, must be suitably tailored to an individuals family circumstances, goals, objectives and outlook. The client who believes his financial well-being is improving, for example, would tend to be less risk-averse than the one who perceives his fortunes are declining, even if the two individuals are of comparable net worth.

“Those people who have more dollars coming in and have high expectations are more apt [than clients with diminishing expectations] to ride out dips in the market,” says Scott Kelly, a financial consultant and president of Kelly Financial Inc., Madison, Wis.

Jeffrey West, a principal at Cohen Financial Group, Framingham, Mass., agrees. “The clients with diminishing expectations tend to be more conservative in nature,” he says. “Theyre less tolerant of a market slide.”

The latter also tend to be older, pre-retirement boomers or former high-net-worth individuals who have suffered financial loss. A greater number of mass affluents, advisors stress, are boomers in the early to mid-40s who will migrate to the high-net-worth category as they near retirement age.

Clients ratio of income to assets, in addition to age, will influence their tolerance for investment risk. West observes that high-income clients generally will invest more aggressively than those whose incomes are lower, again assuming both groups have comparable investable assets.

The reasons, he says, are because the former believe they can earn the money back faster in the event they suffer a loss and because they need a higher rate of return to compensate for greater spending relative to income.

The majority of mass affluent clients, however, tend to be leery of risk. A December 2004 survey from AIG American General shows 54.3% of mass affluents would accept a “slight degree” of risk to achieve a high rate of return. This compares with 30.9% and 3.6% who would tolerate a “moderate degree” and “high degree” of risk. Another 11.3% said they would not accept any investment risk.

While an increase in a clients income to asset ratio might dictate a proportionately higher level of risk tolerance, growth in assets can have the opposite effect. As ones net worth rises, the marginal benefit of retaining risk declines. So, the client is less inclined to take chances.

Mitch Brill, an associate with Certified Financial Services, a Paramus, N.J.-based Guardian Life Insurance agency, says thats why a larger percentage of his high-net-worth clients are more conservative with their investment portfolios than those in the mass affluent category.

A higher percentage of those portfolios, too, incorporate variable universal and other permanent life insurance policies. Indeed, experts say mass affluent boomers rely more on term life policies than do their high-net-worth counterparts for income protection.

“Thats one of the mistakes Im finding,” says Brill. “Its certainly easier financially to buy term. But what people fail to realize is that a permanent life insurance policy can be used as a permission slip to spend down other assets later in life.”

West says most of his mass affluent boomer clients buy a combination of term and permanent policies. But, oddly, he notes that some individuals with less income or fewer assets want more permanent coverage than those who are better off.

“I commonly have to dissuade people who dont have enough in assets to invest from buying permanent coverage,” says West. “I dont understand it. It simply amazes me when this comes up.”

Those mass affluent boomers who do buy permanent life policies generally value the coverage more for income replacement than they do for estate planning purposes, advisors say. Many also do not require such advance planning vehicles as irrevocable life insurance trusts to protect assets from estate taxation.

What they do demand is unfailing professionalism and competence from their advisor, say market-watchers. To win the mass affluents business, producers must carefully cultivate a reputation for superior service and expertise in their chosen market niche. That reputation, not slick marketing literature, will lead to the referrals they so covet.

“You do need collateral materials that make clear what you do and who you are,” says Matt Oechsli, president of Oechsli Institute, Greensboro, N.C. “But affluent customers wont do business with an advisor because they like your brochure.

“You have to focus on the relationship component and what youre good at,” he adds “You brand yourself one client, one prospect, one center of influence at a time because they all make pre-purchase decisions by word of mouth.”


Reproduced from National Underwriter Edition, February 25, 2005. Copyright 2005 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.