Business ownership has been, and continues to be, the primary path to wealth in this country. The annual Phoenix Wealth Survey consistently finds that approximately 4 out of 10 of the high-net-worth (meaning $1 million or more of net worth, not including primary residence) are business owners, and, of the retired HNW, approximately one-third were business owners/partners prior to their retirement.
Taken together, nearly 60% of the HNW market are or were business owners. Thus, to be a successful advisor in the HNW market, you are likely to have business owners as part of your practice. And to be successful as an advisor to business owners, it is essential to understand their mentality, needs and financial behavior.
For starters, HNW business owners tend to be younger and somewhat wealthier than non-business owners in the HNW market. However, they are not significantly wealthier than the average HNW household. Why? This is due to the fact that many business owners do not realize significant wealth until they liquidate their businesses. Thus retired business owners, for example, are one of the wealthier sub-segments of the HNW market.
Advisors also may be surprised to learn that only slightly more than half of HNW business owners are college-educated. However, this tends to be a generational difference, with a higher percentage of formal education found among younger HNW business owners. Similarly, while the business owner segment of the HNW market is dominated by white males today, this will change dramatically in the near future. HNW “GenX” business owners, the leading edge of whom are already 41 years of age, are more diverse in every way.
Business owners are an interesting segment of the HNW market when it comes to financial services and advisors. For example, they have a strong desire to be in control. Compared with non-business owners in the HNW market, they are more likely to agree with statements such as “I like to be actively involved in the day-to-day management of my financial affairs,” and “I prefer to deal with several financial advisors and work with each independently.” They are also more likely than the general HNW to say they make all their financial decisions themselves with little input from anyone.
Perhaps the most distinguishing feature of this segment, and one that would seem to fly in the face of their desire for control, is the fact that they are “time deprived.” They are more likely, for example, to agree that “I don’t take the time I need to properly manage my finances.” And consistent with this, 39% (vs. 29% of the general HNW) agree that “Lately, I’ve become confused about the best way to invest my money.”
HNW business owners are more likely than the general HNW to say they have a primary financial advisor, but also to receive advice from all different types of financial intermediaries. Accountants tend to play a bigger role in business owners’ financial advisory relationships than in any other segment of the HNW. However, while they come close, accountants fail to achieve the role of “primary financial advisor” in the business owner market. As with the general HNW, this position is still occupied by the full-service broker.