According to Fidelity’s seventh annual Millionaire Outlook study, the makeup of the nation’s wealthy is changing, and while some advisors are ahead of that shift, many more haven’t realized the change or built their practices (and fees) to attract the emerging wealthy and mass affluent.
“Advisors historically have gone up market,” Bob Oros of Fidelity said in an interview Wednesday, raising their minimums and looking to work with wealthier people. However, said Oros, who now heads the RIA segment for the recently reorganized Fidelity Clearing and Custody, “we’ve seen a drastic pivot looking back down market.”
Among advisors, Oros says, “progressive ones have used it as part of a segmentation strategy,” and while some advisors “worry about scalability” if they work with lower-net-worth clients, “our study shows that it can be a good business decision to serve this segment since they share so many of the attributes” of the higher-net-worth client.
Those advisors “see where the puck is going” and realize that “if I want to grow my business in a more predictable way, I need to serve this segment” of the emerging affluent, which in the Fidelity study includes investors age 21 to 49 who have investable assets from $50,000 to $250,000 with annual income of at least $100,000.
The study, Oros says, represents a “call to action” in which advisors must decide if they are “ready to serve this segment.” However, Oros notes that in many ways the emerging and mass affluent group “is different” in terms of gender and ethnicity — two-thirds are female and one-third are non-white — and they are also a “much more collaborative group” who are “well positioned to attain, or even exceed, millionaire status.”
That’s due to the fact that they have been responsible themselves for achieving their current assets and income levels; that they tend to cluster in higher-paying professions; that they have many years ahead of them to continue to grow their assets; and they tend to exhibit higher risk tolerance in their investing.
However, the emerging affluent also share many of the same attitudes and behaviors of their older and wealthier counterparts, according to the study.
- They show a capacity to build wealth: 80% said they have “earned or increased assets on their own,” so their self-made wealth suggests they will work hard and invest consistently
- They have a strong focus on wealth creation: they are concerned about their family’s financial security, but are just as concerned about maintaining their lifestyle in retirement, and thus “diplay a willingness to invest aggressively to help maximize returns.”
- They report that they value professional financial advice, but the survey also found that only 48% of them currently have an advisor.
Why? “They don’t necessarily believe advisors want them,” Oros said, because they perceive advisors work with higher-net-worth people, but “these folks have accumulated some money — and they have time and math on their side.”
However, “they’re sensitive to fees” as well, Oros points out, so for advisors who want to work with this group, “you need to be willing to think differently” about your fee structure.
So is this a segment ripe for poaching by robo-advisors? “We found a pretty high recognition of digital advice” offerings among the emerging affluent, Oros said, “29% have some familiarity with robo-advisors and 7% are currently using them.”
But Oros says that investors in this group “still want contact with someone; access to a human,” so in addition to a threat, the desire for digital advice and human contact represents “a big opportunity” for advisors, and suggests that “having a digital advice delivery be part of your segmentation.”
The online, blind Fidelity Millionaire Outlook was conducted by Bellomy Research in July 2014 among 1,064 respondents with wealth levels in four segments.
Those levels include the emerging affluent referenced above, with a median of $250,000 in investable and retirement assets; the mass affluent, with a median of $800,000 in assets; the millionaires, with a median of $2.5 million in assets, and the deca-millionaires, with a median of $12.5 million in assets.
— Check out 5 Tips for Working With Wealthy Millennials on ThinkAdvisor.