Here’s a rundown on the changes of keenest interest to insurance advisors...
By Cyril Tuohy
Many financial advisors hunger to serve the mass affluent. A 2013 survey of where the nation’s millionaires are located yields clues to where the mass affluent live.
The traditional states harboring millionaires – Maryland, New Jersey, Massachusetts and Connecticut –once again top the 2013 research for millionaire household densities. But recent energy booms have created new millionaires in Texas, North Dakota and Pennsylvania, said David Thompson, a managing director with Phoenix Marketing International in Rhinebeck, N.Y.
Thompson said he has seen “more swing in the rankings” this year compared to previous years. Some of it relates to natural gas extraction from shale formations, and some of it relates to states’ improving economic conditions.
Maine, Maryland, New Hampshire, North Dakota and Nebraska recorded some of the highest percentage increases in their millionaire ratios in 2013 compared to 2012, the research found. Conversely, Arizona, Florida, Idaho, Nevada and Michigan recorded some of the highest percentage decreases in their millionaire ratios over the same period.
“A rising market lifts a lot of different boats,” Thompson said in an interview. “Certainly, it has raised the number of millionaire households.”
There were approximately 53,000 more millionaire households in the U.S. in 2013 than in 2012, according to the research. There are an estimated 6.15 million millionaire households in the country, the research found.
New Jersey has the highest density of millionaire households. Of 3.23 million Garden State households, 242,647 -- 7.49 percent – are millionaire households, the research found.
Arkansas has the lowest density of millionaire households. Of 1.16 million households, 43,588 -- 3.73 percent -- are millionaire households, the data show.
Phoenix, which compiles separate data on the mass affluent, did not release this data for the millionaire report, Thompson said.
People in the mass affluent economic category, which follows the millionaire category, are considered to have between $100,000 and $1 million in investable assets. The mass affluent represent a coveted demographic among retail advisors. Members of this group are relatively “rich” in investable assets but have not yet formed any lasting relationships with financial advisors, according to a separate survey conducted by Fidelity Investments.
Strong stock markets tend to favor those with more to invest and so far the mass affluent “are doing OK,” Thompson said.
“Their numbers have steadily increased,” he said. “They are not necessarily moving into the ranks of millionaires the way they used to.”
Thompson said the mass affluent were still concerned about their retirement, and their portfolios are “not really positioned to accelerate investments to move up into the millionaire rankings.” The debt burden carried by the mass affluent is also making it difficult for them to accelerate their wealth, he said.
“It’s kind of slow and steady for the mass affluent,” he added. “It’s a very different market. I wouldn’t say they are treading water but they are increasing much slower than the millionaires.”
Scott Hanson, a financial advisor with Hanson McClain Advisors in Sacramento, Calif., said advisors are better off building a book of business anchored in the mass affluent.
For starters, there simply are not enough rich to sustain full-time work for the thousands of advisors in the business, Hanson said, writing an opinion published in an issue of an investment trade weekly.
After securing a foothold in the business more than 20 years ago by serving the wealthy, Hanson said he branched out and began targeting people with between $250,000 and $2 million in investable assets, as many in this group had put aside some assets, but not enough to achieve financial independence. That made them ideal candidates for his help.
“I realized that I could add a tone of value to families at this level,” he writes.
The sliding scale by which many advisors are paid means that it’s more profitable for an advisor to have 200 accounts of $500,000 each than it is to have 10 accounts of $10 million each, Hanson said. Revenue from the larger group of smaller individual accounts exceeds the revenue from the much smaller group of ultra-wealthy.
The headaches associated with the smaller accounts are fleeting compared with the complex needs of the multimillionaires who often expect advisors to be at their beck and call. “Advisors can have a very profitable practice during the working week but can spend the evenings and weekends with their friends of their choosing, not the ones who pay their salary,” Hanson said.
Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. Cyril may be reached at firstname.lastname@example.org.
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