Targeting the Emerging Wealthy

Many reports in the popular media suggest that the middle class in this country is disappearing, but extensive surveys reveal that there’s a segment of the middle class that’s actually growing and attaining more wealth – and that can represent an enormous market opportunity.

A new class of investors, the "emerging wealthy," is rapidly reshaping the financial services industry, adding tremendous potential for gaining new wealth management clients. But there’s a catch. These clients tend to share a set of needs, behaviors, and attitudes dramatically different from ultra-affluent clients.

The "influence of affluence"

The new book, The Middle-Class Millionaire, by Russ Alan Prince and Lewis Schiff presents a fascinating profile of the 8.4 million households that enjoy a net worth of between $1 million and $10 million.

Prince and Schiff’s research suggests an interesting paradox. While serving a $100 million client may be a profitable opportunity, serving ten $10 million clients may actually bring you more referrals and business.

Here’s why. While the ultra-wealthy do sometimes serve as role models, the book suggests that they are not as "referentially influential" as middle-class millionaires because these emerging wealthy hold far more influence among their peers, and they network more frequently. The authors call this phenomenon the "influence of affluence," and it’s an attribute that can help wealth managers tap into a much wider client base.

Meet the middle-class millionaires

If you do plan to take advantage of opportunities for serving the new "emerging wealthy" investor, here are some revealing insights from Prince and Schiff’s survey:

• Wealth is relative: Middle-class millionaires don’t view themselves as wealthy. Only 9 percent of this group would consider themselves "financially wealthy." That’s because on average, respondents said that they would need a net worth of about $24 million to feel wealthy.
  
  
• Middle-class values remain significant. More wealth doesn’t change core values. For example, about 96% of respondents said that "being ethical" was "very or extremely important," roughly the same as for all middle-class individuals – compared to only 51% for high net worth individuals.
  
  
• Relationships are a way of life. "Friendship" is important to 64% of middle-class millionaires, but only to 42% to those with a higher net worth. The value of "responsibility to the community" also declines among those with more wealth (46% versus 26%).
  
  
• Advice and coaching are essential. Three out of four middle-class millionaires either have a personal coach or indicate they will hire one in the next three years. Plus, those who have hired coaches in the past three years referred those coaches to an average of 5.7 other people.
  
  
• Networking is the path to success. Because they see networking as an opportunity to connect and share referrals, two out of three middle-class millionaires either belong to a formal or informal network, or plan to join one in the next three years

The middle-class millionaires group is expected to grow by more than 50% over the next decade. Not all firms will find their specific products and services appropriate for these investors, but for those that do, leveraging the "influence of affluence" can be the source for significant growth in the years ahead.