Profiles in Excellence
In the first of a series of articles focusing on who the wealthy are, a look at the significant opportunity posed by the growing number of HNW individuals, where they are based, as well insights into how they have made their wealth and what this means for them.
Your HNW client market is growing: Be prepared.
There are almost 960,000 individuals worth over $5 million in net worth in the U.S. And this number is growing. Research by Wealth-X shows the number is expected to rise to more than 1.2 million by 2022, driven in part by the rollout of tax reforms and continued growth in the digital and tech space, even despite a likely economic cyclical slowdown.
For those with over $5 million, the majority have a net worth below $20 million, accounting for almost 85% of this population. Yet those with over $20 million command 63% of the total wealth, at an eye-watering $12 trillion. This figure is set to rise to almost $15 trillion by 2022.
Moreover, opportunity isn’t just to be found in the metro areas of New York, Los Angeles, San Francisco and Chicago. To be sure, these cities house the largest number of HNW people, but it’s worth not overlooking the opportunities of cities that are a little lower on the radar. For example, the Atlanta metro area accounts for over 21,500 individuals with $5 million or more, a few thousand larger than high-profile Miami. San Jose also just comes in above Miami. Meanwhile, the Texan cities of Houston, Dallas, Austin and San Antonio together total over 77,500, which, combined, would make up the second largest U.S. HNW city.
As an advisor, are you prepared to take advantage of this growing market? The number of eligible clients will grow over the next five years, though competition among advisors is also likely to increase. Do you employ a systematic plan to ensure a pipeline of good leads?
Wealth-X has been been running wealth management client engagement surveys for over a decade, and often asks HNWs how they came to choose their advisor. For some providers, up to two-thirds of clients say that they were recommended to their advisor, either by family, friends or professionals. Think about how you can make recommendations land more easily: Be clear about your brand, who you are, what you’re good at and what kind of person you’re right for. Having a clear message will make it easier to target the right prospects and for them to find you.
Most HNWs are self-made: Assume they will expect and challenge you on getting great service.
The vast majority of the wealthy have made their fortunes themselves. In most cases, this is from starting and building up a business. In others, it is from becoming a senior or C-suite business leader.
Indeed, almost four in every five HNW individuals with $5 million or more are self-made, with the remainder pretty much equally represented between those who have inherited their wealth and those whose wealth stems from a mixture of both types.
Self-made wealth tops out at almost nine in every 10 individuals at the lower $1 million to $5 million wealth mark, and then gradually declines as wealth increases, down to 72% at the $100 million mark. Instinctively, it is harder to grow greater amounts of wealth, and at this very high level we find that those who have used both their entrepreneurialism and their inherited wealth become more prevalent.
These entrepreneurially minded individuals tend to share key traits, which can be neatly summed up as “a restless desire to do better.”1 With their drive to consistently find better approaches — both professionally and in their personal lives — paired with their high level of self-confidence, expect your clients to question your approach and services. Don’t see this as a criticism; engage with them to improve processes or make efficiencies, and to deepen the relationship at the same time.
Wealth is emotional: Connect with your clients around this.
Another aspect of the self-made characteristic of the wealthy is that they believe they have worked hard over long periods of time to be successful (the average age of those with over $5 million is 61). They will usually be proud of the wealth they have built, with this wealth often having an emotional component. Connect with them by finding out their story (most likely stories), and what makes them tick. Their goal is unlikely to be purely, or even mostly, about generating further wealth.
Moreover, Wealth-X studies have often found that the wealthy remain genuinely concerned with short-term shocks to their wealth. Indeed, few actually feel “wealthy” when they are asked about their status. 2Particularly at the lower tiers of wealth, such individuals’ assets are often tied up in their business, meaning they can be substantially leveraged when taking into account their family’s financial obligations and other investments or loans. Treat your clients’ concerns as real, and show you understand some of the pressures they are facing.
1 Credit Suisse, Connecting Entrepreneurial Minds, May 2018
2 UBS, Investor Watch, 3Q 2013
Wealth-X is a global wealth information and insight business providing proprietary data assets and specialized research capabilities to help clients understand and engage their target audience, minimize their risk and make informed strategic decisions. Their Custom Research division provides strategic consulting and bespoke market research studies, has conducted research across 40 countries and interviews more than 12,000 HNW individuals each year.
Profiles in Excellence
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