As a financial advisor, you probably hear recommendations that you move upmarket to serve wealthier clients. It’s assumed that working with them will be like working with clients of lesser means, only more profitable.

Yet concrete knowledge about the affluent can be elusive.

To provide a clearer picture, our two firms — CEG Worldwide and WealthEngine — partnered to collect and analyze extensive data drawn from dozens of public and private sources. The resulting report looked deeply at key demographics of the affluent, along with broad contexts on their finances, interests and lifestyles. 

To begin, we defined three distinct levels of affluence by investable assets:

  • Affluent: $1 million to $5 million.
  • Super affluent: $5 million to $25 million.
  • Ultra affluent: $25 million or more.

The affluent category is by far the largest, accounting for 92.7% of all affluent households.
WHAT WE LEARNED

Obviously, the scale of opportunities for advisors to serve the affluent is very different among the three categories. Investable assets (defined as total assets minus total real estate value) are perhaps most useful for understanding this potential. Among households in the affluent category, there are median investable assets of just under $1.5 million. Median investable assets jump to just over $7.5 million among the super affluent and rocket to nearly $64 million among the ultra affluent.

In general, it turned out, the real estate slice is a relatively small portion of the overall net worth of the super affluent and ultra affluent. For the affluent, real estate represents a much bigger portion of their individual wealth.

We turn next to some of the important personal characteristics of the affluent groups. In all three categories, baby boomers (born in 1946 through 1964) and those who are older than boomers dominate. In the affluent category, more than nine out of 10 are are 50 or older. Relatively few members of any category are of Generation X (born from the mid-1960s to early 1980s) and even fewer are millennials (or Gen Y), those born from the early 1980s to the early 2000s.

The affluent are more likely to be married than the less well off. Nearly three-quarters of those in the affluent category are married, as are about 80% in the super affluent and ultra affluent categories. By contrast, 56.4% of all people 18 or older in the U.S. are married, according to U.S. Census data.

Affluent households are also more likely to have multiple generations in the home. Among the affluent, 43.9% have two generations at home, while 14.1% have three. And the super affluent and ultra affluent are even more likely to have multiple generations in their households; one in five of ultra affluent households contains three generations.

In contrast, Census data from 2011 said that just 5.6% of all U.S. households had three or more generations.

Business ownership is an important source of wealth for many affluent families. Approximately one-third of the affluent, three-quarters of the super affluent and nine out of 10 of the ultra affluent own businesses.

But the size of those businesses varies greatly. With median annual revenue of just over $750,000, the businesses owned by those in the affluent category are small businesses. The story is very different in the super affluent and ultra affluent categories. With median annual revenue of more than $22 million for the super affluent and more than $371 million for the ultra affluent, these companies tend to be fully established, have access to capital to fund growth, benefit from professional management and have long-term succession plans.

Key TAKEAWAYS

We found several areas where conventional wisdom does not fully square with reality.

  • Myth: The affluent are pretty much all the same. Not so. We found significant differences among the three affluent segments in key characteristics.
  • Myth: Business owners are a highly attractive market. Not necessarily so. Two-thirds of those in the affluent category are not business owners at all. Since there is already so much competition for business owners, the better opportunity may be in serving those who do not own businesses.
  • Myth: Your best opportunities are with the young. Not necessarily so. Younger clients may offer significant potential, provided you correctly identify which ones will accumulate wealth — but older clients tend to already have that wealth and need your assistance in managing it right now. 

John J. Bowen Jr., a Financial Planning columnist, is founder and CEO of CEG Worldwide, a global training, research and consulting firm for advisors. James Dean is senior vice president of WealthEngine, a provider of wealth identification and prospect research solutions.

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