Who Are the Mass Affluent?

‘Mass affluent’ investors are those who have liquid investable assets of $100,000 to $1.5 million, and a net worth between $500,000 and $2.5 million.  In the United States there are roughly 33 million mass affluent households, and they own roughly 37% of America’s liquid financial assets. Among family households, approximately thirty percent could be described as being mass affluent.

The mass affluent have been characterized as those who:

  • Save more than they spend and invest for their future.
  • Worry about funding their children’s college education, but are not opposed to their children paying some part of their educational costs.
  • Worry about replacing their paycheck in retirement.
  • Often wish to leave an inheritance to their children.
  • Spend between $4,000 and $10,000 (USD) per month in retirement.

What Are Their Preferred Investment Vehicles?

Investment Vehicles used by mass-affluent

September 2010 study conducted by MetLife surveyed nearly 1,900 consumers over the age of 45 including 500 individuals with at least $200,000 in investable assets.  The study found that this group invests a significant portion of their liquid holdings in bank products:

2005 Wealth Distribution of Mass Affluent Households
Asset Class Percentage
Principal Residence 23%
Investment Real Estate 14%
Liquid Financial Assets 22%
Pension and Employee Retirement Plans 16%
Insurance and Annuities 9%
Privately Held Business 16%

Why They’re Hard to Upsell

Half of those surveyed consider both banks and financial professionals trustworthy, which lines up reasonably well with the results of this Chicago Booth/Kellogg School Financial Trust index chart.

A Bank of America nationwide survey of 1,000 mass affluent consumers finds that many of these customers aren’t keeping their investable assets invested, which could complicate efforts to push more advice and financial planning services to this segment. BofA said:

  • 29% of those surveyed tapped into their long-term savings last year to pay bills or buy groceries.
  • That is consistent with a Fidelity survey that found nearly a third of parents had tapped into their kids’ college funds to pay daily expenses.
  • 41% of BofA respondents report expecting to retire later than they did a year ago.
  • 63% expect it to be harder to save in five years than it is now. took place over three weeks in the fall.

Although about half of those surveyed consider both banks and financial professionals trustworthy, financial products are not an easy sell to them at a time of tightening purse strings.

BofA says its results show that show half of mass affluent customers lack a written financial plan now and almost a third have never had one. Sallie Krawcheck, who runs the global wealth business for BofA, says they are targeting customers who “haven’t shown a fondness for financial planning.”

It sounds like an uphill struggle.

Why You Risk Losing Them To Online Brokerage Firms

A  report from Aite Group examines North American banks’ strategies for deepening relationships with their mass-affluent clients based on Q4 2010 Aite Group interviews with more than 20 executives across 19 of the top 100 North American banks and bank-affiliated broker/dealers.

The study finds that U.S. banks have experienced limited success with deepening their mass-affluent client relationships by cross-selling investment solutions. Overall, their brokerage arms have suffered from weak brand recognition in the investment world and challenging client-acquisition practices through the branch channel.

In addition to these traditional roadblocks, banks must now contend with their clients’ increasing preference for viewing and managing their investments online and are therefore losing assets to online brokerage firms since self-directed investment services provided by banks are not on par with those of online brokerages. By comparison, Canada’s bank brokerages have largely accepted the online channel and, in general, have been more successful in cross-selling investment solutions to their mass-affluent clients than U.S. banks.

“U.S. banks must consider re-evaluating their mass-affluent offer in order to retain assets in the short term and position themselves to grow market share in this segment over the long term,” says Sophie Schmitt, senior analyst with Aite Group and author of this report. “Banks have an opportunity to differentiate themselves in the mass-affluent space–only they can provide clients with a full set of tools for managing short-term cash needs and planning for long-term goals.

Financial Planning Roadblocks

According to Spectrum Group:

  • Only 59% of them have a financial plan.
  • 75% own some type of life insurance, with the largest proportion owning term insurance.
  • Only 21% own a variable annuity produc.
  • Only 24% own a fixed annuity product.

Thus, even for those with insurance products, it is not clear that a formal planning process has been completed or updated.  And as far as including life insurance as part of a broader estate plan, only 16% hold any assets in trust.  Clearly there are opportunities for advisers to assist these households with greater planning opportunities.

So What Do They Want From A Financial Advisor?

A recent survey conducted by HNW, Inc., a marketing and technology firm serving financial services institutions, researched what  financial advisory services mass affluent investors want from their retail banks. The survey, titled “The Elephant in the Branch: Retail Banking and the Mass Affluent Opportunity” is based on responses from over 400 individuals from this segment taken in August, 2012.  Life Health Pro  believes the results have marketing lessons that can also be useful to independent advisors trying to target this growing segment.

According to HNW this segment is an important one because:

  • It is the fastest growing wealth segment in the country.
  • It currently accounts for one-third of all retail investment assets.

Study: Their Attitudes and Behaviors

Here are some of the attitudes and behaviors that the HNW study reveals:

They Don’t Consider Themselves Wealthy: Stacey Haefele, president and CEO of HNW, said the mass affluent “don’t want to be identified with that group.” This isn’t unrealistic, as the definition for rich and high net worth is steadily moving up. Most instead consider themselves “savers.”

  • 45% say they are “conservative investors.”

They Want More For Their Money: A majority said that the more they place in the bank, the more service they feel they should receive. Haefele concludes that to entice them to invest more money with them financial institutions need to provide differentiated service commensurate with their bank balances in a profitable manner.

  • Just waiving banking fees is probably not enough.

They Dislike a Product Push: Like most clients, the mass affluent don’t want an advisor who is only interested in selling them products:

  • Nearly half said that bank-based financial advisors only contact them “to sell or push something.”

Trust is a major factor when choosing a financial advisor.

  • 3 in 10 respondents “don’t trust using the investor advisor at my primary bank.”
  • 38% characterized the relationship with their primary banks as an acquaintance, or “somebody I might acknowledge but not spend any real time with.”

Thoughts on Engaging Them in Financial Planning

How can you effectively assist the mass affluent with their wealth and estate planning needs? Here are some factors to keep in mind:

  • Many put little faith in a financial plan because it is presented simply in a manner that leads to insurance sales.  It is critical for an advisor to establish a holistic relationship that factors in other investment and financial needs to gain their confidence and acceptance of the plan.
  • One of the biggest fears of the mass affluent is outliving their assets.  Any planning should include discussion of these concerns and how to protect against them.
  • Make sure that your discussions are not just a product push.  This is a major turn off for investors.
  • These individuals are well educated and increasingly comfortable using the internet to gain information.  An advisor must be just as knowledgeable about the markets and various options as they are.  Be ready to answer their questions regarding multiple subjects.  Although no one can be the expert on every topic, have access to various experts in the estate planning and investment fields.  Be ready to refer them to a local attorney or even an investment manager (if that is not your own expertise.)  Be sure to work together effectively with these experts in the future on behalf of the client.
  • Proactively reach out to them with information, not just product sales.  Sending a client a copy of an article that he or she might find interesting shows that you have an ongoing interest in them.
  • Make sure you provide them a strong understanding of the various tax implications and related benefits of any products that you present to them, since taxes are becoming a larger concern for these households.

The most effective advisors will be able to position themselves as an advocate for these 30 million mass affluent investors and not just a “sales guy.” They must be pushed to take action, but the approach must be one in which trust is carefully cultivated, and real value provided. They’re high maintenance and require dedicated cultivation. There is an enormous opportunity to assist these investors with a thoughtful well-informed approach.

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