Private jet owners are an ultra-affluent bunch and, as such, likely have
intricate financial requirements.
The following article is the first of
a two-part series based on the authors' new white paper, entitled The
New Jet Set: A Psychographic Analysis of Luxury Spending. A complete
copy of the paper can be downloaded at www.hannahgrove.com.
The 10th World Wealth Report released in June 2006 by Merrill Lynch/Cap Gemini states that the number of high-net-worth individuals in the world continues to grow, as does the wealth they control. The increase in purchasing power of the wealthy is further reflected in the continued expansion of the nearly recession-proof luxury goods market and the $5 million-plus residential real estate market. These trends may seem unfairly biased toward the wealthy but others can benefit as well. Advisors that have, or aspire to, a high-net-worth clientele can use this growth as a catalyst for their own business development.
As long-time students of high-net-worth investors, we believe that recognizing and understanding distinct segments of wealth will yield more effective and profitable interactions between advisors and clients. We recently identified a new segment of wealth with a considerable net worth and unique demographics-the private jet owner. We surveyed more than 660 individuals with outright or fractional ownership of a jet and discovered a few things that make this an affluent group worth knowing.
Perhaps most importantly, this is a group with considerable wealth-on average, they have an annual income of $9.2 million and a net worth of $89.3 million. Any way you slice it, private jet owners are an ultra-affluent bunch and, as such, likely have intricate financial requirements. As is often the case, there is a proportionate relationship between the amount of wealth and the complexity of the financial goals, meaning there is a greater need for a professional advisor to guide them through the planning process and supply them with strategies and experts to meet their goals along the way.
But wealth alone doesn't define this group. Jet owners possess a variety of characteristics that will help a perceptive advisor connect with them on a personal and psychological level.
Over the past decade the age range of millionaires has continued to decline, and the average age of our respondents was 57. This is roughly ten years younger than the average age of our survey respondents a mere decade ago. This means that affluent individuals are coming into their wealth sooner and have a longer period of time over which to manage their assets and their taxes.
More than 30% of our survey respondents were women (Exhibit 1). This is also a marked departure from our studies in the 1980s and 1990s, when women often were less than 10% of the survey sample. Today, there are more women-owned businesses and more women represented among the executive ranks of private and public businesses worldwide. Savvy advisors know that women think about and undertake investing differently from their male counterparts and will tailor their approaches accordingly.
Source Of Wealth
By and large, the jet owners in our survey had accumulated their wealth from an equity position in a business. For years, the most certain road to wealth has been owning a business, and this continues to be the case.
With a few notable exceptions, jet owners are a group that values their privacy and anonymity. Almost all choose to travel in unmarked aircraft and distance themselves from celebrity or paparazzi, who will increase scrutiny and make them a target of unwanted attention.
Mobile And Untethered
As noted in recent articles in Newsweek (Going Places, May 15-22, 2006 issue) and the Sydney Morning Herald (Nomadic World of Super-Rich, June 19, 2006), the wealthy are perpetually on the go. In fact, many of the super-rich consider themselves "global citizens" with homes and businesses on more than one continent. Obviously, access to a jet increases the ability to travel and can ease many travel-related frustrations, but with the added bonus of technology this group can maintain their relentless pace of travel without missing a beat. Cell phones and the Internet allow jet owners to stay in touch with virtually any constituent-family members, friends, business associates, clients-from anywhere in the world.
Despite the propensity to travel, jet owners and other wealthy individuals still buy real estate, and lots of it. A majority of jet owners, 86%, own more than two residences worth $2 million or more. Having multiple properties increases the need to travel, which makes regularly reaching and servicing these homeowners more difficult for advisors and other services providers.
Like most ultra-affluent individuals, jet owners are often several layers removed from their day-to-day financial affairs. Many of their monetary transactions, such as the purchase of a car or a routine tax payment, happen through a business structure, a business associate or a personal assistant. Just 34% of jet owners open their own mail and only 19% pay their own bills. As a result, jet owners have a defense from sales people, fundraisers and creditors, and access to them is carefully monitored. Advisors will need referrals from trusted sources in order to reach this segment of the market. Another byproduct of their detachment is the low level of awareness that most jet owners have about their finances, so understanding the scope of their assets, liabilities and investments can be a challenging task for an advisor.
The sheer amount of private wealth among jet owners separates them from other wealthy individuals, especially when it comes to spending. Not only are they capable of creating a lavish lifestyle for themselves and their loved ones, they do so without reservation. In our survey, we questioned jet owners about their 2005 expenditures in 14 important retail categories (Exhibit 2) and the findings were astounding. The category with the lowest level of spending-wine & spirits-had an average annual spend of nearly $30,000, which is about two-thirds of the median household income in the United States (a current three-year median of $44,473 according to the U.S. Census Bureau). The next smallest category in terms of spending, experiential travel, is more than twice the U.S. household income at $98,000 and is dwarfed by the spending in bigger categories such as home improvements and fine art.
This data paints a portrait of a new and different type of investor: most likely an exceptionally wealthy business owner with wanderlust, a significant portfolio of investments and real estate, a cadre of employees to attend to every need, and a desire to surround him or herself with the best things money can buy. Reaching these individuals can be tricky, but worth the effort given their outsized net worth and the need for professional advice.
We believe that informed advisors are more effective advisors. The more knowledge an advisor has about a client's tendencies and motivations, the easier it will be to anticipate needs, concerns and actions. Our next column will focus on the psychographic profiles of private jet owners to help advisors build their knowledge of this powerful new segment of wealth and, in turn, provide a sympathetic ear and timely solutions.
Hannah Shaw Grove is the author of five books on private wealth and advisory practice management. Russ Alan Prince is president of the consulting firm Prince & Associates.