Investors who are almost millionaires are a different breed from those with $1 million or more, and they present a huge opportunity for financial advisors, according to Fidelity Investments.
Fidelity released new research, Millionaires of Tomorrow, from its Insights on Advice series Wednesday exploring investors averaging $800,000 in total assets and an average annual household income of $150,000. The study of 608 near-millionaires found they are well positioned for growth but are in need of financial advice, according to Fidelity.
According to the study, 77 percent of the near-millionaires do not have a written financial plan and 70 percent report they are not very knowledgeable about investing.
“This presents a huge opportunity for investment advisors,” says Bob Oros, executive vice president of institutional wealth services for Fidelity with a primary responsibility for working with registered investment advisors. “Advisors need to recognize that these are not your typical clients. They are good savers, but they are not used to investing and they do not think advisors are interested in talking to them. The challenge for advisors will be to prove their value – and the value of taking on risk – to a group that is somewhat unsure of professional advice.”
Unlike today’s millionaires, who are more likely to be male and are mostly on the baby boomer end of the age spectrum, according to Fidelity, 49 percent of the near-millionaires are women and 49 percent are Gen X and Gen Y.
The study says 77 percent of the near-millionaires have or are currently managing household expenses more closely and 85 percent feel they are in control of their debt. However, 45 percent report they are focusing their investment strategies on reducing risk, minimizing loss and avoiding market volatility. Advisors should aim at helping these investors shift from a saver to an investor mentality, starting with helping them get comfortable with risk to maximize their returns.
The study found this group is focused on retirement and ensuring their wealth lasts, but 77 percent do not have a written financial plan.
“Millionaires of tomorrow seem to appreciate the importance of saving for retirement now if they are to be well positioned in the future,” continues Oros. “But without a plan in place to reach their goals, they may not be taking the necessary steps to save enough for retirement.”
Only 25 percent of the near-millionaires say they are confident in handling investing on their own, but only 51 percent of are using advisors. Of those not working with an advisor, 46 percent feel advisors are not interested in investors with smaller assets, and 53 percent were turned off by advisor fees.
Advisors should consider altering their fee structure to cater to this fee-averse group. They should consider laying out the value they provide and showing how working together may help clients reach the million-dollar mark, Fidelity says.