The $62 Trillion Opportunity
June 7, 2007
The high-net-worth occupy a desirable standing in today's society and, as a result, are lionized for their accomplishments and their assets and scrutinized for their idiosyncrasies and behavior. Without question, the pursuit of wealth is one of mankind's great obsessions. Achieving millionaire status is commonly cited as the "American Dream," and now it is a dream that is attainable for more people than ever before.
As a group and as individuals, the affluent are recognized and defined by their level of wealth,which today totals $61.7 trillion in aggregate. In this article we will provide analytically derived estimates on the size of the potential universe of ultra-high-net-worth clients.
The Size Of The Market
We often hear advisors lamenting the lack of wealthy clients and prospects. It's a pervasive complaint, but an unfounded one. Based on our analysis, there never has been a time or place with as many rich people as the United States has today. Despite some financial reversals over the past few years (a volatile and declining stock-market, for example), the appreciation of assets coupled with an economic and social environment that strongly rewards entrepreneurs has created a boom in private wealth. Consequently, there has been an increase in wealthy individuals, a need for those wealthy individuals to protect and manage their sizeable estates and an opportunity for advisors to offer their guidance and expertise.
The reality is that there are more than enough "rich people," but the tricky part is finding them and securing their business. We are frequently asked to help advisors understand and master the most effective methods of creating a pipeline of new, affluent clients. While these techniques are not the focus of this article, it is worth noting that wealth managers are more capable than investment generalists and product specialists of forging the professional relationships and cultivating the client satisfaction that can yield a steady stream of qualified, wealthy individuals who are receptive to financial advice and products. And part of being a wealth manager is expanding your repertoire to include-and building the partnerships to provide-all the products and services a wealthy client might need.
To calculate the size of the affluent market and, in turn, the size of the business opportunity,we developed an analytical model that revealed some favorable trends. The universe of private wealth is large and growing, which can have a direct influence on building a successful wealth management business.
The model used as its foundation previous analytic models we developed for similar purposes. Those models were updated, taking into account the actual and perceived differential of selected assets including business interests, real property and collectibles. Furthermore, and of critical importance to the current model, we took into account the impact of the "underground economy" in the United States on private wealth creation, limiting our model, we took into account the impact of the "underground economy" in the United States on private wealth creation,limiting our analysis to "tax avoision" and related activities. Any wealth created through illegal activities, such as drug dealing or money laundering, was excluded from the model. It is important to note that the model'sprojections include the high-net-worth that are subject to U.S. taxes, including estate tax, and is notrestricted to U.S. citizens, U.S. residents or individuals with a primarily domicile in the U.S.
We then leveraged the model's output to size the universe of individuals and/or families with a net worth of US$10 million or more. Exhibit 1.1 includes a best case, worst case and most likely determination for the number of affluent families.
Exhibit 1.2 displays the aggregate wealth controlled by these affluent families. For methodological purposes, the amount of private wealth per affluent family was capped at $2.6billion. Once again, we considered a best case, worst case and most likely calculation.
Without a wealth tax that some countries impose, it is impossible to know the exact size and scope of private wealth in the United States, and even with the use of statistical model modeling techniques there is a margin of error. Nevertheless, the model's output indicates a great many affluent families controlling are principally enormous wealth.
Core Characteristics Of The Super-Affluent
As noted previously, the affluent areprincipally distinguished by their wealth. Our extensive research and hands-on work with the high-net-worth shows that they have other common traits-five core characteristics that relate to the way they think about and use their wealth. They are:
complex financial and familial affairs,
a desire for control,
an extensive personal and professional network,
the ability to deploy their capital effectively, and
Of course, beyond these core characteristics, the affluent are as distinct and diverse as any group of individuals. It's your job as a wealth manager to understand both the general and specific details of each of your affluent clients, to be fully attuned to their similarities as well as their distinctions, which is why a comprehensive profiling methodology is so important.
By any measure, 721,000 wealthy families with an aggregate net worth of $61.9 trillion represents a large opportunity for adroit and focused advisors who offer a wealth management platform. Given the size, and likely complexity, of the estates in question it is probably fair to say that talented and capable estate planners and life insurance providers will benefit as well.
To capitalize on this opportunity, you must understand the wealthy at both strategic and tactical levels. Familiarity with the five core characteristics and other critical macro-perspectives can provide a proven strategic perspective and a philosophy on which your approach to customer interaction can be based. While this strategic perspective provides a broad, conceptual understanding of the affluent, you will still need to spend time getting to know individual clients well in order to work with them in a customized and consultative way.