Act I: The Party is Over!
In the late 20th century, a segment of the high-net-worth population, referred to as “middle class millionaires,” emerged. They were the “working rich.” With a net worth of a million dollars or more (often much more), they were raised in traditional middle class homes and adopted what can loosely be described as middle class values. Very importantly, in spite of their wealth, they defined themselves as middle class.
Through their efforts, their personal fortunes grew. Nevertheless, they did not have the level of wealth or perceived financial stability to stop working. At the same time, they created lifestyles for themselves and their families that were often expensive to maintain.
The core of this cohort of millionaires was their grounding in many traditional middle class values. In contrast to the majority of the middle class, for instance, they were incredibly achievement-oriented. For the most part, they were exceptional earners who spent large to give their families a more rewarding and enjoyable life replete with options they themselves did not have growing up.
For financial advisors as well as a multitude of other types of providers, middle class millionaires were exceptionally attractive and profitable clients. Not only were they appreciative of the expertise of financial advisors, they were generally fairly cost-insensitive, but also they epitomized the phenomenon known as the influence of affluence.
The influence of affluence is where the middle class millionaires, because of their personal and professional networks, combined with their position of respect within these networks, were able to drive plentiful business to the professionals and other providers they thought were high quality. So if a middle class millionaire felt that his or her financial advisor was very good, that professional would get to see a fairly steady stream of new prospects. These referrals did not need to be prompted by the financial advisor since the middle class millionaire was doing all the driving.
Times were good. Then the Great Recession came along. The death knell for the middle class millionaire was 2009. Most made it relatively unscathed through the previous year, but in 2009, everything started to melt down for the preponderance of them. Housing prices crumbled, and the ability to sell a house without taking a significant loss was rare. Keep in mind that many middle class millionaires invested in very expensive personal real estate thinking prices would only rise. The various stock markets also sank. From discretionary accounts to retirement accounts, the middle class millionaires were much poorer.
What was more crushing for most of them was the adverse impact the Great Recession had on their incomes. With their assets losing value, middle class millionaires were dependent on their cash flow, and that was shrinking. However, the cost of their lifestyles—much of it at this point was not very variable—remained quite expensive.
Downsizing (by default) became vogue. For some, a reordering of priorities was the answer. Most of them, sometimes in quiet desperation, recommitted themselves to coming back (cue Survivor: “Eye of the Tiger.”)
What’s important to realize is that the middle class millionaires were not—by any stretch of the imagination—the only ones hurt by the Great Recession. In fact, they weathered the storm better than most. For them it was many times about shedding luxuries, rarely necessities. However, this fact, while providing important perspective, did not make them feel that much better. Generally speaking, they wanted a strong second act (recue Survivor: “Eye of the Tiger.”)
Act II: The Resurgence of the Middle Class Millionaire
Nearly a decade later, middle class millionaires are indeed bouncing back. Again, they have amassed a net worth of a million dollars or greater—most much greater. Again, very importantly, they define themselves as middle class, holding on to the same core values as before.
There are plenty of differences between the middle class millionaires in Act I and in Act II, though, even if they’re the same people. For instance, the business environment has changed. Quickly expanding technologies, such as social media, have reshaped many forms of communication. The world of the financial advisor is also appreciably different. All this and more have produced a new version of the middle class millionaire. While the foundation—the principal values and focus on achieving personal wealth—has remained the same, the way they actualize their agendas, including the way they work with financial advisors, has metamorphosed.
The Resurgence Of The Middle Class Millionaire In Two Acts
July 1, 2015
Act I: The Party is Over!