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.

For middle class millionaires today, there remains a solid commitment to traditional middle class values such as a responsibility to family. This takes many forms. For example, middle class millionaires are one of the driving forces behind the explosive growth of concierge medicine. The advantages provided by this, such as quicker access to health care, are something many middle class millionaires are quite willing to pay for.

Middle class millionaires tend to see college and professional schools as the appropriate path for their children. What they don’t want to do is saddle their children with debt from paying for their own educations. Consequently, they’re often very willing to shoulder the debt instead.

Middle class millionaires continue to be incredibly achievement-oriented. They were, and many still are, (fair to say) obsessed with digging themselves out of the hole they dug for themselves at the end of Act I. Meanwhile, the middle class millionaires who skipped the first act have often learned by close observation to avoid the mistakes of being overconfident by believing that their future earning power will only increase along with their investments.

The mind-set and behaviors that are regularly essential to creating substantial personal wealth have not changed (in centuries) and remain critical to the ability of these people to resurrect their fortunes or create new ones. We refer to this as “millionaire intelligence,” exemplified by their:

• Commitment to personal wealth creation;

• Concentration of efforts on high-return endeavors such as business ownership;

• Willingness to compensate everyone involved who helps them build their fortunes;

• Focus on strengths and readiness to delegate those things they are weak at; and

• Strategic approach to networking to create relationships that produce money instead of only friendships.

One of the key differences between middle class millionaires today and those of about a decade ago is their sense of caution when it comes to their financial lives. There is a strong consensus that everything does not continue to increase in value. Even with the stock market’s breathtaking ascent, middle class millionaires have firsthand experience with the aftereffects of bubbles bursting. And they know that when some asset bubbles burst, such as those in real estate, the values do not come back for a long, long time.

There is greater self-reliance than before, and this is from a very self-reliant cohort. A sizable percentage of Act I middle class millionaires said to themselves something along the lines of, “If this doesn’t work (a major investment for instance), I still have the time to recoup.” For them, now is that time. They will not get another chance, and they are looking—with deteriorating bodies making it harder to work the long hours—to come back (cue Survivor: “Eye of the Tiger” for the last time).

Special Feature: Implications For Financial Advisors
Their very personal experiences, with the meltdown feeding their sense of caution, translate into the ways they are likely to work with financial advisors. Trust in Wall Street (the symbol) as well as in financial advisors (the professionals on the ground) is and, in many cases, will remain somewhat strained. This results in middle class millionaires diversifying among financial advisors and in running some of the investments themselves. They are also experimenting with robo-advisors and are, for the most part, finding them worthwhile for some of their investable wealth. Now they have a way to make honest comparisons.

The influence of affluence phenomenon is still strong and, in some cases, because of social media, even stronger. Middle class millionaires, however, are less inclined to refer their connections to financial advisors or other providers. This limits the blowback, which they more readily see as possible, if their recommendations do not pan out. Still, there are methodologies that financial advisors can employ to effectively leverage the powerful networks middle class millionaires have and that offer a steady stream of high-quality referrals. One big difference is that the onus is, for the most part, completely on the financial advisor.

With the middle class millionaire making a comeback, failing to connect and work with them will likely result in many financial advisors being marginalized and even a percentage of them exiting the business. On the other hand, for those financial advisors who are able to meaningfully connect and work with them, middle class millionaires will likely be very important clients in an increasingly hyper-competitive environment (cue Queen: “We Are the Champions.”)


Russ Alan Prince is president of R.A. Prince & Associates Inc. and executive director of Private Wealth magazine.

Brett Van Bortel is director of consulting services for Invesco Consulting, the sales consulting group within Invesco Distributions Inc. The opinions expressed are those of Russ Alan Prince and Brett Van Bortel, and are based on current market conditions and subject to change without notice. These opinions may differ from those of other Invesco investment professionals.