Where should advisors be focusing their efforts? Consider business owners. People like Justin Ross, owner of the baseball bar Justin’s Café. Or Kelli Harrington, proprietor of Zen Spot yoga spas in Oregon.
Personal wealth is concentrated in the hands of American business owners like these -- to such a degree few financial advisors can imagine it.
According to an analysis of the Federal Reserve’s 2013 “Survey of Consumer Finances,” 23.8 percent of business-owning households in America had annual incomes of at least $200,000. Only 5.9 percent of non-business owners did. Raise the threshold to $500,000 and the disparity looms larger: 9.2 percent for business-owning households while only 1.6 percent of non-business owners took home that much.
Despite the fact that there are 10 times as many non-owners in America, business owners accounted for one out of every three families with at least $200,000 in annual income. For those with $500,000 in income, the number exceeds two out of every five.
Another sobering statistic is that 38.8 percent of business-owning households had total personal assets of at least $1 million. Only 11.3 percent of non-business owners had that much. Almost three out of 10 millionaire American families are business owners.
Go to an upscale neighborhood and chances are good the biggest home on the block with the biggest big screen TV is occupied by a shopkeeper, a factory owner or a service vendor (and family).
In addition to being wealthier on average than nurses, truck drivers and other workers, business owners tend to have a greater appetite for risk with their money and are more certain of positive outcomes.
“Business owners by their very nature are extremely optimistic,” said Cleveland-based Ameriprise advisor Eric Tolbert, who sits on the board of the National Small Business Association. “They always think tomorrow will be better where the general public doesn’t. They believe they can make 20 percent, 30 percent, 40 percent if they put their profits back into their companies.”
Still, business owners need sound advice and face different challenges than other people. Tolbert said it can be especially tough to talk a business owner into protecting his or her family’s finances by diversifying savings out of a single asset.
“That’s a conversation I would never have with a policeman. That’s a conversation I would never have with a teacher,” he said.