Perhaps history will judge the end of the 20th Century as the democratization of wealth in the United States. The simultaneous growth of 401(k) plans, a glut of online financial information and the frenzy for tech companies ignited the equity markets and turned stock investing into a national pastime. Legions of everyday folk joined the ranks of millionaires-or, at the very least, half-millionaires.

The recent bull market spawned the rise of a group known as the emerging affluent. Loosely defined, this category of nouveau riche included people with between $500,000 and $5 million in investable assets (excluding primary residences). Many were young and got rich quick by getting in on the ground floor of a hot tech start-up, receiving compensation in the form of options, and then watching them soar to dizzying heights. Others were older and attained their new status after years of traditional saving and investing. Either way, the group as a whole mushroomed during the latter part of the '90s. According to Spectrem Group, a financial consulting company, the number of households with a net worth of at least $500,000 jumped 43 % between 1996 and 1999. This had the makings of a bonanza for financial advisors because it expanded the potential client base, and larger portfolios mean higher fee income and a greater need for more profitable services.

Then the market tanked, and the ranks of the emerging affluent dwindled by 30% in 2001 alone. To put it into perspective, the 9.6 million households with at least $500,000 in 1996 grew to 13.7 million in 1999, only to sink back to 9.6 million two years later. The popular image of this phenomenon is that of young techie dot-comers who had it all and lost it. That's true to an extent because the wealthier tend to be more diversified since they usually work with advisors who practice asset allocation. "They're beyond the initial wealth accumulation stage, which is often concentrated in one or two holdings," says Scott Slater, a director at Spectrem.

Slater cites data showing that the number of households in the lower reaches of the emerging affluent-i.e. the $500,000 to $1 million group-was particularly hard hit, declining by 44% between 2000 and 2001. Households with at least $5 million in assets declined 9% during this period. In the end, many of the emerging affluent came and went, while wealthier individuals managed to hold on to most or all of their good fortune. Not every young geek lost his shirt, and not every older person held on to her stash. The experiences among this group varied, as did the experiences of the financial professionals who worked with them.

Even among those whose wealth has survived in relative health, the experience of the ferocious bear market has altered their outlook, according to Elissa Buie, principal of Financial Planning Group in Falls Church, Va. "People who weren't sitting on concentrated portfolios are OK," Buie says. "They are not panicking. If this keeps up, they know they may have to postpone retirement."

But she also finds that retirement isn't the dominant goal it once was for some clients. "Some people who were saying let's retire in three years are now saying let's get a vacation home and work for another seven years," Buie relates. "Many emerging affluent are hard-working and smart; that's how they got that way. Now they realize they have to save a little more."

The experience of Buie's clients who disregarded her advice to diversify hasn't been so fortunate. "The people who stayed concentrated are in denial. Denial takes a while to get over," she says.

Some are picking up the pieces and going out and starting new businesses even if they aren't facing up to their investing blunders yet. More worrisome is a new breed of prospect who comes in having lost 60% of their portfolio and look to make it back, revealing an unrealistic attitude.

The likes of Dell Computer and Vignette generated a heap of new wealth in Austin, Tex. John Henry McDonald, president of Austin Asset Management, saw firsthand the effect it had on Generations X and Y. "We had 25-year-old kids come in here with $3 million, $5 million, $8 million in options and they had no life experiences to prepare them for receiving or losing those dollars," he says. "They had maybe one job as a hacker somewhere, then got their next job at a software company paying options. We had a 30-year-old secretary from Vignette come to us with $3 million. For her, there's no book written about how to handle that."

McDonald told them to diversify their holdings away from their company stock, and they looked at him like he was crazy. "They'd say, 'Why should I diversify?'" he says. He stressed to them the notion of critical capital: the amount of money that, when conservatively invested, will maintain a person's current living standard for the rest of their life. The idea is to identify that amount, take it off the table and properly invest it, and let them do what they want with the rest.

In his fact gathering on potential clients, McDonald did something called planned purchases. "One of the lines we immediately went to is 'What do you want to buy?' The lists went on and on like it was Christmas." Then he'd show them the taxes they'd pay on their dream mansions, and introduced them to the concept of the alternative minimum tax. They furrowed their foreheads and proclaimed that their stock was going to double. Many of the twentysomethings and thirtysomethings who came to McDonald worked for Vignette, a content management software maker whose stock peaked at roughly $100 a share in early 2000 and recently traded at $1.00. "About 99.9% of them thought critical capital was absolutely ludicrous," says McDonald, who essentially struck out with this group.

Instead, his message resonated with a couple of Dell executives in their early forties. It also hit home for a another group of people around town he calls the pre-retirement set (45 to 60 years old), who saw their once robust portfolios fall from, say, $4 million to $2 million during the past couple years. For them, McDonald figured out their critical capital level, put that into a mix of municipal bonds and no-load, low-cost index funds, and told them they can draw from that for the rest of their lives. "Where do you want to be invested when you retire?" asks McDonald. "I want to be invested in my checking account."

Some professionals didn't want to deal with the unrealistic expectations of certain potential emerging affluent clients. "We had people come in here who fully expected 25% annual returns to never stop," says Robert Smoke, president of Seton Smoke Capital Management in Greenbrae, Calif. "We had one of those types as a prospect, and we told him he should look elsewhere because we didn't think he could get the results he expected and we didn't want to deal with the aftermath."

Located in the Bay Area, Smoke saw a sampling of the emerging affluent market and their attitudes from his perch in tech central. The love affair with tech stocks wasn't confined to the young, and Smoke got a lot of people in his office who lost between 50% to 80% of their portfolios with tech-happy brokers and advisors.

One potential client is a 70-year-old dentist whose $1 million retirement plan was chopped in half. He entrusted his money with a fellow dentist who in the late '90s decided he'd rather invest other people's money than get his hands wet, so to speak. Armed with money from several local doctors and dentists, this individual went on a tech-buying binge that cost his clients dearly.

The 70-year-old dentist, who still has two kids to put through college, hasn't yet signed up with Smoke's firm. "He's still on the fence because he's frozen like a deer in the headlights," says Smoke. "I've seen a number of people who are frozen and just can't accept the fact they've lost all of this money."

Smoke tries to educate both new and old clients about what's financially realistic. He employs a diversified approach of both U.S. and foreign equities, along with fixed income and real estate. "Our clients understand what we do and want us to do that," he says.

What's so unusual about the emerging affluent sensation is that historical patterns show that most people typically don't acquire enough assets to become millionaires until their fifties or sixties. For advisors, the million-dollar investible asset mark is often the threshold where they start steering clients away from mutual funds and more towards tax-managed separate accounts aimed at wealth preservation.

Art Ford, an advisor at Wealth Management Advisors in Tewksbury, Mass., says his emerging-affluent clients seeking wealth preservation tend to be baby boomers and older who cashed out and ended their pursuit of the Holy Grail. But it's not always that cut and dry.

In recent months Ford has given advice to a 60-year-old potential client who's holding onto Nokia and other former high-flyers because he thinks they'll rebound. The man makes $400,000 a year at a sales job and expects his pension to kick in $100,000 annually when he retires. He has more than $1 million in equities. "I don't think he's told me everything because I sense his portfolio used to be closer $3 million," says Ford. "He's in the wrong stocks at the wrong time."

Ford's been preaching the message of tax management, but the man doesn't want to hear it right now. "Let's say he's right and some of the stocks come back," says Ford. "He should be taking losses on some of the others so when he makes money on those he doesn't have to pay taxes."

Trying to land clients like that presents a dilemma or sorts. "Do I give him the right answer or do I tell him what he wants to hear to get his business?" says Ford. "I feel it's best to tell him the direct opposite of what he wants to hear."

Others have seen the light, perhaps to the extent of overreacting in the opposite direction. When Ford finally got a client in his mid-forties to cash out of the one stock that comprised the bulk of his portfolio, the client put the entire $4 million in CDs. "Once he sold his stake he got real conservative," Ford explains.

These days he finds that many clients just want to sit on their wealth and protect it once they reach a certain threshold. "Are you going to live any differently if you have $4 million or $6 million?" he asks.

Elizabeth Marks, an advisor with Seattle-based KMS Financial Services, hasn't had to do a lot of arm twisting with the emerging-affluent clientele she took on in the latter half of the '90s. Many were former Microsoft employees between the ages of 30 and 40, with kitties ranging from $2 million to $5 million. They ran the gamut from marketers to engineers, and they came in with a surprisingly level-headed approach to their money for sudden millionaires. Maybe it had to do with the fact that Microsoft is a relative granddaddy in the tech revolution and its employees were seasoned when it came to options and new-found wealth.

They'd already bought their toys and were ready to think smart about their money. "Most were willing to listen to ideas on how they could retire comfortably on roughly the same income they were making at Microsoft," says Marks. She put them into a conservative allocation of stocks and mutual funds. "Because of their age bracket, I didn't think fixed income would provide them with the desired income over their expected life span," explains Marks. For the same reason, she didn't put them into annuities in case there were unexpected problems and they needed capital for whatever reason.

While the Microsoft crowd might be set for life, the market slowdown has got some of them worried. "These are the ones calling to ask if they're spending too much money," Marks says.

Rather than blaming her or the market, they're taking a proactive approach to managing their own finances. "That's intriguing because the natural reaction to this kind of market is to say "you got me into this, now you get me out of this.'"

These days Marks tells them the same thing she tells retirees. Postpone major purchases until the market stabilizes. That's not a hard sell.

Not everybody who had options dumped on their lap got carried away. Laura Tarbox, president of Tarbox Equity, a financial planning firm in Newport Beach, Calif., had a client come to her three years ago after AOL bought his computer company. Armed with $2 million in options, he was reluctant to sell because of the tax consequences. "Getting clients in concentrated positions is always our biggest challenge," says Tarbox.

The client vacillated about selling because he believed in the company and he thought the options would increase. The subsequent descent of the stock price makes him less willing to sell because he's hung up on the thought of selling at a price far below their original value. "It was hard for us because we would've liked to cash him out, pay the taxes, and get him financially secure," says Tarbox.

This client, now 35 and with eight children, has a couple hundred thousand of dollars in IRAs but most of his portfolio is in AOL stock. When they last met in July, he decided to sell if his AOL options dipped below $400,000. It almost did before inching up slightly. Tarbox tries to stress that the stock will never reach its previous highs, and that he should sell at least a portion of his options if and when they recover a decent chunk of lost ground. "What's great is that he considered this to be found money that he never expected to get. He never changed his lifestyle. He was real nice about it all."

Other clients aren't as sanguine. In August, Tarbox met with a couple of clients in their thirties who own a successful public relations firm. Out of her 200 clients, they are one of six remaining in her aggressive portfolio. "We tried to talk them out of it, but they were very insistent," she says.

They'd been okay with it until that meeting when they saw their portfolio was down 40%. The person who was less involved in the investing process wasn't pleased and exclaimed, "Whoa, how'd we get there?" Tarbox, who documents everything on the Juncture database system, pulled out the records. "By the end of the meeting they kind of took some responsibility for where they're at," says Tarbox. "Still, they're hanging in with their aggressive portfolio."