Though the Great Recession ended six years ago, advisors, economists and ordinary Americans continue to debate why the recovery has been so tepid until the last year.

Some lay the blame at the different nature of the downturn. Digging out of a financial crisis involves deleveraging, so the normal snapback when the economy turns the corner typically is more subdued.

Others attribute the weak rebound to excessive post-crisis regulation and misplaced policy priorities. Had the government focused on growth and infrastructure in 2009 and 2010 instead of health care reform, business activity might have bounced back much faster.

There can be no argument about the recovery in the RIA business, however. As Jeff Schlegel reports in our annual RIA survey starting on page 50, the average advisory firm saw its revenues rise 13% last year after a 20% gain in 2013.

What’s interesting is that in its early days, business in the RIA space was driven by a nascent exodus of brokers from wirehouses who were able to take clients with them and win new business with a superior value proposition. Two decades later, the exodus continues, but the RIA market is almost as crowded as the wirehouse world. That makes today’s growth all the more impressive.

As Russ Prince and Brett Van Bortel write on page 47, the primary clients of most advisors, middle-class millionaires, have experienced a tumultuous ride over the last two decades. Having survived two of the most powerful bear markets in the last century, they are also more cautious. Providing for their families and achieving financial independence are typically the most important goals for these clients, and these two goals can often conflict with each other.

They view college and professional schools as appropriate places to set their children on the right career path, and they are willing to pay extra for concierge medicine. In other words, they may retain their frugal middle-class values, but they are willing to spend on what’s important to them.

The intergenerational implications of their role in society should not be underestimated. As Amanda Lott writes on page 35 about proposals by Chris Christie and others to means-test Social Security, the fallout from such a move could have unintended consequences. Lott cites a J.P. Morgan survey comparing changes in spending between 65- and 90-year-olds with between $1 million and $2 million that found spending on education increased almost as much as outlays for health care. If grandparents in this retirement income bracket were means-tested for Social Security, Lott concludes it is reasonable to assume they’d cut spending on their grandchildren’s college before health care.

Many economists and others have lamented the fact that our nation’s entitlement structure results in spending six times more on people over 65 years old  than those under 21 years old. The point is valid. But it doesn’t mean there aren’t feedback loops to compensate for this imbalance.

Evan Simonoff
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