Why Advisors Should Focus on the Emerging Affluent

About half of financial advisors (55%) plan to target emerging and mass affluent investors in the next five years. But will these investors actually move up the wealth ladder? In its "7th Millionaire Outlook," Fidelity Investments concludes that emerging affluent investors are not only well positioned to attain millionaire status they may even exceed it.

Fidelity surveyed the emerging affluent, mass affluent, millionaires and deca-millionaires to evaluate their ability to build wealth. It identified the emerging affluent as having the greatest potential for building wealth based on six factors. The emerging affluent are defined as those aged 21-49, with investable assets of $50,000 to $250,000 and a household income of $100,000 or more. (For related reading, see: How Retirement Attitudes of Baby-Boomers and Gen-Xers Differ.)

The emerging affluent don't look like today’s millionaires. Most (more than two-thirds) are female and a quarter are non-white. That said, they share many of the attitudes and behaviors of current millionaires.

“We’ve been pointing out for years how unique the next generation of investors is, but in reality, they exhibit many similarities to today’s millionaires - even the deca-millionaires,” said Bob Oros, head of the registered investment advisor (RIA) segment, Fidelity Clearing and Custody. “These similarities should motivate advisors to broaden their client base beyond the traditional millionaire and give all investors confidence in their ability to move up the wealth spectrum.” (For related reading, see: The Changing Wealth Demographic — And How to Leverage It.)

With median assets of $250,000, the emerging affluent don't appear to be millionaires in the making, but the study found that they exhibit six wealth-building factors that many millionaires and deca-millionaires display. (For related reading, see: 3 Stocks to Benefit from the Trillion-Dollar Wealth Transfer.)

Time Horizon: Emerging affluent investors are 40 years old on average and have 27 years left before they reach the typical retirement age of 67.7. Only 1% is retired.

Career: Many of the emerging affluent has pursued similar careers to today’s millionaires. They include finance, accounting and information technology. They might hold relatively junior positions compared to millionaires, but still have time to move up the career and salary ladder.

Income: The median annual household income for the emerging affluent ($125,000) is 2.5 times the median U.S. household income and is nearing the income of today’s millionaires ($200,000 for those still employed).

Self-Made Status: About eight in 10 emerging affluent investors have earned or increased their assets on their own, a trait they share with millionaires and deca-millionaires.

Long-Term Focus: Both the emerging affluent and millionaires have a long-term focus when it comes to investing. Three in four of both segments are focused on the long-term growth of their assets and three in 10 are focused on supporting the lifestyle they want in retirement.

Investing Style: Like deca-millionaires the emerging affluent are willing invest aggressively to help maximize returns and set aside a significant portion of their portfolio for riskier investments. Both are also most likely to describe themselves as self-directed investors.

Financial advisors looking to attract the emerging affluent should take note that 68% are female and a quarter are non-white and cater to the need of these groups, Fidelity advises.  

Only 24% of the emerging affluent is knowledgeable about investing. They are interested in learning more about typical assets classes such as stocks, bonds, mutual funds, certificates of deposit (CDs) and real estate. (For related reading, see: Retirement: Which Generations are the Best Savers?)

The study also suggests engaging this group of investors early. One-quarter of the emerging affluent not working with an advisor believe that advisors aren’t interested in working with them because of the level of assets they have to invest. But half think advisors are important to achieve investment success. (For more, see: Now is the Time to Snag Gen X Clients.)

Sixty-percent said they would be more likely to work with an advisor if fees were lower. Fidelity suggests that advisors offer a fee structure with a scaled back set of services.

Advisors should also engage both spouses as 52% share decisions when it comes to investing. (For more, see: Strengthening Relationships with Women Clients.)

The emerging affluent of today are well positioned to be the millionaires of tomorrow presenting opportunity for advisors. To attract this group of investors, advisors need to engage this group early on, cater to their diversity, educate them and adjust fees and services accordingly. (For related reading, see: Financial Advisors Need to Seek Out this Group NOW.)