By The Way, I’m a Millionaire

This article was written for the launch edition of Money and More Magazine, June/July 2006

By The Way, I’m a Millionaire
By: Sharon Rockey

Remember when you couldn’t use the words ‘middle class’ and ‘millionaire’ to describe the same person? Well . . . times have changed.

According to a 2005 report by TNS Financial Services, a market research and polling firm, there were 700,000 more millionaire households in the U.S. than the previous year. We’re not talking about trust fund babies born into wealthy families. Nearly 80% of these millionaires are first generation and they didn’t get there by winning the lottery.

Most have reached millionaire status gradually and diligently through a combination of salaries, long-term investing, wise savings plans and living within their means. Even though the financial industry has dubbed them “Middle-Class Millionaires” (MCMs), most do not think of themselves as wealthy, and some are even surprised to learn that they have become millionaires. The largest percentage are between ages 45 and 65, where wealth helps relieve the burden of caring for aging parents and paying for college tuition. About one in five are retired and the rest come from all walks of life including small business owners, blue collar workers, farmers, executives, and professionals.

Typically, MCMs avoid the ostentatious trappings of the upper crust. In fact, the TNS report noted that 61% claim they have not made any major lifestyle changes. There is no mass exodus to gated country club estates, no run on imported luxury auto showrooms, and most are still sticking to the same basic investment strategies with, on average, 20% of their incomes being invested every year.

However, with greater resources now available to them, they are turning to financial advisors for guidance in selecting and managing more sophisticated products. Mutual Funds served their purpose in the past, but now they want something in line with their new status, particularly since their tax situation has become more complex.

Financial advisors are actively building relationships with the nouveau riche and consider them ideal clients. They are not living over-the-top lifestyles, so their financial goals are easier to meet. But the investors do expect a lot from their advisors, like investment performance, quality service, ability to resolve problems, and they want advisors to be familiar with their specific situation so they know which products to recommend.

When Merrill Lynch commissioned Prince and Associates to survey 329 MCMs with liquid assets totaling between one and three million dollars, the favored product was the managed account because they are customizable, tax efficient, and have an all-inclusive fee.

With the rising demand, financial institutions are developing planning services designed specifically for this market, which is projected to expand well into the future. The TNS study found that not only did households with a net worth of at least $1 million increase 8% to a record high 8.9 million-which includes households with a net worth between $100,000 and $500,000, or 24.5 million households in 2005, up from 23.9 million in 2004-the number of emerging affluent households is also on the rise.

Factor those numbers in with the results of a study by the Social Welfare Research Institute at Boston College. If their projections are correct, over the next 50 years between $41 trillion and $136 trillion will be passed down from baby boomers. Expect a lot more middle-class millionaires in a neighborhood near you. $