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Middle-Class Millionaires, Part 2 

How CPAs can service this niche market.

July 19, 2007
by Lewis Schiff

In last month’s issue, I examined demographic data and real-life scenarios to gain more insight into who these Middle-Class Millionaires are. Now, we will examine what it is this group of affluent individuals requires from their investment advisors — and what is at stake if they don’t receive it.

Providing Outstanding Solutions

Just as the baby boomers transformed every aspect of the financial services business, the massive assets controlled by the fast-growing affluent middle class, combined with increasingly complex issues surrounding such wealth, are certain to have a transformative effect on the financial services industry over the next decade. Last month, I discussed how these Middle-Class Millionaires are a subset of affluent individuals who don’t act like multimillionaires, but who seek out support networks, advice and outside expertise at an unprecedented level. This group of affluent individuals has put us on the brink of a wealth boom.

Unfortunately, there is a gap between what the affluent want and what most financial advisors currently deliver. In stark contrast to the concern most Middle-Class Millionaires express about their financial security (90%), Prince & Associates’ research shows that only 15.4 percent of traditional financial advisors believe that 20 percent or more of their affluent clients are worried about losing their wealth.

According to Prince & Associates, 73.3 percent of affluent clients are either receptive to other advisors or will switch their advisor soon. Of those, 87 percent say it’s because of a “poor service relationship” while only a minority (13%) cite poor investment performance.

The good news is that 90 percent of affluent clients want to work with an advisor.

To take advantage of this new model, CPAs face a number of challenges, including:

  • Repositioning themselves to the firm’s affluent clients as a “problem-solver.”
  • Leading a more comprehensive discovery process than usual to uncover the totality of an affluent client’s financial picture.
  • Identifying several proven practitioners who specialize in working with the high-net-worth in the fields of estate, and charitable planning, investment, insurance and credit.
  • Establishing a compensation arrangement with these experts that satisfies all parties and navigates regulatory issues.
  • Coordinating, tracking and reporting all aspects of a “problem-solving” relationship with their high-net-worth (HNW) clients over years.

Rather than remain as specialists, CPAs who position themselves as problem-solvers can become their high-net-worth clients’ most valued financial counselors.

In addition to sharing in the fees and commissions generated by other experts, problem-solvers can further increase their revenues by consolidating their top clients’ assets — the average client with assets in excess of $1 million, according to Prince & Associates, has more than three advisors.

The Best Days of Your Career?

Already, the excitement — and the anxiety — the new affluent are causing among advisors is palpable. Along with the increase in household wealth are new questions: What expectations do my newly affluent clients have? Is my office capable of solving their problems? Are my partners and I well-versed in their needs? Are my institutional partners prepared for the creative and flexible solutions these clients will require? Most of all, will I be able to become their “problem-solver” profitably and productively?

Re-engaging your clients as a true problem solver, partnering to find expertise, and delivering targeted, collaborative solutions will ensure the best days of your practice are yet to come.

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Lewis Schiff is the principal of Advanced Planning Group, a private wealth specialist for accountants and advisors. His forthcoming book, The Middle-Class Millionaire, will be published in January 2008.