The Wealth Dynamics of Ultra-Affluent Households (UHFA)
Significance:
The pandemic had a positive impact on high-asset households. In 2020, the United States saw an increase of 1.73 million millionaires, making wealthy U.S. households (HHs) one of the fastest-growing demographic groups in the country. According to the MacroMonitor, by 2022-23, the number of U.S. households with $3 million or more in financial assets represents 3.2% of all households, totaling 4.6 million. Factors such as two-income professional households, households headed by C-suite executives, surging stock markets, accessible financing, and reduced taxes have facilitated the accumulation and preservation of wealth among households. Notably, approximately half of all assets in the U.S. are held by households with $3 million or more in financial assets (FA), and half of these assets are owned by households with $10 million or more.
Contrary to frequent media reports of individuals striking it rich in high-tech, sports, or entertainment, the majority of UHFA households acquired their wealth through traditional means: either through earnings or inheritance. Over the past decade, the number of households with $3 million or more in FA has tripled, while households with $10 million or more in FA have seen an astounding 1100% increase, rising from 68,000 to over 750,000. This growing number of millionaires presents an opportunity for financial providers and advisors seeking to serve them. However, it’s essential to note that most affluent households already have established financial relationships. The critical concern lies in the eventual transfer of assets. To effectively retain assets under management (AUM), financial providers must establish relationships with the households where these assets are headed.
Background:
The combined investable assets held by the top 3.2% of households amount to $27.5 trillion, surpassing the total assets held by all other households combined, which stands at $26.5 trillion. The wealthiest 0.5% of households possess a staggering $11.2 trillion in investable assets.
The demographic profile of UHFA HHs follows certain patterns. More than 60% of household heads with financial assets of $3 million or more are retired, and nearly 70% are aged 60 or older. Additionally, 80% of these individuals are male, and 90% are of white ethnicity. However, it’s worth noting that only 75% of them hold a four-year college degree or higher. A degree from a prestigious institution not only serves as a gateway to management positions but also provides access to a valuable network of contacts.
A significant portion of UHFA HHs’ income is derived from investments and retirement funds, as opposed to salaries. HHs with $10 million or more in financial assets are three times as likely as the general HH population to own a business, with 22% ownership compared to 7%. Nearly all of them own their own homes, with nearly 40% also possessing additional real estate such as vacation homes (24%) and income-generating real estate (15%). While seven in ten are married, only 15% have dependent children.
Background:
UHFA HHs use various products and services and make more financial transactions than less wealthy households. Although comfortable with online and non-personal forms of economic interaction, they prefer some face-time acknowledgment and conversation with their financial advisors and institutions. Many enjoy the considerable time it takes to manage their finances, but nine in ten UHFA HHs have at least one financial advisor. Wealthy households prefer brokerages to banks for investing and are twice as likely as less affluent HHs to consider a stock brokerage as their primary financial institution. All UHFA HHs are ‘stock enthusiasts,’ and ESG issues sway few. In addition to traditional assets in their well-diversified portfolios, these HHs have moreinvested in gold, art, stamp, and coin collections thanHHs with less than $3m in FA. Without the need to follow a budget, most UHFA HHs haven’t changed their spending habits in years and have no plan to do so. On average, HHs with more than $10m in FA report they need an average of $25k a month to retire comfortably. Seven percent of HH heads with $3m+ are working beyond retirement age; half are doing so because they enjoy the work; one-quarter are working for the income. UHFA HHs’ concern about future generations—children and grandchildren—is evidenced by the high number that establish trust funds and set up donor-advised funds.
Insights
- The increasing number of wealthy households (and the amount of wealth they control) is a growing opportunity for financial providers who cater to this segment.
- Regardless of the amount, trillions in assets will change hands over the next five, ten, or twenty years; increasingly, these hands will be attached to women and people of color.
- As competition for this desirable segment increases (pressuring margins and profits), differentiating your offerings will depend less on your products and more on your services.
- One strategy to consider to maintain, retain, and grow AUM is to establish meaningful (but currently marginally unprofitable) relationships with potential beneficiaries to meet their current needs and establish trust in anticipation of their inheritance.
Contact MacroMonitor_Team @rfi.global with questions or for more information.
Don’t miss the next in the series of 2-minute Brief video recaps about UHFA HHs on RFI Global MacroMonitor.
Subscribers to the Ultra-High Financial Asset Oversample Study receive a curated Excel Data Profile, a report, and an At-a-Glance percentage of critical data points across three populations. Data were collected in December 2022 and January 2023. For more MacroMonitor Trends, stay tuned on RFI Global, RFI Global on LinkedIn, or email us on MacroMonitor_Team@rfi.global.
About the Author
Larry Cohen is Director of The MacroMonitor,the largest and longest running syndicated program on household financial needs in the US today. Since 1978, this program has been providing a holistic understanding of the evolution of consumers’ financial needs.
Larry consults with all types of financial services institutions, associations, government agencies, and universities on consumer financial services such as macroeconomic trends, segmentations, new product and market innovations, strategic planning, and direct marketing.
Prior to working at RFI, Larry was Vice President and Director of Consumer Financial Decisions (CFD) with Strategic Business Insights (SBI), an employee-owned spin-off from SRI International. Larry holds an M.B.A. from the Graduate School of Management of Rutgers University (Newark, New Jersey), and a B.A. in interdisciplinary social sciences from Syracuse University (New York).
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