The increase in the number of affluent Americans continues, while the process of passing wealth from one generation to the next continues to lag.
Spectrem’s Market Insights 2016 reveals that for the seventh year in a row, the number of Millionaires in the United States has grown. After topping the 10 million mark in 2014, the number of Millionaire Americans reached 10.4 million in 2015.
Similar growth was recorded in other wealth segments, up to and including investors with a net worth over $25 million.
The percentage of Millionaires also continues to climb. Among the more than 122 million households in America, 8.5 percent have a net worth of at least $1 million. That percentage was as low as 5.9 percent when the nation suffered its most recent recession in 2008.
Eventually, those investors with significant wealth will pass that wealth on to someone else. But, according to Spectrem research related to wealth transfer, there is a significant percentage of wealthy Americans who have not yet dealt with the issue of wealth transfer.
For advisors, the process of discussing wealth transfer with an investor who has not considered the topic could make for a lengthy set of conversations. But, if completed successfully, an advisor can find himself with not only a current client but a family legacy full of clients in the future.
The Spectrem report entitled Money in Motion: Asset Transfer and the UHNW determined that more than one-third of affluent investors say estate planning is the component of financial planning they are most likely to need help with from their financial advisor. That percentage is close to double the percentage of affluent investors who seek assistance related to Social Security benefits (19 percent).
The bad news for advisors is that, surprisingly, most investors do not intend to include their financial advisor in their estate planning. Sixty-four percent of investors overall do not plan to have their financial advisor involved in executing their estate plan, and that includes 57 percent of investors with a net worth between $5 million and $25 million.
“Even when investors choose not to include their financial advisor in plans regarding asset transfer and eventual wealth distribution, there are ways advisors can assist investors with their financial futures,’’ said Spectrem President George H. Walper, Jr. “Almost every decision an investor makes and an advisor considers has some ramifications on the investor’s future.”
An advisor can suggest to investors to make or update their will. A last will and testament allows an investor to state how their money and possessions are distributed upon their passing, and can include details on the guardianship of their minor children.
At the same time, advisors can suggest to investors that they consider establishing a personal trust in order to avoid the difficulty of probate court for survivors.
Sixty-nine percent of affluent investors leave their assets to their spouse and 70 percent intend to leave their assets to their children. Less than one-quarter have grandchildren in their sights, while 20 percent are leaving assets to a church or other charitable organization and 19 percent are leaving assets to another family member.
Life insurance is another investment vehicle advisors can assist investors with. While very wealthy investors often believe they have assets in other vehicles that can provide the same benefits of life insurance, less wealthy investors can be encouraged to consider policies that will benefit offspring when an investor passes.
Top Takeaways for Advisors
Many advisors are charged with handling the investments of an investor with no role in the eventual transfer of the investor’s wealth. In those cases, advisors can instead help an investor create savings vehicles that can be transferred with the least amount of tax bite or transfer difficulty.
Know whether your investor has an estate plan, and who is handling that plan. If no estate plan is established, be prepared to offer services that can start the process. When an investor has an attorney or someone else working on an estate plan, be prepared to offer advice in regards to how the investor’s portfolio is turned over when it is necessary.
Get to know the children of your customers. To the extent they know you and feel comfortable with you, the more likely they are to leave the assets with you to manage. Research has shown that beneficiaries generally wait at least a year to make a decision about moving assets. During that time, they are looking for someone to help them. Try to become that person.
*According to Spectrem research, there are currently 29.8 million households with $100,000 - $1 million in net worth (not including primary residence, NIPR). There are 9.1 Millionaire households ($1 million - $5 million net worth, NIPR), 1.21 million Ultra High Net Worth households ($5 million - $25 million net worth, NIPR) and 145,000 households with more than $25 million in net worth, NIPR.