Doctors, lawyers and dentists spend many years, sometimes a decade, in the pursuit of their career goals.
In order to get their degrees, a great deal of money was spent, and many of these future professionals went into personal debt to pay for their college and graduate education. That money was an investment in their future, and those future investors understand the value of investing.
The investment these doctors and lawyers put in themselves and their future pays off, as many become wealthy as a result of their profession. They eventually become investors and work with financial advisors to secure their financial futures and the financial outlook for their families.
Spectrem research segments investors by occupation, and professionals are compared to business owners, senior corporate executives and managers in the Ultra High Net Worth segment, in which investors have a net worth between $5 million and $25 million. What the research shows is that professionals are, in general, steady and careful with their investments.
“Our occupational segmentation is as revealing as our segmentation by age, gender and advisor dependency,’’ said Spectrem president George H. Walper Jr. “When an advisor finds out the occupation of an investor, it is possible to have some preconceived notions about their investing habits.”
According to Spectrem’s study of assets and portfolios, what is most revealing about UHNW professionals is that they invest with an eye toward securing their financial future. Asked in Asset Allocation, Portfolios and Primary Providers to portray the investment objective of their portfolio, 41 percent of professionals choose “security’’ over “growth’’ and income”. Only managers even come close to having the same opinion about investing.
This investing preference coincides with the preferred investment strategy of professionals. Given a choice of seven investment strategies, from conservative to active to contrarian, almost half of professionals state their have a passive buy-and-hold investment strategy, that calls for making investments and holding them to allow them to grow rather than playing the market and making frequent transactions.
The goal in that strategy is to keep transaction costs down and to invest in products and companies that will grow over time. They prefer not to pay attention to the short-term events but rather consider the long-term implications of their investments.
Proving the point from a statistical standpoint, even among Millionaires with a net worth between $1 million and $5 million, 43 percent of professionals say they have that passive buy-and-hold investment strategy.
Professionals are also more likely to own life insurance. Almost three-quarters of UHNW professionals have life insurance policies, a much higher percentage than investors in other occupations.
The Spectrem study also looks at how investors spend their money, and professionals have two very clear preferences for personal expenditures. Perhaps because they spent so much time acquiring the knowledge, degrees and licenses they needed to practice their profession, professionals spend much more than investors in other occupations on vacations. Among UHNW investors, almost half spend $15,000 or more on vacations annually, and almost one-quarter spend at least $25,000. No other occupation comes close to spending that much on time off.
They are also more likely to spend money on entertainment. Whether it is tickets for the arts such as symphonies and plays or sports tickets, professionals spend much more than investors in other occupations on those forms of entertainment.
Top Takeaways for Advisors
Spectrem’s occupational segmentation can provide advisors with a snapshot of habits and attitudes held by investors in the aforementioned occupations of professionals, senior corporate executives, business owners, managers, educators and information technology. Understanding an investor from an occupational standpoint can clear the way for preferred investment decisions and investor satisfaction down the line.
Another revealing research point from the occupational segmentation is in liabilities, and young professionals may still have outstanding loans either for their education or for the equipment they use in their profession. Advisors should consider the occupational financial hazards that exist for investors as part of their investment strategies.
©2017 Spectrem Group