GOING THE EXTRA MILE FOR ADVISORS: Phoenix High-Net-Worth Market Insights AUGUST 2008 SO, YOU THINK YOU KNOW THE HIGH-NET-WORTH MARKET? If you are a regular reader of Phoenix s High-Net-Worth Market Insights, then you have come to know a lot about the high net worth (HNW) their wants, their needs and how advisors can serve them. For our August issue in the height of summer, we thought it would be fun to test your knowledge with a mini quiz on the HNW something you can do while relaxing at the beach or lake or in your backyard. We have put together a 10-question, multiple-choice quiz based on Phoenix market research, including from our annual Phoenix Wealth Survey and also focus groups held around the country. Besides the answers, we give you the facts behind the numbers to give you additional insights into this large and growing market. So, take the quiz and see how you score. Knowledge is power! WALTER H. ZULTOWSKI, PH.D. Senior Vice President, Research and Concept Development The Phoenix Companies, Inc. Going The Extra Mile for your clients starts with walking a mile in their shoes. Our insight into the lives and minds of the high-net-worth client can be your point of departure. 1. The top six states with the greatest estimated number of HNW households are California, Texas, Florida, New York, Illinois, and Pennsylvania, in this order. Number seven on the list is: a) Massachusetts c) Ohio b) New Jersey d) Georgia 2. The average age of today s HNW market is: a) 68 c) 59 b) 64 d) 55 3. When the Phoenix Wealth Survey began in 2000, nine out of ten HNW households indicated that they were Caucasian. In 2008, this percentage was: a) 92% c) 84% b) 90% d) 74% 4. What percentage of HNW households say that an inheritance was the single most significant factor in the creation of their wealth? a) 46% c) 17% b) 29% d) 9% page 1 of 5
5. The most important financial goal for today s HNW consumers is to: a) Assure a comfortable standard of living in retirement b) Protect their estate from the impact of taxes c) Assure that they will not run out of money in retirement d) Minimize their income and capital gains taxes 6. Overall, only about one-third (34 percent) of HNW households say that they have a formal written financial plan in place. Which of the following HNW market segments is the most likely to say that they have a written financial plan? a) Business owners b) Senior corporate executives c) Pentamillionaires (i.e., those worth $5 million+) d) Baby boomers Does she or doesn t she have a financial plan? 7. What percentage of HNW households indicate that there is at least one individually-purchased life insurance policy in force in their household? a) 86% c) 62% b) 71% d) 50% 8. What percentage of HNW households say that retirement is best defined as a period of continuing to work, either full time or part time? a) 47% c) 17% b) 38% d) 10% 9. What percentage of the HNW agree with the following statement: I believe real estate bought as an investment (outside of my primary residence, condo or second home) is safer than the stock market? a) 49% c) 20% b) 37% d) 12% 10. Fifty-nine percent of the HNW market say that they have a personal financial advisor. Of this group, what percentage say that they ve had this relationship for more than ten years? a) 80% c) 49% b) 65% d) 33% page 2 of 5
Retirement security is by far the most important financial goal of the HNW, and for them, it is more about protecting a lifestyle than running out of money. Survey Says 1. C Ohio In this country, wealth used to be located mostly on the East, West and Southern coasts. And, while it is still true that the largest number of HNW households is found along the coasts, in the last decade, greater growth in wealth has occurred away from coastal locations, mostly due to population migration, corporate relocations, and telecommuting. (Source: TNS s 2007 Affluent Market Research Program) 2. D 55 Over the nine years of the Phoenix Wealth Survey, we ve watched the average age of the HNW drop from the upper to the mid-50s, calling into question the traditional view that wealth is built only over a lifetime. Today, significant wealth can be created in a matter of years, if not months, through corporate bonuses and IPOs. See High-Net-Worth Generation X, July 2008. (Source: 2008 Phoenix Wealth Survey) 3. C 84% The HNW market is becoming younger on average and shows greater diversity racially and otherwise, another big difference between today s HNW market and the past. If you answered D (74 percent), give yourself partial credit. This is the percentage of HNW GenXers who are Caucasian. (Source: 2008 Phoenix Wealth Survey) 4. D 9% Fewer than one out of 10, or 9 percent of the HNW, reports that an inheritance was the most significant factor in making them wealthy. The majority of today s wealthy are first generation and probably have been for many decades, and their wealth primarily comes from the business they created and sold. Today, more than one-third, or 37 percent, of the HNW are business owners, and better than one-quarter, or 27 percent, of retired millionaires were business owners before they retired. (Source: 2008 Phoenix Wealth Survey) 5. A Assure a comfortable standard of living in retirement Retirement security is by far the most important financial goal of the HNW, as it also seems to be for most everyone else, even pentamillionaires, those with $5 million or more of assets, albeit at a lower level of importance. But retirement security for the HNW is more about protecting a lifestyle than running out of money. However, nearly one quarter, or 22 percent, of millionaires with net worth of less than $5 million say their most important financial goal is not running out of money in retirement. And better than one out of 10, or 14 percent, of pentamillionaires say this is their primary financial goal. (Source: 2008 Phoenix Wealth Survey) page 3 of 5 6. B Senior corporate executives Sixty-five percent of this segment say they have a formal written financial plan but, interestingly, senior corporate executives with such a plan are also among the least likely to say the plan is important to their overall financial planning efforts. One reason may be that many senior
corporate executives get financial planning for free as an employment perk and they may not value something they don t pay for. Whatever the case, this segment may not be as saturated for financial services as it is often thought to be. More interesting data: the percentage of business owners, pentamillionaires and Baby Boomers with written financial plans is 34 percent, 52 percent and 35 percent, respectively. (Source: 2008 Phoenix Wealth Survey) The percentage of business owners, pentamillionaires and Baby Boomers with written financial plans is 34 percent, 52 percent and 35 percent, respectively. 7. C 62% This speaks to the fact that the HNW market is underpenetrated when it comes to individual life insurance ownership. This ownership percentage also doesn t vary by more than three percentage points among generations of HNW consumers 61 percent for the Silent Generation, 65 percent for Baby Boomers, and 59 percent for GenXers. However, the type of individual life insurance owned does vary with age. Only 29 percent of GenXers own permanent life insurance, compared to 42 percent for the Silent Generation and 37 percent for Baby Boomers. Only 40 percent of GenX households own term life insurance, compared to 30 percent for the Silent Generation and 49 percent for Baby Boomers. (Source: 2008 Phoenix Wealth Survey) 8. B 38% One of the major findings in this year s Phoenix Wealth Survey is the HNW s pessimism about the economy and how this is affecting what they expect their lifestyle will be in retirement. See Retirement in the High-Net-Worth Market A Changing Picture, May 2008. HNW millionaires appear to be doing two things in response one is to adjust their expectations of what constitutes a comfortable standard of living in retirement and the other is to continue working in some capacity. In fact, almost four out of 10 of the HNW view retirement as a time of continued employment 28 percent part and 10 percent full time. How things can change. In the late 1990s when equity markets were going higher and higher, a major theme to emerge from focus groups of HNW consumers was the desire to retire early. We rarely hear that today except from the GenX segment. (Source: 2008 Phoenix Wealth Survey) 9. A 49% Almost half of the HNW say that investment real estate is a safer investment than the stock market. Of course, this survey was conducted in the first quarter of this year when the sub-prime mortgage situation was not yet widely understood to be a real crisis. However, even now this attitude probably hasn t changed much. This is because HNW consumers are really focused on commercial real estate that generates an income when they talk about investment real estate in focus groups. And that is consistent with their desire to secure income streams for their retirement years. Interestingly, this view of real estate being safer than stocks seems to be more prevalent among HNW GenXers some 65 percent with 61 percent also saying it is a better investment than the stock market. (Source: 2008 Phoenix Wealth Survey) page 4 of 5
10. D 33% The percent of HNW consumers who report having a primary financial advisor is at its lowest point in the almost 10 years of the Phoenix Wealth Survey. Moreover, of this group, only one-third say that they've had this relationship for ten or more years. This means that only 19 percent of HNW households have a longstanding relationship with a primary advisor. At first, this may sound negative. But, for advisors doing a good job in providing their clients with a holistic advice, it could be a great time to secure more loyal clients. (Source: 2008 Phoenix Wealth Survey) So, how did you do? IF YOUR SCORE OF CORRECT ANSWERS WAS: 7-10 You are probably a HNW millionaire yourself 4-6 You definitely have potential to be a successful advisor to the HNW market 1-3 You need to keep reading this newsletter Hope everybody enjoys the remaining days of the summer! page 5 of 5 IN THE NEXT ISSUE: Understanding The High-Net-Worth Business Owner The Ninth Annual Phoenix Wealth Survey was conducted by Harris Interactive between February and March 2008 and comprised online interviews with more than 1,900 randomly selected high-net-worth individuals (net worth of $1 million or more, minus any debt and the value of their primary home). In all aspects besides their net worth, respondents were demographically representative of the U.S. population as a whole. The survey has a sampling error of +/- 2.2 percentage points. Asset Management provided by Phoenix Investment Partners, Ltd. through its subsidiaries. Insurance and Annuities issued by Phoenix Life Insurance Company (East Greenbush, NY), PHL Variable Insurance Company (PHLVIC) (Hartford, CT) and Phoenix Life and Annuity Company (PLAC) (Hartford, CT). PHLVIC is not authorized to conduct business in NY and ME. PLAC is not authorized to conduct business in CA, GA, MA, ME, MN, NH, and NY and not authorized to conduct variable universal life insurance business in ID and LA. The insurers referenced above are separate entities and each is responsible only for its own financial condition and contractual obligations. Securities distributed by Phoenix Equity Planning Corporation, Hartford, CT. Members of The Phoenix Companies, Inc., One American Row, P.O. Box 5056, Hartford, Connecticut 06102-5056 phoenixwm.com For Producer Use Only. Not For Use With The Public. CC95A 2008 Phoenix Life Insurance Company 8-08 BPD35876