Data & Research March 5, 2015

Emerging Affluent Investors Present Opportunity for Advisers

Emerging affluent investors are projected to attain, and potentially exceed, millionaire status, presenting opportunity for advisers.
Reported by

More than half (55%) of financial advisers intend to target emerging and mass affluent investors in the next five years, according to a Fidelity survey. These investors present attitudes and behaviors similar to today’s millionaires, despite differences in gender and race (two-thirds are female, and one-quarter are non-white).

“We’ve been pointing out for years how unique the next generation of investors is, but in reality they exhibit many similarities to today’s millionaires, even the deca-millionaires,” says Bob Oros, head of the registered investment adviser segment, Fidelity Clearing and Custody. “These similarities should motivate advisers to broaden their client base beyond the traditional millionaire and give all investors confidence in their ability to move up the wealth spectrum.”

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The study identifies six wealth-building factors impacting the wealth potential of the emerging affluent, including:

  1. Time horizon: A mere 1% of the emerging affluent is retired, while the average age of these investors is 40.
  2. Career: Many are pursuing professions such as information technology, finance and accounting. While they may currently hold lower-level positions than millionaires, they have the opportunity to move up the ladder in the years ahead.
  3. Income: The median annual household income for these investors is $125,000, two and a half times that of the median U.S. income. The median income for the emerging affluent is nearing the income of today’s millionaires: $200,000 for those still employed.
  4. Self-made status: Like many millionaires and deca-millionaires, approximately eight in 10 emerging affluent investors have earned or increased their assets on their own.
  5. Long-term focus: Three in four of these investors are focused on the long-term growth of their assets, and three in 10 are focused on supporting the lifestyle they want in retirement. Millionaires report the same statistics.
  6. Investing style: The emerging affluent reveal a willingness to invest aggressively in an effort to maximize returns. They are also willing to set aside a significant portion of their portfolio for riskier investments with the promise of a bigger payoff. Both the emerging affluent and deca-millionaires were most likely to describe themselves as “self-directed” investors, seeking hands-on involvement with their investments.

“To be a ‘millionaire in the making,’ investors should get in the game early and have a plan that will enable them to achieve their goals,” explains John Sweeney, executive vice president, Fidelity Investments. “While some may be interested in managing their finances themselves, may others don’t have the skill, will, or time to strategically grow their wealth. The latter should consider getting help from a financial professional, so they don’t lose the gift of the time horizon that is on their side.”

The Millionaire Outlook study surveyed emerging affluent, millionaire, and deca-millionaire investors, assessing their ability to accumulate wealth. More information in the full report is available here.

Compliance March 5, 2015

Retirement Security Act Introduced in Congress

Legislation has been introduced that would increase the cap on deferrals and matching contributions for safe harbor plans.
Reported by

U.S. Senator Susan M. Collins (R-Maine) has introduced the Retirement Security Act of 2015 (S. 266).

The bill provides that a qualified multiple employer retirement plan shall not fail to be treated as an employee pension benefit plan or pension plan solely because the employers sponsoring the plan share no common interest. 

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According to a statement on Collins’ website, under current law, one business’ failure to meet the minimum criteria necessary to maintain a tax-preferred retirement plan can endanger benefits for all multiple employer plan participants. The bill would direct the Treasury Department to issue regulations to address this issue. The bill also directs the Treasury Department to simplify, clarify and consolidate notice requirements for plans.

The legislation modifies the automatic enrollment provisions for safe harbor plans by offering an alternative method for meeting nondiscrimination requirements. Current law effectively caps employee contributions at 10% of annual pay, with the employer contributing a matching amount on up to 6%. The bill would create an additional safe harbor that would allow employees to receive an employer match on contributions of up to 10% of their pay. Employees would be able to contribute more than 10%, albeit without an employer match. The bill helps the smallest businesses—those with less than 100 employees—offset the cost of the additional match by providing a new tax credit equal to the increased match.

The legislation also directs the Treasury Department to modify Form 1040 EZ to allow taxpayers to claim the Saver’s Credit on that form.

Text of the bill is here.

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