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Facts and fortunes: 10 things you need to know to sell successfully to the wealthy.

The affluent market is appealing to financial professionals and to financial companies because of the estimated $11 trillion in investable assets that these households control. There are many players already serving the affluent market and a growing number of others entering the market because of its appeal. Competition for their business is fierce as everyone seeks a "piece of the action." Understanding the affluent market is critical for those who want to be successful in reaching and serving them.

Here are 10 key lessons to remember when dealing with the affluent.

* Affluent households stay financially fit even in difficult economic times, but they will "circle the wagons."

Only about one in 10 U.S. households is considered affluent, but those households control about 70%, of the wealth in the United States. As the recent downturn in the market started to negatively impact everyone's investment portfolios, the affluent made some adjustments. One-third moved assets to less risky investments, and one-fourth of the affluent switched some assets into vehicles with guaranteed rates of return.

They didn't stop at readjusting their investment strategies, but also cut discretionary expenditures. One in five affluent households delayed major expenditures for new cars, home remodeling projects or expensive vacations. In addition, one in 10 said they will wait longer to retire.

* Contrary to popular opinion, long-term-care insurance can be sold to the affluent.

Ownership of long-term-care insurance is currently low for the affluent. Only 17% of all affluent households and 26% of households with more than $3 million of investable assets own it. Why don't more of the affluent own this product?

The top three reasons the affluent do not have long-term-care insurance are the beliefs that:

* it is too expensive;

* they have enough assets to cover any future long-term-care needs, and/or

* they won't ever personally need it.

Despite concerns about high cost and denial that they will ever need LTC, the affluent have considerable interest in obtaining UFC insurance. One-fourth of the affluent without LTC insurance would consider buying it for themselves or their spouses. But what about affluent households that resist buying this coverage because they believe they can afford to pay for the care themselves?

Affluent households have a strong desire to leave an inheritance to their heirs: Leaving an inheritance is important to seven in 10 affluent retirees and almost six in 10 affluent preretirees. This strong desire to leave an inheritance can be used as a sales lead-in by financial advisers trying to sell LTC insurance. Sales representatives can position LTC insurance as a way to help protect estates and preserve assets for children and grandchildren. Using the right sales approach, financial advisers can sell LTC insurance to the affluent.

* The affluent are underinsured.

Different affluent segments have lilt insurance coverage, ranging in value from a median of just $150,000 (for those with $500,000 to $1 million in financial assets), to $300,000 (for those with $1 million to $5 million in assets) to an average of $1 million (for pentamillionaires). While the majority of affluent households have some life insurance coverage, given their vast wealth they are underinsured. These are very modest amounts of life insurance for individuals with such high assets to protect, and the coverage is inadequate to provide for wealth transfer and to help pay estate taxes.

* Affluent wives are vulnerable if their husbands die first.

The affluent are concerned about the wife's standard of living if the husband dies first--with 29% of married affluent households saying it is a major concern. Wives are more financially vulnerable after their spouse's death because men are more likely than women to have pension income that can decrease or even stop completely if there are no survivor benefits. An opportunity exists for financial professionals to work with affluent families to show them how they can use life insurance to replace income that might be lost from pension plans when a spouse dies.

* Affluent decision makers are either financial planners or nonplanners.

Half of affluent households do not have a long-term written financial plan. While it is true that as a household's assets increase so does its likelihood of having a financial plan, some affluent individuals are just not financial planners regardless of the amount of wealth they have. One-fourth of households with $3 million or more of investable assets have no long-term written financial plan. Many of those without financial plans believe they do not need one, so it is important to recognize that some affluent households are not good prospects for comprehensive financial plans but might still need other financial products and services.

Women offer the best opportunity for financial planning, since two-thirds of affluent women currently without a financial plan think they should have one. On the other hand, affluent men currently without a financial plan are true nonplanners--77% believe they don't need a plan, and they will present a difficult challenge to financial professionals targeting the affluent.

* Many affluent households have no formal retirement plans and have financial uncertainties as they approach retirement.

Amazingly, only one-fourth of affluent households planning to retire within the next two years have a formal written plan for managing their income, assets and expenses during retirement. This lack of formal planning leaves some affluent households uncertain about their ability to maintain a comfortable standard of living for their lifetime and also has them concerned about risks that could negatively affect the family's income. They are most concerned about how the prolonged market downturn and high health-care costs for prescription drugs, long-term care and other medical expenses not covered by their medical plans will impact their future standard of living.

Despite these concerns, it might be difficult to convince these affluent households to work with a financial professional on a formal retirement plan since they do not believe they need help with retirement-planning issues. In fact, only 12% of affluent retirees who never planned for their retirement admit they could have used more guidance.

* Generally, the affluent are satisfied with their financial advisers but would like some key changes.

The majority of affluent households think their advisers are professional, friendly and knowledgeable; constructively challenge their ideas; and provide them with the right amount of detail when giving them information.

There are a few areas, however, where they wanted their financial advisers to change their behavior. They wanted their financial adviser to:

* interact with them more frequently;

* be more proactive in giving advice;

* provide more aggressive recommendations; and/or

* employ a team of specialists to service their accounts.

They also wanted additional help from their advisers that they felt they currently were not receiving. Probably due to the bear market, many affluent individuals wanted help reviewing, analyzing and planning their portfolios to make sure that their current mix of investments comprises the best options.

* Technology's role as a way to reach the affluent will grow in the future.

Few affluent individuals who are retired ever used the Internet to obtain retirement information or to access any financial-planning tools. But preretirees, who are younger, are more likely to turn to the Internet for both financial and retirement planning needs. Three in 10 preretirees have used the Internet to obtain information to help them plan their retirement, while two in 10 preretirees have used the computer for financial planning--either using a financial planning tool on the Internet or financial planning software or spreadsheets.

While phone is by far the most popular way the affluent prefer to be contacted by their financial advisers (72%), the Internet is second (15%)--preferred over both mail and face-to-face contact.

* Affluent households are willing to provide referrals.

Only one in five affluent households said their primary financial adviser asked them for a referral in the past two years. Yet 55% of affluent clients are willing to provide their primary financial adviser with a name or introduction, but have never been asked to. Many referrals to affluent prospects are being left untapped by financial advisers.

* Consolidation of assets does not appeal to the affluent--unless ...

Almost half of affluent households are "as consolidated as they want to be." Affluent individuals resist consolidating their assets with one institution because they:

* prefer to diversify with more than one firm;

* like the flexibility to put their money wherever the best rates are; and

* feel no one institution has enough of an advantage to entice them to consolidate their assets with it.

While the affluent have not completely closed the door to the idea of consolidating the majority of their assets with one institution, they expect enticements to do so. They might consolidate with a single institution if they could save a significant amount of money on fees or charges, or if they would receive "preferred treatment" because of large account balances.

Clearly, the affluent market is attractive because of the vast financial assets they control and their strong need for financial services. In order to be successful serving the affluent, financial providers need to understand how the affluent desire to work with financial advisers, be aware of the types of financial services and products they need, and understand how best to reach them and pique their interest.

The information in this article is from four different consumer studies:

* Limra/McKinsey Affluent Study of 586 affluent decision makers with an annual household income more than $100,000 and investable assets (excluding residence and business interests) of $500,000 or more, and 122 emerging affluent households with annual incomes more than $100,000

* Harris Interactive online survey of 217 affluent financial decision makers with an annual household income of at least $100,000 and investable assets (excluding residence and pension plans) of $250,000 or more

* Limra's Retirement Study of 722 affluent retirees and 166 affluent preretirees (within two years of retirement) with investable assets of at least $500,000, and an annual household income of at least $100,000 (preretirees) or $75,000 (retirees)

* Limra's special analysis of affluent families with an annual household income of at least $100,000 and net worth in the top 10% from the Federal Reserve Board's Survey of Consumer Finances

Cheryl D. Retzloff is senior scientist, Affluent Market, Limra International.
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Title Annotation:Life/Health
Author:Retzloff, Cheryl D.
Publication:Best's Review
Geographic Code:1USA
Date:Dec 1, 2003
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