Fidelity® Profiles Investors on the Cusp of Becoming Millionaires

Fidelity Study Finds 70 Percent of “Millionaires of Tomorrow” Lack Investing Knowledge; Advisors Well Poised to Help These Investors Hit the Million Dollar Mark and Meet Long-Term Goals

BOSTON – Fidelity Investments® today released new research from its Insights on Advice series,i exploring investors on the cusp of becoming millionaires – specifically, those averaging $800,000 in total assetsii and an average annual household income of $150,000. The study found that these “Millionaires of Tomorrow”iii are well positioned for growth but are in need of financial advice. According to the study, 77 percent of Millionaires of Tomorrow did not have a written financial plan, and 70 percent reported that they are not very knowledgeable about investing.

The study revealed that Millionaires of Tomorrow look different than established millionaires featured in Fidelity’s 2013 Millionaire Outlook study. Unlike today’s millionaires, who are more likely to be male and are mostly on the Baby Boomer end of the age spectrum, nearly half of Millionaires of Tomorrow are women (49 percent) and Gen X/Yiv (49 percent). These investors represent significant demographic shifts that may impact the make-up of financial advisors’ client base, with female and Gen X/Y investors expected to amass $22 trillionv and $41 trillionvi in assets by 2023 respectively. The study identified three behavioral trends that may be holding Millionaires of Tomorrow back from hitting the million dollar mark:

1. Playing it too safe when it comes to investing – Millionaires of Tomorrow are on top of their financial basics, such as debt and household expenses, but they are not comfortable taking on risk to maximize returns.

2. Not having a plan to meet their long-term financial objectives – Millionaires of Tomorrow are highly focused on the long-term, but they do not have a plan to help get them there.

3. Not using financial advisors – Millionaires of Tomorrow lack the confidence to handle investing on their own, yet many are not engaging financial advisors for help.

“Financial advisors are well positioned to help Millionaires of Tomorrow evolve into millionaires,” said Bob Oros, executive vice president, Fidelity Institutional Wealth Services. “The challenge for advisors will be to prove their value – and the value of taking on risk – to a group that is somewhat unsure of professional advice.”

Lacking Investor Mentality: Nearly half focus investment strategies on reducing risk, minimizing loss

The study found that Millionaires of Tomorrow are on top of the financial basics and are looking to increase their wealth and improve returns. Seventy-seven percent reported they already have or are currently managing household expenses more closely, and 85 percent felt they are in control of their debt. Increasing wealth was their No. 2 financial goal, and more than one quarter (27 percent) were looking to improve their returns on investments.

However, according to the study, Millionaires of Tomorrow may be missing the investor mentality to successfully increase their wealth. The study found that cash, CDs and money markets make up the second largest asset category in their portfolios, and close to half (45 percent) reported they are focusing their investment strategies on reducing risk, minimizing loss and avoiding market volatility.

--> Consideration for Financial Advisors: As Millionaires of Tomorrow build their wealth, their finances are only going to become more complicated and demanding. Advisors may want to consider helping these investors shift from a saver to an investor mentality, starting with helping them get comfortable with risk to help potentially maximize their returns.

Lacking a Plan: 77 percent do not have a financial plan, and nearly 4 in 10 do not intend to create one

The study found that Millionaires of Tomorrow are focused on retirement and ensuring their wealth lasts. Saving for retirement was their No. 1 financial goal, and not having enough saved for retirement was their top financial concern. In addition, 75 percent of Millionaires of Tomorrow focus more on long-term growth of their assets than gains or losses in any one year.

Despite this focus on the long-term, 77 percent do not have a written financial plan, and 38 percent do not intend to create one. This lack of planning carries over to their plans to get more involved with their investments – of those not currently involved, only 17 percent reported they are planning to get more involved in the future.

“Millionaires of Tomorrow seem to appreciate the importance of saving for retirement now if they are to be well positioned in the future,” continued Oros. “But without a plan in place to reach their goals, they may not be taking the necessary steps to save enough for retirement.”

--> Consideration for Financial Advisors: Millionaires of Tomorrow’s concerns around retirement and their struggles with planning call for help executing for the long term, starting with developing a plan in order to provide peace of mind about saving enough for retirement.

Lacking Confidence: 70 percent lack investing knowledge, yet only 51 percent are turning to financial advisors

According to the study, only 25 percent of Millionaires of Tomorrow said they have the confidence to handle investing on their own, and only 30 percent felt they are very knowledgeable about investing. Despite this lack of confidence, many are not turning to financial advisors for help. Only 51 percent of Millionaires of Tomorrow are using advisors, and 39 percent are choosing to “go it alone” when it comes to investing. Of those not working with an advisor, 46 percent felt advisors aren’t interested in investors with smaller assets, and 53 percent were turned off by advisor fees. 

--> Consideration for Financial Advisors: Keeping in mind the long-term value these relationships may bring, advisors may want to consider altering their fee structures or their services to cater to this fee-averse group. They should consider laying out the value they provide and showing how working together may help clients reach the million dollar mark.

For more details on the study and considerations for advisors to apply the findings in their own practice, visit go.fidelity.com/insightsonadvice.

About Fidelity Investments
Fidelity Investments is one of the world’s largest providers of financial services, with assets under administration of $4.5 trillion, including managed assets of $1.9 trillion, as of November 30, 2013. Founded in 1946, the firm is a leading provider of investment management, retirement planning, portfolio guidance, brokerage, benefits outsourcing and many other financial products and services to more than 20 million individuals and institutions, as well as through 5,000 financial intermediary firms. For more information about Fidelity Investments, visit www.fidelity.com.

i  Fidelity Insights on Advice — Affluent Investor Insights was an online, blind study conducted by Bellomy Research, an independent firm not affiliated with Fidelity Investments, from May 16, 2013, to May 29, 2013. It was focused on understanding investors’ attitudes, behaviors, and preferences related to investing, wealth management, and advice usage. It was held among a target sample of 813 respondents.
ii Includes total investable assets and employer-sponsored retirement assets
iii Millionaires of Tomorrow are investors with a high current level of investable assets (non-retirement investable assets which aligns with the common view that advisors take when gauging whether investors are millionaires or not), and a solid chance of growing those assets to $1 million or above at some point in the future given time (i.e. the investor’s age), potential returns on investments (assuming favorable market conditions), and expected household income (elevated salary ranges.) There is no guarantee that any Millionaires of Tomorrow will actually grow their investable assets to $1 million or above.
iv Ages 21 – 48
v “Women and Wealth: The Invisible Opportunity,” Wells Fargo and the Cannon Financial Institute
vi The Boston College Center on Wealth and Philanthropy

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