Why the Surge in 'Mini-Millionaires' Demands Advisors' Attention

During the three-year period from the beginning of 2019 to the end of 2022, some 6 million American households achieved what many see as a key wealth-building milestone: their net worth topped the $1 million mark.

This fact, drawn from the newly updated Survey of Consumer Finances from the Federal Reserve, reflects a number of intersecting economic trends that have seen certain segments of the U.S. population grow their wealth substantially — most notably the approximately 13 million families in the 80th to 90th percentile of the income distribution.

Americans in this population segment saw their median wealth jump 69% from 2019, reaching just shy of $750,000 in 2022. According to the SCF, these new millionaires generally earn between $150,000 and $250,000 a year, an income that is significant but also below that of many established financial advisors’ typical clients.

It stands to reason that many in this newly minted millionaire population — The Wall Street Journal recently dubbed them ”mini-millionaires“ — are not currently working with a financial advisor or actively being courted by one. However, some basic analysis of the new SCF data, combined with the input of a number of financial advisors who are already focused on the emerging wealth segment, suggests that overlooking this group could be a mistake.

Simply put, many of these new millionaire families represent successful, working couples who can be expected to both earn and inherit substantially more wealth in the future. What’s more, they face financial opportunities and challenges that make them great candidates for holistic, fee-based fiduciary financial advice that helps them address new questions about taxes, legacy planning, investment management and more.

According to the advisors, simply ignoring this client segment because they may not represent the most lucrative “wins” as new clients could lead even well-established firms with enviable books of business to miss out on their future growth goals, all because they fail to connect with the next generation of clients.

Income and Net Worth Rising

Real median family income rose a relatively modest 3% during the study period, while real mean family income grew 15%, according to the Fed survey.

As those data points would indicate, increases were experienced across the income distribution but were largest at the top, and this is consistent with “some increase” in income inequality over this period.

“Indeed, the between-survey growth in mean income was one of the largest three-year changes over the history of the modern SCF,” the authors note. “A relatively large share of families [28%] reported that their income during the 2021 calendar year differed from its usual amount — that is, their ‘usual income’ — reflecting elevated shares of both families with higher-than-usual income and families with lower-than-usual income.”

In terms of net worth, between 2019 and 2022, real median net worth “surged” 37%, according to the report, and real mean net worth increased 23%. According to the researchers, these patterns imply some narrowing of the wealth distribution between surveys.

“Increases in both median and mean net worth were near universal across different types of families, grouped by either economic or demographic characteristics,” the report points out.

Sources of New Wealth

As the SCF data shows, the new millionaires’ wealth comes from a variety of sources, including financial assets and the assessed value of homes and other real estate.

“The homeownership rate increased slightly between 2019 and 2022, to 66.1%,” the report states. “For families that owned a home, the median net housing value rose from $139,100 in 2019 to $201,000 in 2022, as home values increased and housing debt was rather flat. As a result, net housing values grew substantially for families across the usual income distribution, reaching their highest levels on record.”

Other sources of wealth growth include workplace retirement accounts, as conditional mean balances in individual account type retirement plans rose for families in the upper half of the income distribution but fell for those in the bottom half.

Another key result shows participation in the stock market increased across the income distribution between 2019 and 2022, with families between the 50th and 90th percentiles experiencing a substantial increase amid what the report calls “a sizable rise in major stock indexes over this period.”

Finally, nearly half of families in the top decile of the usual income distribution now report owning a privately held business, and families that owned businesses had higher income and wealth than those that did not.

Who They Are, What They Need

Responding to an email inquiry from ThinkAdvisor, a group of financial advisors associated with the XY Planning Network and the Financial Planning Association said these data points show the clear importance of engaging with the emerging affluent client group.

This client segment is “a bit underserved and underappreciated,” said advisor Ashley Folkes, founder and managing partner of Inspired Wealth Solutions.

“This group is usually the people in upper career motion, needing more time capacity, and are the future owners, partners and leaders [of their respective organizations],” Folkes says.