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Merrill: Income Inequality Gap Poses Risks, Rewards

By Murray Coleman October 24, 2017

To Chicago-based Bank of America advisor Raj Bhatia, part of his job is to study long-term market trends impacting how he communicates with affluent families.

In that respect, the member of the elite Merrill Lynch Private Banking and Investment Group is keenly monitoring studies tracking income growth and wealth concentration trends.

The wirehouse’s latest update shows a four-decade pattern of U.S. income growth gravitating higher is intensifying. Gains over the past three years – based on the most updated Federal Reserve data – indicate to Merrill researchers that nearly half of all wealth is now held by the top 10% of families. In the early ’90s, analysts note that rate hovered around 40%.

But here’s what is piquing interest for Bhatia: Income growth in the latest period studied was strongest in the highest echelons of households. The veteran PBIG planner, whose practice manages $1.6 billion, also points out that wealth accumulation appears to be getting “more uneven” as researchers move down the rungs.

“All of the major brokerages and large RIAs are making an effort to create segmented units to provision more resources to ultra high net worth investors,” Bhatia says.

At his practice, which typically works with families holding at least $10 million of investable assets, signing up a new client can take two years or more. In the future, Bhatia sees the ultra HNW market becoming even more competitive.

“When you work in this end of the market you’re dealing with prospects who have access to the best talent in wealth management,” he says. “And they’re coming to you with very specific and intricate questions they want help in answering.”

Indeed, Merrill analysts highlight in their latest report that income seems to be growing at all levels, from the mass affluent and high net worth families to ultra HNW households. “It’s the first time we’ve seen such across-the-board growth since the financial crisis years,” Michelle Meyer, head of U.S. economics for BofA, tells FA-IQ.

Jimmy Lee

Instead of trying to pinpoint types of investors to target, advisor Jimmy Lee argues such income trends make a strong case for wealth managers to spread their wings. “Opportunities are still going to exist in working with high net worth and mass affluent families,” says the chief executive of Las Vegas-based The Wealth Consulting Group.

His independent RIA, which manages $1.2 billion, is centralizing its financial planning services staff to handle any type of client. At the same time service menus are being priced on a more tiered basis. “It’s hard to generalize that all families with less savings face less sophisticated planning issues,” Lee says.

He recently met with a budding entrepreneur with plenty of questions relating to personal debt refinancing and future tax obligations. “We’re finding that small business owners and rising young professionals without a lot of money still often ask us about better ways to protect their assets and how more sophisticated tools like setting up trusts might play into their financial futures,” Lee says.

The firm already serves high net worth and ultra HNW clients. With a focused planning staff that’s highly segmented around specific planning needs, Lee says he’s “able to leverage those resources to give each advisor total flexibility to work with all types of families on an issue-by-issue basis.”

Last week his firm had a “soft launch” of a new subscription-based financial planning service, Lifetime Financial Fitness. For $167 a month clients receive comprehensive financial plans and regular updates as well as aggregated online account data and investment tools. Included in that membership fee is unlimited access to human advisors by phone, video teleconferencing or even face-to-face meetings at one of 17 branch offices.

The new advising platform starts by coming up with a financial plan for every client, Lee says. That makes such a service distinct at the outset from most investment robos. It also meets growing tastes by his younger clients to avoid traffic jams and office meetings in favor of video conferencing and online communications.

“We can serve the mass affluent in an economical way because it’s just an extension of what we’re already doing with high net worth and ultra HNW families,” Lee says. “For us, smart growth is all about delivering our services to more families across all income levels.”