Disparity in Portfolio Allocation Between Affluent, Mass Affluent Americans Points to Opportunity for Financial Services Firms

Data from the Equifax Observations and Impacts of U.S. Consumer Wealth Trends report paints a compelling and clarifying picture for financial advisors.

Despite the draining experience from the Great Recession, Mass Affluent consumers (as the report refers to households with investable assets between $100,000 and $1 million) have slowly been shifting their portfolio allocation from heavy on bank deposits during the recession, back to approximately the same percentage of investments they held before the Great Recession.

That’s not the case for the Affluent households (referred to in the report as households with investable assets greater than $1 million), who have been much slower to shift their asset allocations back to pre-Great Recession investment allocations.  Even though almost 80% of Affluent households’ assets are invested in the market (mainly stocks, mutual funds, bonds, and annuities), allowing for the most potential risk-reward in their portfolios over time, they are still maintaining a higher percentage of deposits than they did before the Great Recession. Additionally, they have been a little slower to dive back into stocks.

An Opportunity for Advisors

For financial advisors, the opportunity is clear – target cash-heavy U.S. households, and steer more of those assets into stocks, as the shadows (and the higher-levels of risk factors) from the Great Recession fade away.

 

 

Source: IXI Services, a division of Equifax WealthComplete, 2007, 2008, 2014 Surely, the Great Recession, and its rough aftermath, has helped shaped investor risk preferences:

• June 2007 (before the Great Recession):  High risk tolerance with about 7.7 out of 10 dollars in investment markets
• December 2008 (after the collapse):  Reduced risk tolerance with only 6.9 out of 10 dollars in investment markets
• December 2014:  Parity with pre-Great Recession investment percentages had not been reached with approximaly 7.5 out of every to dollars in investment markets

Combined, the Affluent and Mass Affluent groups hold 94% of the nation’s assets according to the report, and thus should be a primary focus for most advisors. Since the Great Recession, many households are holding more of their assets in deposits taking a more risk-averse approach to their finances. However, given pre-recession deposit allocations, there is room for some of today’s deposits to be shifted back into the market. This creates a ripe opportunity for financial advisors to identify those deposit-heavy investors who have the potential to diversify and recommend strategies to move more of their money into the market. In short, there’s a great opportunity to capitalize on a shift in risk attitudes. The time to act is now, because if one financial services firm doesn’t, surely another will.