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The Dichotomies of the 22 Million Mass Affluent

Frugal and Lavish at the Same Time, the New Rich Have $22 Trillion to Spend

America's new mass affluent blend so effortlessly into society that it's often impossible to tell them apart from a traditional middle class family one day, or from an upper class family the next.

Depending on which day you encounter a typical new mass affluent family, a mother could be found cutting out coupons and buying bulk at Sam's Club, or she and her husband could be playing golf at their country club.

And while many of these 22 million American households do not accept the notion that they are relatively wealthy, with a collective net worth of $22 trillion, many financial services institutions do. Thus, for quite some time now, several firms have tried to target this growing class of quasi-elite-to no avail.

Essentially, this diverse, independent market segment of promising clients has evolved into a holy grail for marketers, who sit back and scratch their heads as they tune out firms and professional advisers in favor of a do-it-yourself investing approach.

Claritas, a Nielsen Company, and Celent recently conducted studies to find out exactly who the new mass affluent are.

According to Claritas, the mass affluent represent the top 19% in the United States, and these numbers are up 23% from just a decade ago. Financially speaking, this group's annual household earnings of $100,000 or more is more than double the national median income of $48,280. They also possess income-producing assets of at least $100,000. Using a slightly altered scale, Celent defines the mass affluent as U.S. households a with net worth between $250,000 and $2 million.

One key Claritas finding is that pockets of wealth are no longer concentrated in traditional metropolitan cities, instead residing in "ex-urban second cities," such as West-Hartford, Conn., or Los Alamos, N.M. These suburbs offer relatively affordable living, but still provide many with the opportunity to stay connected to hub of a larger city nearby.

Regardless of which name or method one prefers to use when referring to this budding wealth group, both studies agree that many of these nouveau-riche families are extremely misunderstood and underserved by financial institutions.

"The new mass affluent are sophisticated consumers who often tune out traditional marketing strategies," said Jane Crossan, vice president of the financial services group at Claritas. "Perhaps most challenging of all, many simply don't think of themselves as rich."

Their humble self-identification may be attributed to the reality that some grew up in modest, middle-class communities where money had to be earned rather than inherited. And it's no wonder that they shy away from traditional marketing, because the new mass affluent tend to be highly educated and are used to being self-reliant.

According to Robert J. Ellis, senior vice president of wealth management at Celent, and co-author of the Celent report, some people may say to themselves, "Hey wait a minute, you know, this financial adviser, he's no smarter than I am. He may not even have better sources of information that I have. Why am I paying him a commission, or why am I paying him an asset management fee for things that I can learn about on my own?

"For that truly self-directed, totally self-motivated individual, you don't introduce an adviser, you do everything automatically over the Internet, and through other forms of direct communication," Ellis suggested.

Essentially, the secret to targeting and winning over the new mass affluent lies in specifically determining what kind of person they are, and then tailoring a strategy around that individual.

"To be successful, we have to differentiate our message, tweaking the language and the proposition to the different segments, [because] we've learned that it's more important to connect with customers based on who they are than on what financial product" we have to offer, said David Toth, director of marketing at Pittsburgh-based PNC, which has adopted Claritas' "P$YCLE" segmentation system that divides people into 58 groups of distinct financial behavior and lifestyles. Of this total, the new mass affluent consists of eight.

The top group, known as The Wealth Market, is what many would typically associate with the notion of "old money." Suburban couples over 65 years of age dominate this segment, and of these 2.6 million households, 48% have more than $2 million in assets. These families have high-end cars, wear custom clothing and jewelry, and are actively pursued by yacht salesmen.

The second highest mass-affluent segment, Business Class, consists of mid-fifties executives who are more likely to be found carrying prestige credit cards than cash. The Prosperous Parents group tends to be composed of middle-aged families with kids, juggling mortgages, college savings plans and retirement accounts.

One of the most sought-after segments for financial companies might be the Jumbo Mortgages, which consists largely of suburban Baby Boomer families.