CA The Cerulli ReportTM Release

CA The Cerulli ReportTM Release

Cerulli

Associates

This report contains the February 2006
following sections:
• Introduction: Why All the Navigating the Emerging Affluent Marketplace

Hype “Emerging affluent investors hold the greatest share of investable assets, but advisors are not
• Defining and Sizing the equipped to meet the disparate needs of the various segments within this market.”

Emerging Affluent Market This report examines key metrics and opportunities in the emerging affluent market (investable assets between
• Investor Segmentation $500,000 and $10 million). It analyzes specific emerging affluent segments, the different ways in which these
• Service Models segments are underserved, and identifies how advisors, wholesalers, and broker/dealer home offices—as they
• Role of the Broker/Dealer are currently configured—can capitalize. It also segments advisors serving the emerging affluent, and highlights
• Prognosis overall industry trends likely to drive change.

Table of contents, exhibit This report allows firms to:
list, and sample pages • Size the emerging affluent opportunity by investable assets, net worth, and the
are attached number of advisors competing in this space
• Understand how the market is fundamentally underserved despite the number of advisors
Related Cerulli Research: • Identify different types of emerging affluent investors and gauge their disparate needs
Cerulli Quantitative • Segment advisors serving investors in this space
Update: Intermediary • Understand the disconnect between emerging affluent investor needs and advisor capabilities
Markets 2005 • Assess optimal wholesaler opportunities
The Cerulli Edge— • Match specific advisor segments with suitable investor segments
Advisor Edition • Modify current offerings to appeal to this "middle" tier
• Evaluate the role of the broker/dealer in deciding whether to target this market

Data contained in this report:
• Household distribution by investable asset and net worth tiers, 1989-2005E
• Advisors serving the emerging affluent marketplace, 2005
• Sizing of specific emerging affluent investor segments
• Quantitative survey of emerging affluent advisor attributes

To order this report or for more information, log on to our website at www.cerulli.com or contact:

CERULLI ASSOCIATES Rachael Malatesta Price: US$10,000 Thomas Marsh
ONE EXETER PLAZA 617-437-1098 x119 Faxable order form attached 617-820-3632
BOSTON, MA 02116 [email protected] [email protected]
617-437-0084
WWW.CERULLI.COM

CA The Cerulli ReportTM

Cerulli Navigating the Emerging Affluent Marketplace

Associates To purchase this report, fill out this form and fax to 617-437-1268 or visit our website at
www.cerulli.com.
Rachael Malatesta
617-437-1098 x119 Name:
[email protected] Company:
Thomas Marsh Address:
617-820-3632
[email protected] Phone:
Email:
CERULLI ASSOCIATES
ONE EXETER PLAZA ____ The Cerulli ReportTM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .US$10,000
BOSTON, MA 02116 Navigating the Emerging Affluent Marketplace
PHONE: 617-437-0084
FAX: 617-437-1268 ____ Add Analyst ACCESS* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$5,000
WWW.CERULLI.COM *The Cerulli ReportTM Analyst ACCESS service extends for one year from date of purchase

and includes:
• Discussion of strategic and tactical initiatives related to the emerging
affluent marketplace
• Education on the dynamics of the emerging affluent segment
• Interpretation of relevant industry events
• Assistance in developing related industry presentations

File: Eblast 2/06

TABLE OF CONTENTS

INDEX OF EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3

METHODOLOGY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6

REPORT SCOPE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Beneficiaries of This Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Report Roadmap . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9

KEY FINDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10

INTRODUCTION: WHY ALL THE HYPE? . . . . . . . . . . . . . . . . . . .15
Reasons for the Attention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16

Underserved Market? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
Serving the Middle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
Homework Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
Key Implications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23

DEFINING AND SIZING THE EMERGING AFFLUENT
MARKET . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
Industry Definitions of Affluent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
Cerulli Wealth Tiers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26
Essential Basics of the Emerging Affluent Marketplace . . . . . . . . . . . . .29
Key Implications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34

INVESTOR SEGMENTATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35
Basic Segmentation Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36

Segmentation Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36
Factor Usage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41
Methodology Outcome . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .42
Cerulli Emerging Affluent Investor Segmentation . . . . . . . . . . . . . . . . . .43
Comparisons to Other Wealth Tiers . . . . . . . . . . . . . . . . . . . . . . . . .43
Emerging Affluent Segments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44
Influencing Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .57
Privatization of Social Security . . . . . . . . . . . . . . . . . . . . . . . . . . . .57
Real Estate Bust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .61
Repeal of Capital Gains Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .62
Estate, Gift, and Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . .63
Key Implications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .65

SERVICE MODELS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .66
Potential Methods of Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .67

Call Centers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .68

CA Navigating the Emerging Affluent Marketplace 1

Online . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .70
Advisors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .71
Striking a Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .73
Profile of an Emerging Affluent Advisor . . . . . . . . . . . . . . . . . . . . . . . . .73
Key Advisor Attributes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .74
Key Practice Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .83
Key Areas Affecting an Emerging Affluent Advisor’s Offering . . . . . . .100
Proliferation of Managed Accounts . . . . . . . . . . . . . . . . . . . . . . . . .101
Rollover Opportunity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .106
Retirement Income Phenomenon . . . . . . . . . . . . . . . . . . . . . . . . . . .110
Cerulli Emerging Affluent Advisor Segmentation . . . . . . . . . . . . . . . . . .114
Accommodator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .114
Greenhouse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .115
Core . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .116
New Entrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .117
Enterprise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .118
Cherry Picker . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .119
Ensuring Profitability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .122
Key Implications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .125
ROLE OF THE BROKER/DEALER . . . . . . . . . . . . . . . . . . . . . . . . . .126
Bank Broker/Dealers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .128
Small Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .128
Private Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .132
National Full-Service Broker/Dealers . . . . . . . . . . . . . . . . . . . . . . . . . . .132
Insurance Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .137
Limited-Service Firms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .141
Registered Investment Advisors and Independent Broker/Dealers . . . . .143
Key Implications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .146
PROGNOSIS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .147
APPENDIX: GLOSSARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .149
INDEX OF COMPANIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .153

2 Navigating the Emerging Affluent Marketplace CA

INDEX OF EXHIBITS

1. Cerulli Wealth Tiers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
2. Advisor Client Base: Average Actual vs. Equitable Distribution by

Advisor Core Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
3. Average Advisor’s Client Base Breakdown by Client Net Worth . . . .18
4. The Wealth Spectrum: Scalable Advice . . . . . . . . . . . . . . . . . . . . . . . .19
5. Client Base Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
6. Cerulli Wealth Tiers, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26
7. Components of Investable Assets and Net Worth . . . . . . . . . . . . . . . .27
8. Households in Different Wealth Tiers (Investable assets vs.

Net worth) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28
9. Household Distribution by Investable Asset Tiers, 1989–2005E . . . . .29
10. Investable Assets by Investable Asset Tiers, 1989–2005E . . . . . . . . .30
11. Household Distribution by Net Worth Tiers, 1989–2005E . . . . . . . .30
12. Net Worth by Net Worth Tiers, 1989–2005E . . . . . . . . . . . . . . . . . . .30
13. Advisors Serving the Emerging Affluent Marketplace, 2005 . . . . . .31
14. Total Investable Assets by Investable Asset Tier, 2005E . . . . . . . . . .32
15. Total Investable Assets by Net Worth Tier, 2005E . . . . . . . . . . . . . . .32
16. Total Net Worth by Investable Asset Tier, 2005E . . . . . . . . . . . . . . .33
17. Total Net Worth by Net Worth Tier, 2005E . . . . . . . . . . . . . . . . . . . .33
18. Generic Segmentation Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37
19. Merrill Lynch Segmentation Pyramid . . . . . . . . . . . . . . . . . . . . . . . .38
20. Breakdown of Business Owners by Investable Asset Tier . . . . . . . . .45
21. Breakdown of Households Over Age 68 . . . . . . . . . . . . . . . . . . . . . .47
22. Breakdown of Real Estate Wealthy Households . . . . . . . . . . . . . . . .48
23. Debt-to-Income Ratio of Greater than 50% . . . . . . . . . . . . . . . . . . . .49
24. Below Age 40, Income Greater than $100,000 . . . . . . . . . . . . . . . . .51
25. Cerulli Emerging Affluent Investor Matrix . . . . . . . . . . . . . . . . . . . .56
26. Sources of Income for the Population Age 65 and Over by Income

Quartile, 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .58
27. Pros and Cons of Privatizing Social Security . . . . . . . . . . . . . . . . . .60
28. Advisor Age, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .74
29. Trends in Advisor Age . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .76
30. Average Advisor Age, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .77
31. Advisor Licenses and Designations, 2005 . . . . . . . . . . . . . . . . . . . . .78
32. Tier III and IV Advisor Licenses and Designations . . . . . . . . . . . . . .79
33. Advisor Tenure, 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .80
34. Trends in Advisor Tenure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .81

CA Navigating the Emerging Affluent Marketplace 3

35. Advisor Specialization, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .82
36. Tier III and IV Advisor Specialization, 2004 . . . . . . . . . . . . . . . . . . .83
37. Total Assets Under Management, 2004 . . . . . . . . . . . . . . . . . . . . . . .84
38. Average Advisor Assets Under Management . . . . . . . . . . . . . . . . . . .85
39. Advisor Number of Clients, 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . .86
40. Average Advisor Number of Clients . . . . . . . . . . . . . . . . . . . . . . . . . .87
41. Client Age, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .88
42. Client Net Worth, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .89
43. Business Model, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .90
44. Practice Type, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .91
45. Administrative Staff, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .92
46. Professional Staff, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .93
47. Compensation, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .94
48. Time Allocation, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .95
49. Profiling Techniques—Interviews, 2005 . . . . . . . . . . . . . . . . . . . . . .96
50. Profiling Techniques—Statements, 2005 . . . . . . . . . . . . . . . . . . . . . .96
51. Profiling Techniques—Records, 2005 . . . . . . . . . . . . . . . . . . . . . . . .97
52. Advisor Service Offering, 2004 and 2005 . . . . . . . . . . . . . . . . . . . . .98
53. Advisor Product Usage, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .99
54. Managed Account Assets and Projections, 1997–2009E . . . . . . . . . .102
55. Average Client Account Sizes by Managed Account Program

Type, 3Q 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .103
56. Percentage of Advisors Actively Involved in Fee-Based Managed

Accounts, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .104
57. Multiproduct Delivery in Managed Accounts . . . . . . . . . . . . . . . . . .105
58. Channel Comparison: Average Number of Rollovers Conducted

for Clients, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .107
59. Channel Comparison: Average Size of Rollovers Conducted by

Advisors, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .109
60. Total IRA Assets by Investment Product, 1994–2004 . . . . . . . . . . . .109
61. Retirement Income Product Segmentation . . . . . . . . . . . . . . . . . . . . .110
62. Advisor Attributes Ideal for Retirement Income . . . . . . . . . . . . . . . .111
63. Advisor Segment Continuum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .114
64. Cerulli Emerging Affluent Advisor Segments . . . . . . . . . . . . . . . . . .121
65. Key Questions to Ensure Profitability . . . . . . . . . . . . . . . . . . . . . . . .122
66. Advisor Practice Evaluation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .123
67. Cerulli Emerging Affluent Investor and Advisor Segment

Matching . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .124
68. Channel Comparison: Number and Percentage of Advisors, 2005 . .127
69. Top-10 Bank Broker/Dealer Firms by Advisor Headcount, 2005 . . .129
70. Channel Comparison: Licenses and Designations Advisors

Currently Hold, 2004 and 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .130

4 Navigating the Emerging Affluent Marketplace CA

71. Channel Comparison: Percentage of Advisor Assets Under
Management Attributable to Retirees, 2005 . . . . . . . . . . . . . . . . . . . .131

72. Top-10 National Full-Service Broker/Dealers by Advisor
Headcount, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .133

73. Channel Comparison: Advisors by Revenue Source, 2005 . . . . . . . .134
74. Channel Comparison: Managed Account Marketshare, 2005 . . . . . .134
75. Top-10 Multiple-Style Account Sponsors, 2Q 2005 . . . . . . . . . . . . .135
76. 401(k) Marketshare vs. Marketshare of Annual Rollover IRA

Contributions, 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .136
77. Channel Comparison: Amount of Training from Firm for

Dissemination Retirement Advice, 2005 . . . . . . . . . . . . . . . . . . . . . .137
78. Top-10 Insurance Broker/Dealers by Advisor Headcount, 2005 . . . .137
79. Channel Comparison: Business Planning Services, 2004 and 2005 .139
80. Channel Comparison: Percentage of Time Advisors Spend on

Wealth Transfer-Related Issues, 2005 . . . . . . . . . . . . . . . . . . . . . . . .140
81. Channel Comparison: Advisor Alternative Product Mix, 2004 and

2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .143
82. Retail RIA Market Segmentation, 2004 . . . . . . . . . . . . . . . . . . . . . . .144
83. Top-10 Independent Broker/Dealers by Advisor Headcount, 2005 . .145
84. Channel Comparison: Percentage of Advisor Revenue Currently

Due to Disseminating Retirement Advice, 2005 . . . . . . . . . . . . . . . .146

CA Navigating the Emerging Affluent Marketplace 5

METHODOLOGY

This Cerulli Report, Navigating the Emerging Affluent Marketplace,
which analyzes the emerging affluent marketplace and discusses the oppor-
tunities and challenges that face both intermediaries and financial services
product and service providers in an increasingly competitive marketplace,
relies on a combination of quantitative and qualitative analyses conducted by
Cerulli Associates (CA). Our research draws upon our own market insight
and proprietary data, as well as our analysis of third-party information
sources.

A proprietary survey of the population of financial advisors in the
United States serves as the data source for our discussion of servicing the
affluent market from the advisor’s perspective. CA has been conducting these
surveys on an annual basis since 2001, and it is issued to advisors in all major
channels—bank, insurance, independent, regional, and national full-service
broker/dealer, as well as retail registered investment advisors. These surveys
include detailed information about business models, product usage, service
offerings, practice details, compensation usage, and practice management
issues. From this survey, CA determined the core client market served by an
advisor and was able to draw conclusions regarding characteristics of the
advisor and how the advisor services the emerging affluent market.

As part of our ongoing research initiatives, CA analysts regularly
interview advisors and key executives from asset management firms and
distributors, as well as other industry observers. For the purposes of this
report, CA analysts conducted a number of qualitative conversations with
executives at intermediary firms, asset managers, third-party product and
service providers, and advisors. In addition, we spoke with relevant industry
trade associations and organizations about the emerging affluent population.
All interviews were conducted on a background basis and without attribution.
The conversations reinforced the findings of our survey work and provided
additional valuable insights reflected in this study.

As with all Cerulli Reports, additional information in this report was
obtained from third-party public and nonconfidential sources. A key data
source to garner the investor perspective for this report was the Federal
Reserve’s Survey of Consumer Finances, which is conducted every three

6 Navigating the Emerging Affluent Marketplace CA

years, the focus of which is to estimate the debt obligations and asset
holdings of a nationally representative sample of American families and their
use of financial institutions. The most recently available survey at the time of
this release was the data collected by the Federal Reserve in 2001. Our
analysts have forecasted values based upon this data, and these estimates are
those depicted in this report. Cerulli Associates believes these to be reliable,
and we have made every reasonable attempt to verify it; however, CA does
not guarantee its accuracy or completeness.

CA Navigating the Emerging Affluent Marketplace 7

REPORT SCOPE

Navigating the Emerging Affluent Marketplace, the most recent study
in The Cerulli Report series, explores an amorphous market segment in the
financial services industry comprised of a broad range of clients with varying
degrees of affluence, need, and sophistication. These factors make it difficult
for financial services firms—including broker/dealers and asset management
firms—to service this market with a one-size-fits-all strategy.

The report focuses on helping financial services firms effectively
serve the emerging affluent marketplace. CA measures the opportunity the
emerging affluent population represents to financial services firms and the
products and services in demand by these clients, and offers strategies on
how to successfully navigate this segment of the marketplace.

Beneficiaries of This Report
Strategies outlined in this report should help various types of firms

operating within the financial services industry:

• Asset managers, including mutual fund companies, banks, institutional
money managers, insurers, and separate account managers, who are
looking for direction regarding the vehicles most often used and needed
by distribution firms whose client bases include emerging affluent
investors.

• Intermediaries, including national full-service, regional, independent,
bank, and insurance broker/dealers, as well as registered investment
advisor firms, who are currently serving or attempting to move into this
market. A variety of clients make up this market, and there are many
ways to service it—effective segmentation and matching is critical.

• Third-party vendors who are those providers with products and services
designed to assist financial services providers and financial advisors
successfully looking for intelligence as to how to target and ultimately
work with emerging affluent clients.

8 Navigating the Emerging Affluent Marketplace CA

Report Roadmap
Navigating the Emerging Affluent Marketplace has several sections:

• The report introduction Why All the Hype? gives a brief overview
regarding why the emerging affluent marketplace is garnering much
attention and highlights the key to how firms and advisors can
effectively and profitably serve this group.

• Defining and Sizing the Emerging Affluent Market details differing
industry definitions regarding what constitutes an affluent investor and
provides some parameters around the types of investors discussed
within this report. Additionally, this chapter provides the details of CA’s
marketsizing exercise, which determines the number of investors and
amount of assets that reside in the emerging affluent market.

• The next chapter, Investor Segmentation, covers market segmentation
from two different angles. First, it discusses how the emerging affluent
market segments are similar to and different from other market
segments—those that fall above and below the emerging affluent on the
wealth spectrum. Second, the chapter further segments the emerging
affluent market into seven distinct investor groups, each of which has
unique characteristics and needs that firms and advisors must determine
how to effectively address.

• Service Models details the variety of ways emerging affluent investors
can be serviced. We give the majority of attention within this section to
the advisor as the predominant delivery model, with special attention
given to the profile of the advisor typically servicing this market and
ways to potentially strengthen their ability to effectively service this
market. This chapter concludes with an essential consideration for all
firms servicing the affluent market: ensuring profitability.

• The Role of the Broker/Dealer highlights the overall organizational
requirements of a broker/dealer servicing this market and some of the
opportunities and drawbacks for each of the channels in their attempts.

• Finally, the Prognosis draws out some of the key implications of and
essential considerations for broker/dealers and asset managers when
they design a strategic plan for addressing the needs of the emerging
affluent market.

CA Navigating the Emerging Affluent Marketplace 9

SAMPLE SECTION
from

THE CERULLI REPORTTM
NAVIGATING THE EMERGING AFFLUENT MARKETPLACE

Cerulli Emerging Affluent
Advisor Segmentation

There are many ways in which firms can segment the overall advi-
sorforce. CA has segmented advisors into six unique categories that allow us
to better understand the current makeup of the industry and make
assumptions about their ideal emerging affluent client. These segments cover
a broad range of advisors—the entire universe—which helps to identify the
specific type of advisor who best serves the emerging affluent marketplace.

EXHIBIT 63
ADVISOR SEGMENT CONTINUUM

Greenhouse Accumulator
Core
ENnetwereprnitsreant

Cherry picker

Tier 2 Tier 5

Tier 3 Tier 4

Tier 1 Tier 6
Source: Cerulli Associates

These segments are meant to give some direction to firms seeking to
segment their own advisorforce. Most firms will not have all six segments,
and may have additional segments or subsegments based on their advisor-
force. In the following section, we give details on our six segments:
accommodator, greenhouse, core, new entrant, enterprise, and cherry picker.

Accommodator
Advisors in the accommodator segment provide full-scale advice

delivery solutions primarily to high-net-worth clients. Although advisors in
this segment manage assets mainly for high-net-worth clients, they do often
maintain relationships with lower-net-worth clients out of necessity. Most of
their lower-net-worth clients are retained because they are somehow
affiliated with one of the advisor’s most profitable clients—they are an
accommodation for a larger client. But, in reality, it is a requisite of keeping
the larger client in their book. Most clients of accommodators are in need of
financial planning on a number of complex issues—stock option planning,

114 Navigating the Emerging Affluent Marketplace CA

executive compensation, complex trust and estate planning, and charitable
giving, among others—and generally only partner with advisors who can
provide full-scale advice and an assortment of services. Therefore, most
accommodators are wealth managers who specialize in comprehensive
wealth management and wealth transfer issues. However, some are classified
as financial planners. Because accommodators offer such a range of services,
most employ a team-based business model and fee-based compensation
structure. It would be highly inefficient for accommodators to employ an
alternative business model and overly costly to the client if a commission-
based compensation structure were implemented. Accommodators generally
only obtain new clients through referrals. Thus, accommodators only oppor-
tunistically service the emerging affluent to accommodate their
high-net-worth clients.

Greenhouse
Advisors entrenched in the greenhouse advisor segment manage

assets for a number of high-net-worth clients. However, many of their clients
are aging. Therefore, greenhouse advisors need to opportunistically reach
down and build relationships with lower-net-worth individuals who will
eventually grow into high-net-worth clients to round out their waning number
of clients in the future. They are essentially looking for those diamonds in the
rough who will provide stability to the advisor in the future. Greenhouse
advisors are mostly positioned in the high-net-worth wealth tier—slightly
above emerging affluent advisors—and provide either comprehensive wealth
management solutions or full-scale financial planning services as wealth
managers or financial planners. There are many older sole practitioners who
inhabit this advisor segment. However, a team-based business model is
becoming increasingly popular among greenhouse advisors as the complexity
of full-scale planning continually increases. Because advisors in this segment
maintain a high-net-worth client base and provide comprehensive planning
services, they employ a fee-based compensation structure. Commission-
based planning would be highly expensive if implemented by greenhouse
advisors. Referrals and seminars are the primary methods advisors use to
prospect new clients. Thus, greenhouse advisors strategically seek out
emerging affluent diamonds in the rough to eventually round out their high-
net-worth client base.

CA Navigating the Emerging Affluent Marketplace 115