The Wealth Management Process

[James Park]

I have read a lot of books in finance and real estate since my early 20s, but one thing that has always been consistent in my readings for the past 18 years is the wealth profile of millionaires. In chart above you can see what I consider to be an ideal asset allocation wealth profile for the middle class millionaire. Middle Class Millionaires are defined by anyone who has a networth between $1M to $3M. Upper class millionaires have a net worth between $3M to $10M. One thing that is interesting is that you can see that only a small allocation (between 5-7%) of a millionaire's networth is allocated to annuities and life insurance and 3-5% of a millionaire's networth is allocated to qualified retirement accounts which leads me to believe that these middle class and upper class millionaires rely less on life insurance, qualified retirement accounts, and annuties as they have already self insured themselves with their small businesses, real estate investment income, and equity holdings. I believe in a diversified asset allocation model approach that incorporates a 25-35% in innovative entrepeneurial ventures (S-Corps), 25-40% in buy and hold real estate investments (Foundation of their investments), and 20-25% in fixed income and growth equities. 

Below are the Networth and Household income % in the United States. Over the last 4 years, I have interviewed several top wealth managers, commercial brokers, and investors of what their personal retirement portfolio looks like. The problem I have seen with many financial advisors is that they do not own income properties as the foundation of their retirement portfolio and many of them are just broker dealers of life insurance and mutual fund products, and not true AUM investment advisors or wealth managers. Financial advisors have most of their networth in stocks and most of the top commercial brokers do not personally own any commerical properties, but many do own either apartments, multi-family, and single family homes which I believe are the best real estate asset classes to own in your personal retirement portfolio. 

Source: 2013 data from Tax Policy Center

% Networth Estimated                 5% passive income (Annual basis)

99.90 % $30,644,280.00              $1,532,214
99.50 % $11,898,128.00              $ 594,906
99.00 % $7,869,549.00                $ 393,477
95.00 % $1,868,640.00                $ 93,432
90.00 % $943,656.00                   $ 47,182
80.00% $428,540.00
70.00% $247,026.00
60.00% $147,732.00
50.00% $81,456.00
40.00% $38,322.00
30.00% $14,840.00
20.00% $4,314.00
10.00% -$2,066.00

Household Annual Income

99.00 % $521,411
95.00 % $208,810
90.00 % $148,688
80.00 % $107,628

Here is how the middle class and the upper class millionaire differ in interests and responsibilities.

                                                                      Middle Class Millonaire Upper Class Millionaire
1) Making sure your heirs are taken care of :                   66.9%         93.6%
2) Having adequate medical insurance:                           78.1%         76.4%
3) Having enough money for retirement:                          87.3%         53%
4) Paying for children education (529 etc)                        65.2%         28.6%
5) Losing your job or business                                          48.4 %       30.5%
6) Taking care of parents                                                   38.4%        16.1%
7) Mitigating income taxes                                                 90.1%        77.3%
8) Mitigating estate taxes                                                   21.7%        81.3%
9) Mitigating capital gains taxes                                         27.1%       58.5%