Financial-services providers with a focus on serving Affluent and Wealthy households face increasing competition, overcapacity, and pressure on margins. To generate more fees, cross-sell more products, and broaden assets under management, organizations should consider focusing on the Middle Market. An informal poll of MacroMonitor subscribers and prospects define Middle Market households by total annual income of between $50K and $125K. This definition is quite broad when one considers that the US Census reports the two-year average median household income (2010–13) at $52,244. Households with annual incomes of between $50K and $125K represent 48 million households, or 37% of US households. This Segment Summary describes attributes of Middle-Market households.

Demographics

The majority of Middle-Market households are married without dependents. Three-quarters have at least some college. Overall, Middle-Market households:

• Have a total annual median household income of $69K; 31% report a pretax income of between $75K and $100K; 21% of between $100K and $125K.
• Have a household head with mean age of 50
• Have—that is, two in five heads have—a four-year college degree or higher
• Are married households (two-thirds of them) and are two-adult-headed households (74%)
• Do not support dependent children (roughly two-thirds of the households); have adult children who have returned home (10%); support dependent adults (8%).
• Are Millennials and Gen Xers (half the households); are preretired (25%).
• Own a single-family home (almost three-quarters of the households); own a first home (somewhat more than one-third); live in the suburbs of large cities (almost one-third).
• Are currently employed (three-quarters of household heads); are an owner, or part owner, of a business (fewer than 10%).

Financials

The pattern of financial-product ownership—high ownership and low ownership—for Middle-Market households is the same as that for Affluent and Wealthy households; in many cases, however, incidences are roughly half those for Affluents. The exception is the incidence of annuity ownership, in which the Middle Market and Affluent and Wealthy households are about the same (21%).

• Middle-Market households have an aggregate of $10.9 trillion in financial assets, in comparison with $10.8 trillion in financial assets for Affluent and Wealthy households.
• Middle-Market households have an aggregate of $6.2 trillion in retirement assets, in comparison with $5.4 trillion in retirement assets for Affluent and Wealthy households.
• Middle-Market households have an aggregate of $4.7 trillion in retail assets, in comparison with $5.4 trillion in retail assets for Affluent and Wealthy households.
• Middle-Market households have an aggregate of $5.9 trillion in total liabilities, in comparison with $3.9 trillion in liabilities for Affluent and Wealthy households.
• Their incidence of having a defined-benefit pension plan is 43%, in comparison with the incidence (48%) for Affluent and Wealthy households.
• Middle-Market households are more than twice as likely to have a full-service stockbrokerage account than to have a discount stockbrokerage account.
• Their mean number of retail mutual funds (12.4) is slightly higher than the mean for Affluent and Wealthy households (10.9), as is the number of broker transactions (30 versus 28.4).
• Roughly two in five do not have a will, estate, or other end-of-life documents; an executor; or a designated of attorney.

Financial Attitudes and Interesting Tidbits

The majority of the Middle-Market's attitudes fall in the middle between the attitudes of Marginal households—households with total annual income of $50K or less—and those of Affluent and Wealthy households. For example, Middle-Market households:

• Are more satisfied with their financial situation and financial future than are Marginal households but less satisfied and optimistic than are Affluent and Wealthy households.
• Are more likely to be open to taking some financial risk and engage in budgeting and saving for the future than are Marginals but less likely than are Affluent and Wealthy households.
• Are only about average in their concern about their debts and the ability to secure a loan if necessary, in contrast with Marginal households, which are more concerned.
• Would pay off household debts with an unexpected windfall of $25K—almost two-thirds of both Marginal and Middle-Market households would do so.
• Would use a full-service stockbroker (only 4% of the nearly two-thirds would save or invest some portion of a $25K windfall) or select (17%) a bank as their first choice.
• Continue to experience financial uncertainty: Only one in five (19%) say they are financially secure; 55% say they are financially stable right now.
• Are focused (the majority of Middle-Market households) on saving and investing for retirement (70%).

Implications

Contrary to conventional wisdom, the Middle Market (because of the number of households) represents a significant portion of financial assets, debts, and transactions. The cost of serving this market is greater than the cost of serving the Affluent and Wealthy market. As a result, financial institutions have spent little time and few resources to serve the Middle Market. More modest balances per household means that the needs of Middle-Market households are less complex than the needs of Affluent and Wealthy households; their needs may be met with a smaller assortment of products and services, more straightforward appeals, and more traditional channels. Many opportunities exist for financial-services providers to help Middle-Market households significantly in several key areas, such as general financial planning, retirement planning, and end-of-life document preparation. Because few Middle-Market household heads describe themselves as sophisticated investors or enjoy financial matters as a hobby, they are not easy to reach with financial-product-and-service messages through traditional or new media. Friends and family are their main source for financial information. Develop a strategy about how your institution can become a trusted advisor by getting to know Middle-Market households better.

Learn more: Contact CFD to request an on-site presentation of these findings along with a Q&A session. Presentations are available to MacroMonitor subscribers for a small additional fee.