New data show a rich vein of business for banks to tap among households with net worth of $5 million or more.
So-called "pentamillionaires" plan to invest a large percentage of their money and are looking for advice and service in doing so, according to a study just released by Spectrem Group, a San Francisco-based research firm.
"Tremendous opportunity certainly exists within the pentamillionaire market," said David F. Toth, a senior consultant at Spectrem who presented the findings this week at the Bank Marketing Association's Private Wealth Sales and Marketing Workshop, in Seattle.
One important finding of the study, the first in which Spectrem has looked this closely at this market, is that 49% of those households would pay a "reasonable premium for superior service," while just 8% would opt for cheaper, bare-bones service, Mr. Toth said.
"They are willing to pay a premium for it," he said. "You don't often find that in our work."
But speakers and participants at the three-day conference agreed that banks face stiff competition for wealthy clients from nonbank providers, particularly full-service brokerage firms.
Other findings of Spectrem's study:
The nation's 277,000 pentamillionaire households spend $145,000 a year on average for financial services, compared with $33,000 for households in the "wealth market"-those with net worth of $1 million to $5 million.
Forty-five percent are willing to take calculated risks investing their money, while only 24% of the wealthy are apt to do so.
Fourteen percent are comfortable with leveraged investing, compared with 7% of the households in the wealth market.
Major life events in pentamillionaire households are creating demand for advice and service. Fifteen percent exercised stock options last year, 15% started a business, 14% sold a business, and 8% received a large financial gift.
More than half of pentamillionaires invest 25% or more of their income, almost three times as many as those in the wealth market.
Almost two-thirds of pentamillionaires want advice in managing their wealth.