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Travels In Richistan

It sure is a great time to be a financial advisor. Consider this: Since 1995, the number of millionaire households in the U.S. has more than doubled. Never before had so many Americans become so rich, so quickly, writes Robert Frank in his new book, Richistan: A Journey Through The American Wealth Boom And The Lives Of The New Rich. Frank, a reporter with the Wall Street Journal, was so impressed

It sure is a great time to be a financial advisor. Consider this: Since 1995, the number of millionaire households in the U.S. has more than doubled. “Never before had so many Americans become so rich, so quickly,” writes Robert Frank in his new book, Richistan: A Journey Through The American Wealth Boom And The Lives Of The New Rich. Frank, a reporter with the Wall Street Journal, was so impressed by the opulence of this wealth boom that he launched a weekly column devoted to the society of the rich, called “The Wealth Report.” (There is a blog version published daily on While today's rich are self-made, and more diverse (by gender, race, age and geography — they are even mostly Democrats), the richest 1 percent “have formed their own virtual country,” Frank says. They are “wealthier than most nations,” — controlling about $1.35 trillion a year — which is “greater than the national incomes of France, Italy or Canada.”

With all this dosh, Frank says, “They had built a self-contained world unto themselves,” with their own networks of doctors, private jets, household staff, destination clubs and other concierge services. His conclusion: The creation of Richistan shows that the chasm between the rich and everyone else has grown. He thinks this may sow social unrest. With so many people getting so rich, the un-rich fell increasingly envious or inadequate, he says. We have a quibble with his rather dire conclusion, since the Congressional Budget Office research shows that every class saw significant growth income from 1991 to 2005. And, besides, Frank allows that “the number of millionaires and billionaires is likely to grow at least 6 percent a year in the coming years.” Having more and more people move to Richistan doesn't sound so bad to us. Below are some excerpts from our conversation with Frank.

Registered Rep.: Describe this “wealth boom.”

Robert Frank: In 2003, I discovered a chart that the Federal Reserve had produced that showed the number of millionaire households in America had more than doubled over the past 10 years; the number of households worth 1 million or more had grown to 8 million. The number of households worth $5 million or more had grown to 4 or 5 million. No matter how high you looked on the wealth ladder, those numbers were doubling.

RR: What caused this?

Frank: The convergence of three forces in our economy: It's globalization, and the increasing inter-connectedness of countries and markets. It's the explosion, size and sophistication of financial markets. Thirdly, it's the growth in information technology that has greased the wheels, accelerated both globalization and financial markets, and created a kind of perfect storm of wealth creation.

RR: In your book, you say the new rich differ from the old rich.

Frank: The vast majority of today's millionaires did not inherit their money — they're self-made. Twenty years ago, perhaps as much as half inherited their money. And old money was not just inherited wealth — it was quiet wealth. They didn't like to show their money, and they were fairly thrifty when it came to spending. They had a set of values that were all centered around never embarrassing the family, never sticking out too much and never bragging about your wealth. Today's wealthy are proud of their money; they want to enjoy it. They like showing their success by buying yachts, big houses, by flying on private jets. They don't worry about the consequences of showing their wealth because they are proud of it, and they made it themselves.

RR: One thing that I don't get is the people of Richistan. They didn't inherit their wealth, they earned it; they are self-made. Yet, according to your book, they baby their kids in rather obscene ways.

Frank: There is one girl I interviewed in the book; she is 11 years old. For her birthday, she asked her father to fly on a commercial airplane and the father says, “But we have a private jet.” And the girl says, “But I want to see what the inside of an airport looks like, and I want to see a plane that has other people on it.” She had never been on an American Airlines plane. So today's kids of rich parents are growing up in a rarified environment where they just don't know what the rest of the world is like.

And that's one of the contradictions with today's rich: They don't want their kids to grow up spoiled, and yet they are spoiling them and giving them access to so much money. They even resent inherited wealth. There is a guy in my book who talks about people who start on third base, and think they hit a home run. And so in some ways today's rich have to be protected from themselves as parents; they have to undo some of that spoiling through special wealth education programs. And that's where financial planners and wealth educators come in, and have to teach the things the parents are really not teaching their kids.

RR: What might this mean for future generations — for these kids and others?

Frank: One thing it means, especially from a financial planning point of view, is that the kids who are inheriting this wealth are given wealth — not values — from their parents. And I think it is entirely likely that a lot of that wealth that is being passed down to kids today will be squandered, because today's kids are much better at spending than they are at saving and investing. They don't have basic life skills like how to interview for a job, manage money, work with others or how to survive in today's competitive global economy. So I think that for a lot of today's rich kids their money will filter through their hands like sand, and eventually they will run out. I think that for the rest of society, we now have millions of kids who are about to inherit upwards of $30 trillion. A lot of these kids will feel entitled, and they will be a whole new generation of inherited wealth who will be different from today's self-made wealth.

RR: This is an opportunity for our readers. Those kids will need financial guidance.

Frank: That's right. I think the financial planners that really understand today's wealthy parents and wealthy kids take time to help educate those kids. The planners that listen to the parents, and their kids, are going to be the ones that are able to retain that business. I find that families who are dealing with a financial planner who cares about the intergenerational issues tend then to hold on to those financial planners. For most of today's rich parents, kids are the most important issue. It doesn't matter whether they get an extra 5 percent on their hedge fund, what matters most is that their kids grow up as responsible managers of their wealth.

RR: Do they really do that? Do they really call upon a third party, such as a financial planner, to help them in this way?

Frank: Yes. One of the functions of financial planners and wealth education programs is to teach the kids skills like interviewing for a job, budgeting, saving and investing. Most of today's rich parents, according to studies, give their kids unlimited access to money. And, you know, back in the old days, old money would put their kids through the worst kind of summer jobs — digging ditches, flipping burgers. They essentially taught the kids to ignore the money. This is family money; it is not yours. You need to grow up as if you're not going to have it. Today's rich kids fully expect that they are going to get all that money, because they have been raised to believe they will. And so the parents have to turn to these outside companies to instill some values, and part of it is because the kids just don't listen to the parents, at least when it comes to saving, budgeting and investing.

When parents were asked why they sent their kids to rich kids' camp, a lot of them said, “My kids won't listen to me if I try to tell them these things. They will listen to somebody they see as an expert.”

RR: How do the citizens of Richistan typically find advisors?

Frank: I think they find advisors through friends and business colleagues. So they'll talk to a friend at a cocktail party and say, “I'm unhappy with my financial advisor. Do you have someone you like?” Or, “My financial advisor just put me in this great hedge fund. I love it.” You know, that kind of thing. They also find them from their companies and their business dealings.

Once you have an introduction to today's rich, it's very important to listen. Too many financial planners, I think, want to impress their clients with snazzy financial products, big words and concepts that prove how smart they are and how many degrees they have. But they don't really stop and listen to what the client wants, and what's important to the client. Maybe that financial advisor thinks that finding a hot hedge fund or private equity investment is the best thing to do, whereas what's really important to the client is passing on wealth to his kids in a way that doesn't ruin the kids. You just have to listen closely to the clients because they are all going to have individual concerns that are not uniform across the board.

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