Toops Scoops: Targeting the 1 Percent

The fallout is still raining down in the financial and general media in response to the very public resignation of Greg Smith from Goldman Sachs. Smith's ”take this job and shove it” letter, published yesterday in the New York Times, bemoaned a corporate culture based on greed and disregard for its customers. (One of the most vivid–and quoted–observation was how Goldman employees routinely referred to their clients as “muppets.”)

And although you could argue that it's pretty disingenuous for Smith to have taken this long to figure out that a publicly held Wall Street investment firm's first priority is to make money, give him props for sheer cojones. Hope he has a lucrative book-and-movie deal in the wings because it's doubtful he'll ever work in investment banking again.

Still, it's evident from the reaction that Smith's comments have hit a nerve. If there's a single take-away thought from the whole thing, I think it involves whether it's professionally ethical to put a corporation's profit goals above the needs of the customer.

The average independent insurance agent doesn't have much in common with the “masters of the universe” who put together global investment deals. But they do have to balance the demands of their primary insurance carriers with the best interests of their customers–and the whole contingent commission flap began when this balacing act became a conflict of interest for some.

Smith's comments might give us some thought as to how our industry targets more affluent personal lines buyers and whether we're really giving them what they want and need.

Many in the industry have discovered the spending power of affluent customers. The so-called 1 Percent is the “spending engine” that drives today's consumer economy, according to a recent report by the Bureau of Labor Statistics.

The BLS defines “affluent” as the 58.6 million adults living in households with at least $100,000 in annual household income. And although that fairly modest number doesn't put you in a league with the typical Goldman Sachs client, it's still pretty impressive considering that the median U.S. household income in 2010 was only $49,445, according to the U.S. Census Bureau. (Other descriptions of “affluents” I've seen put the dollar amount at $200,000 or more–and I have to laugh when Smith's critics describe him as a “low paid” Goldman employee at about $500K.) Affluents account for roughly 60 percent of all household income earned in the U.S., and hold roughly 70 percent of the privately held wealth in the U.S.

The BLS study sheds some light on what higher-income buyers are spending their discretionary income on. For example, Affluents account for:

• 76 percent of spending on cruise ship fares, and 51 percent of airline fares and trip lodging
• 70 percent of spending on second homes
• 58 percent of spending on motorboats
• 51 percent of spending on jewelry
• 59 percent of spending on “personal digital assistants”

And while Affluents don't mind spending money on products and services, they most definitely want a bang for their buck. According to the annual Ipsos Mendelsohn Affluent Survey, a national study of more than 14,000 adults living in households with at least $100,000 in annual household income:

• 78 percent agreed with the statement, “When it comes to quality, I believe you get what you pay for.”

• 60 percent agreed with, “Even though the recession is 'officially' over, I am still spending money much more cautiously than I used to.”

• And only 18 percent agreed with, “I tend to buy based on price, not quality.”

That last statement should be music to the ears of producers who are sick of battling with direct writers and online insurers for personal lines business.

These findings seem to suggest an ongoing need for agents and brokers as trusted advisors. Affluent buyers, with more to insure, need expert counsel and high-quality insurance products, and they're willing to pay more to get them—as long as that higher price buys them exactly what they need.

It's just another way consumer demand is raising the performance bar for our industry–and a reminder that Smith's suggestion to “make the clients the focal point” shouldn't just apply to Goldman Sachs.