CHAPTER 3

The Ultra-Rich: Different from You and Me

F. Scott Fitzgerald: “The very rich are different from you and me.” Ernest Hemingway: “Yes, they have more money.”

—DOCUMENTED EXCHANGE BETWEEN THE FAMOUS AUTHORS, FROM MARK MY WORDS, COMPILED BY NIGEL REES

We are endlessly fascinated with the strange ultra-rich. Fitzgerald’s 1925 novel was made into a movie starring Leonardo DiCaprio as the enigmatic Gatsby. For years, a popular TV show, Lifestyles of the Rich and Famous, aired. Today’s cable networks are well populated with “reality” shows featuring the homes and “cribs,” cars, and lives of the super wealthy.

A client of mine, a niche gun manufacturer, told me about a guy contacting him directly, identifying himself as a huge fan of this particular gun—the Hand Cannon (www.BondArms.com)—which sells for $400.00 to $1,200.00. The fellow bought half a dozen, had them delivered to his engraver, and spent over $5,000.00 having each one custom engraved for family and friends. The customer has, for years, been a member of the Forbes 400. But there are a whole lot more than 400 of these ultra-rich, price-no-object consumers. More like 6 million, with another 15 million or so running around just a step or two beneath them, striving to climb up, and often spending as if they were already there.

The Forbes 400 list, compiled and published annually by Forbes magazine, is a microcosmic look at the ultra-rich. In 2007, the first year that admission required a net worth of at least a billion dollars, many former multimillionaires dropped from the list. In the book All the Money in the World, authors and researchers Peter Bernstein and Annalyn Swan provide a terrific in-depth analysis of the earning and spending of these wealthiest people in the world. I recommend the book for those seriously interested in understanding and marketing to the ultra-rich. Here, I’ll give you a thumb-sized overview of what they found out, as well as my own observations.

First of all, you should be interested in who is on this list. There are many names you know, like Oprah, Bill Gates, Warren Buffett, and the omnipresent modern-day Barnum, Donald Trump—of whom I am a fan. I have appeared as a speaker on programs and spent some interesting “quality time” with him backstage, and I, in print, predicted his winning of the presidency beginning the day of his announcement, descended by the gleaming gold escalators from On High. Since becoming President, Trump he has fallen some positions down on this list but still holds a spot above 200.

Higher Education Predicts Affluence—But There Are Plenty Who Defy the Norms

You might find a variety of statistics interesting and, in some instances, useful. These are from one year of the Forbes 400 list. In the particular year I analyzed for this chapter, 2018, 241 of the 400 basically made their fortunes from scratch, and another 36 made a large portion of their money even if also inheriting some wealth. Translation: 71% of the ultra-rich got there through ambition, initiative, drive, grit, ingenuity, hard work, and entrepreneurship. Their wealth has not separated them from those values. Only 116 of the 400 inherited their fortunes. Thinking of the ultra-rich as a silver-spoon-in-mouth crowd born of the lucky sperm club would be a serious mistake. This is not who they are, and it is definitely not how they think of themselves.

Dan Kennedy’s #1 No B.S. Key to the Vault

Make all your marketing to the affluent mirror the way they see and think about themselves.

Forty-one of the 400 attended Harvard; 27, Stanford; 10, Yale; and 2, Princeton—a total of 51 from the top-rated, most prestigious universities. It is worth noting however, that a higher percentage of the ultra-rich attended run-of-the-mill universities or did not attend college at all. Mythology about college education as requisite for any success above serving lattes at Starbucks persists now, even as a college debt bubble that is bigger than the mortgage bubble that burst in 2008 grows, past $1.3 trillion. Further, while college enrollments have climbed from 47% in 1973, the year I graduated from high school and did not go to college, to 69.7% now, college graduation rates have stayed the same—62%, according to the National Center for Education Statistics. So, while more are going, more are dropping out. Imagine what that statistic will look like if we make college free for all. Got lousy grades, no work ethic, no ambition? Here’s a free ride at Harvard. Have fun.

That kind of talk—the criticism of the free-college plans I just provided—really resonates with the ultra-rich, by the way. They deeply resent the popular but erroneous idea that they got their money through inheritance or luck, and they bear even greater resentment for and disapproval of handouts and freebies provided to others. Fundamentally, the more affluent a person is by his own making, the more vehemently opposed he is to handouts to anyone under any circumstances, except severe tragedy, such as volcanic eruptions, hurricanes, floods, and fires.

A wonderful example of talking to this audience in a way that resonates—what I teach as “marketing by values”—is shown off in the little article reprinted at the end of this chapter, by a client of mine, Ted Oakley (www.OxbowAdvisors.com), a wealth manager specializing in entrepreneur/business owner and retired entrepreneur clients with assets from $10 million to $50 million. This “article” sometimes appears as the second page of a two-page lead generation advertisement, offering free copies of his book, $20 Million and Broke, but it is also used as a standalone item in different information packages sent to clients and in web media. It perfectly syncs with the thinking of his avatar client, from affluent to ultra-affluent.

Married, with Children

The ultra-rich are a marrying bunch. Only 14 of the Forbes 400 list I analyzed have never been married. Thirty-one have been divorced at least once, but 281 are married, the majority to their first spouses—a significantly better percentage than the general population. Cynics would say that has something to do with the high price of divorce. Golfer Greg Norman’s divorce was reported to cost more than $200 million, and he wasn’t even on the Forbes list! When asked by Johnny Carson why Arnold Schwarzenegger was rich and he was not, Burt Reynolds answered: “number of wives.” Still, as many, including former General Electric captain Jack Welch, have observed, the reason divorce is so expensive is it’s worth it. My own affluence was wounded significantly by divorce, helped by remarrying the same wife. Finally, I got to marry rich.

Age and Affluence Still Go Together

The age of the ultra-rich skews mature, as you’d expect, but it does span wide. The oldest of the Forbes 400 members in 2018 was 95 and the youngest was 31. Average: 69. If you step away from the top of the pyramid, the Forbes 400, and look at the broader affluent population, you will still see age skew senior, pointing the ambitious marketer to the affluent toward affluent Boomers.

There are many reasons for this marriage of affluence to age. One is that simple high income does not equal wealth; equity does, and that usually takes time to accumulate. There’s also a profound difference between making money and holding onto it. Wealthy entrepreneurs tend to have won and lost one or more times before proving able to hold onto their gains. Information, knowledge, and capability can be acquired rather quickly, but wisdom cannot.

WHERE Are the Rich?

There is geographic concentration. And there is migration. Only a handful of years ago, more than 20% lived in California and nearly as many in New York. In 2018, out of the Forbes 400, only 28 have their primary residence in California, and 24 in New York. As cities and states like New York and California ever more greedily tax-target the rich, more and more leave. Limbaugh famously exited New York for Florida, Glenn Beck for Texas, both low-tax states. Hollywood stars have fled Los Angeles in favor of places like Wyoming. Low-tax states like Florida and Texas have 16 from this list and are winning the competition for the relocation of the ultra-affluent. This is a factor in Google’s locating a large facility outside Silicon Valley, in Oklahoma. And in expanding there in 2012, again in 2015, and yet again in 2018. For a time, the Oklahoma Department of Commerce and its economic development arm, then led by Secretary of Commerce Larry Parman, was a client of mine. Its marketing targeted California and New York.

The top ten counties where the richest people in America are concentrated are listed here, along with the average annual income of the one percenters in each place:

Teton, Wyoming	$28 million
New York, New York	$8 million
Fairfield, Connecticut	$6 million
La Salle, Texas	$6 million
Pitkin, Colorado	$5.2 million
McKenzie, North Dakota	$4.7 million
Shackelford, Texas	$4.5 million
Westchester, New York	$4.3 million
Collier, Florida	$4 million
Union, South Dakota	$4 million

For more information, constantly updated, you can find a map of the average income of the ultra-rich by county, using data from the Economic Policy Institute, at www.HowMuch.net.

The top ten states for lowly millionaires and up (not just the ultra-rich) are:

California, still #1 and New York, still #2, Texas #3, Florida #4 nipping at the old guard’s heels, New Jersey #5, Massachusetts #6, Virginia #7, Washington #8, Illinois #9, and Maryland #10.

The top four ZIP codes for wealth are:

Miami Beach, Florida 33109, Atherton, California 94027, Portola, California 94028, and Fremont, California 94539.

If you market nationally, not locally, it is vitally important to stay on top of the relocation, movement, and concentrated “geo-pockets” of wealth so you can direct your mail, place your print ads, and otherwise focus your marketing there—and omit places wealth has left or is leaving. If you are going to open additional stores, sales offices, clinics, etc., this information is critical to making good choices so you plant where wealth is growing. This is fluid, and books are cemented in a moment in time. An outstanding book about the geographic movement of business, markets, money, and wealth is The Fate of the States: The New Geography of Prosperity by Meredith Whitney, but it is years old. One of the newsletters I contribute to, an extension of this book, The No B.S. Marketing to the Affluent Letter, stays on top of this, and can be obtained by Diamond Membership at www.NoBSInnerCircle.com.

The top ten on the 400 list the year I analyzed (2018): #1 is Jeff Bezos, and just ten years ago he was not even in the top ten. In 2017–2018, his fortune grew by nearly $40 billion, the biggest 12-month gain ever. #2: Bill Gates. The gap between #1 and #2 is the biggest since 2001. #3, Warren Buffett. #4, Bernard Arnault, the richest man in Europe. #5, Mark Zuckerberg. #6, Amancio Ortega, the wealthiest retailer in the world. #7, Carlos Slim, the richest man in Mexico. #8 and #9, Charles Koch and David Koch, oil men. #10, Larry Ellison, cofounder of the software firm Oracle.

Of interest is the diversity of industries and fields of enterprise. Basically the top dog or couple of top dogs of each field—tech, retail, energy, fashion, etc.—holds a top place on this list. This is one of many demonstrations of the pyramidal nature of achievement and accomplishment, of income and of wealth. Tech has more here than any other category, although pigeon-holing Amazon in that group or any other single category is illusory. In tech, I believe Zuckerberg is the most likely candidate for a huge fall, as Facebook is, as of this writing, a severely troubled business, under rising regulatory scrutiny and skepticism in the U.S. and abroad, embroiled in frequent disclosures of concealed data mining and insecurity of data, and being evermore exposed as a deliberately engineered addictive “substance.” For several years, I have been writing about it as a close cousin of the tobacco companies and of opioid drug makers, and I predict Facebook, Zuckerberg, and more of its top executives facing the same public crucifying, gigantic fines, endless litigation, forced use of warning labeling, and restrictions on advertising that the cigarette companies went through. The most concise book mirroring my cautions about using Facebook is: Ten Arguments for Deleting Your Social Media Accounts Right Now by Jaron Lanier. I also stridently caution marketers and advertisers against being reliant on Facebook, and I advise investors to leave it out or get it out of their portfolios. I see a very abrupt and sudden ruin of its use as marketing media and/or collapse of its value as very probable.

Following are some of the most interesting Forbes 400 members from the same year’s roster:

Dietrich Mateschitz ($23 billion). A marketing executive, then cofounder of the Red Bull energy drink business—when there was no existing market for energy drinks. He aggressively invested in media, sports sponsorships, and publicity, linking it to extreme feats. Over six billion cans of Red Bull are sold every year worldwide, and he still holds onto the biggest market share in a now crowded, competitive field.

Leonard Lauder ($12.9 billion). Grandson of beauty entrepreneur Estée Lauder, who started her face creams business in 1946, whipping up potions in a kitchen sink. She is widely credited with inventing the gift-with-purchase strategy commonly used in the cosmetic industry but having much wider application, including selling just about anything to the affluent. The leveraging of commodity consumer products to ultra-wealth is not at all unique, and there are other billionaires on the list at least in part by this strategy.

Leslie Wexner ($6.1 billion) is an Ohio State dropout who started his first women’s clothing store with $5,000.00 borrowed from his aunt. His retail creations include Bath & Body Works® and Victoria’s Secret®. Victoria’s Secret is, incidentally, a clever marketing construct, a re-imagination of long-reigning then dethroned leader, Frederick’s of Hollywood®.

Jack Ma ($39 billion). He rode his bike 40 miles every day to a hotel so he could practice his English by conversing with English-speaking tourists—every day for eight years, regardless of the weather. He met one rejection after another, including twice failing his college entrance exams and once being turned down for a job at a Kentucky Fried Chicken. It’s worth noting that this is a life experience theme of a majority of from-scratch affluent, and it’s important to acknowledge and respect when selling to them. They love telling their stories of facing and overcoming adversity. Despite knowing nothing about computers, Ma became interested in the internet and, in 1999, started an ecommerce company working out of his apartment, with 18 friends and $60,000 in capital put together by them all. Today, his Alibaba is the Amazon of Asia, publicly traded, and fast developing a network of major league partners including Disney.

Sheldon Adelson ($38.5 billion). The son of immigrants from Lithuania, he grew up sleeping on the floor of a Boston tenement apartment. At age 12, he borrowed $200 from his uncle to purchase a newspaper route and at age 16, he started a candy vending business. He has created almost 50 businesses in his lifetime and owns 50% of the largest casino company in America, Las Vegas Sands. By age 30 he had made and lost two fortunes, another common life theme with the rich.

Zhou Qunfei ($7.8 billion). The richest self-made woman entrepreneur in the world. A high school dropout, itinerant factory worker, she started her first company—a watch lens manufacturer—in her three-bedroom apartment. Her interests now include Lens Technology, a smartphone screen supplier to Apple and Samsung. The company has 82,000 employees.

Phil Knight ($29.6 billion). Founder of Nike. He began selling athletic shoes out of the trunk of his car.

Marian Illitch ($5.2 billion). Investing their life’s savings, she and her late husband Michael opened the first Little Caesars pizza shop in 1959, after an injury ended Michael’s pro baseball career. They built up a 40-store chain in ten years, then turned to more aggressive expansion, modeling Ray Kroc’s McDonald’s® franchising model. She also owns the NHL Detroit Red Wings and Motor City Casino.

Rich DeVos ($5.4 billion). Rich just passed away in 2018. He and his high school buddy created Amway™, after several business failures and a stint in another multilevel marketing company that Amway later acquired. The company started bottling its lone product, an all-purpose liquid cleaner, in a garage in 1959. Its system of distributors recruiting distributors has led to more than three million of them worldwide generating over $6 billion in yearly sales. Rich also founded the NBA team the Orlando Magic. And a whole lot of Amway’s hometown, Ada, Michigan. I cut my teeth as a young’un in the Amway business and have both a nostalgic fondness for and a deep understanding of the person-to-person selling method as a result. This method of distribution remains viable and healthy today, including with mass-affluent customers. A significant part of the NO B.S. INNER CIRCLE membership organization business model that I developed borrows heavily from Amway.

By the way, Rich DeVos’ autobiography, Simply Rich: Life and Lessons from the Cofounder of Amway: A Memoir, is an extraordinary book well worth reading for its entrepreneurial and life lessons, but also as an instructive window into the personality, philosophy, and thinking of a made-from-scratch ultra-rich business, family, and civic leader.

President Donald Trump ($3.1 billion) is the first billionaire president, with a fortune initially built by real estate deals and investments, then brand licensing fueled by the TV shows The Apprentice and Celebrity Apprentice.

What so many of these Forbes 400 members share in common is the startup of a small business, expansion of that business, then leveraging the wealth created to that point into diversified investments as well as multiplying the core business or brand through one or more means, such as franchising or licensing. These ultra-rich wind up with a unique mindset also held in common from this experience. Among other things, they are methodical. They view everything through the prism of process. They are also deeply suspicious of anyone or anything not symbolic of hard work and methodical development. If you set out to sell them, as example, an exotic safari or fishing trip, the story of your background and how you made yourself into the reigning expert on such travel and the extent of the research, planning, and preparation invested in designing and delivering the experience is essential and carries more influence than the most persuasive description of the trip and its amenities. This same principle applies to whatever you might sell to the ultra-rich with this startup background.

There are only 56 women on the 400 list, although there are a record high of 256 women billionaires. Generally speaking, ultra-rich women still tend to amass their wealth through marriage, divorce, and inheritance. The top ten women on the 400 list did so. Diane Hendricks is one of the exceptions: the wealthiest self-made woman entrepreneur in America.

In many respects, the ultra-rich have the very same concerns and buying motivations as the more ordinary affluent. They are pressed for time and eager for efficiency, competence, and convenience to be provided to them—and they’re very willing to pay for it. Other than those intangibles, they have few if any needs. As a matter of fact, even income is pretty much irrelevant to them; they have risen to the point of concern only with net worth. They worry about loss—of money, power, status, or security. They seek approval, recognition, respect—some only from peers, others from the world at large, all from those they conduct business with.

Sample Article

What’s Gone Horribly Wrong in Estate Planning?

By Ted Oakley

In the estate planning area, most professionals have spent countless hours in the planning and implementation of various models. With each new set of laws come a different approach and an ongoing dynamic of adjustments to stay current. The professional community has generally done an excellent job of staying abreast of changes—and of implementing and adjusting estate plans. But have many of us overlooked the most important part of the process? In short, it is the transfer of hard-earned wealth to future generations. All the planning in the world is of little value if future generations don’t understand wealth and assets or know how to effectively handle them.

Over the years in our role as financial advisors, we have witnessed untold numbers of inheritors who had very little knowledge of or appreciation for wealth. In the course of their being in charge of the new wealth, errors in investment and judgment have frequently devastated, if not destroyed, the inheritance. This inevitably brings questions to the forefront. What are we trying to accomplish with all the sophisticated methods of estate planning? Ostensibly the end result is to transfer wealth in an orderly and tax-efficient way. But there is a huge missing component in this process. That missing piece is the education and nurture of future generations on how to first appreciate, then manage, wealth.

In working with third- and fourth-generation families, we find it is often eye-opening to see how few really understand why and how all of this works. But in many cases it is too late for education as the die has been cast. This process of instilling what future generations need must be started at a young age and carried through with deliberation. It’s not an easy thing to do because wealth itself makes many things easier. But “easier” is seldom the best medicine for future generations.

1.  Start early. It is never too early to map out what you want to teach your children. But you have to spend the time. Teach them how the value of their life today came about. Teach them how their mother and father and/or grandparents spent 12-hour days and endless nights of hard work to accomplish their goals. Help them understand the history of what it took to make a business successful and what goes into the success mentality. Show them from an early age that all this hasn’t come without a price, and we as a family are responsible to be good stewards of the wealth. The hardest part is to train the children as if they didn’t have wealth in order for them to eventually appreciate it. There is a natural tendency to want to make life easier for our children, but in many ways that is counterproductive.

2.  Learn to work. Teaching future generations how to work and how to appreciate the dignity of work are vitally important to the overall objective of estate planning. Learning to work does a great deal for the character of young people. They first of all understand that everything doesn’t come on a silver platter. They learn responsibility and, most importantly, they gain self-esteem from knowing within themselves that they can have a sense of accomplishment through work. They and their parents spend too much time, effort, and money trying to gain something that, through proper guidance and experience, largely comes from within.

3.  Be consistent. If you want future generations to understand and respect your values, you have to be consistent. Telling them one thing and then acting out in a different way (one definition of hypocrisy) is disastrous. If you tell your children about a particular consequence, then stay with it! You are in the process of what normally amounts to a 16- to 18-year training class with each child.

4.  Go slowly with the money. Lavishing everything on a child at an early age may be tempting, but it goes a long way toward defeating the estate transfer process. When offspring get pretty much everything they want anytime they want it, they tend to develop a mindset—a mindset that is hard to change 30 or 40 years later when the time has come for them to be responsible for inherited wealth. By going slowly and expecting them to understand that wealth is not to be taken for granted, you give them better tools to deal with what you will be passing on.

5.  Teach the legacy. The most important part of your legacy and your children’s legacy is spending many hours teaching them how this all came about. This business, this lifestyle, came about because somebody did something. Instill in the future generation a knowledge of and respect for their forebears who did those things; explain how they did them; infuse a reverence for the sacrifices of those who went before. Teach your children about the risks the previous generations took and how that transformed into what the family has today. Wealth didn’t “just happen”—and they need to know the story behind their inheritance, which is a sacred trust.

No matter how many wills, trusts, and transfers you do, they won’t go very far or last very long if the inheritors don’t appreciate what went into creating them. Instill in your children core values and a sense of responsibility, and you give them a huge advantage. You also greatly enhance the chances of the money being used wisely, even philanthropically.