New England: Rising wealth floats many yachts

If lobster symbolizes New England, then paying $59.85 for a three-pounder and devouring it as an appetizer illustrates how a remarkable surge in wealth has transformed much of the region over the past decade.

The economic expansion, which last year became the longest in U.S. history, has made many New Englanders richer than ever.

The number of households in Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island and Vermont with a net worth of more than $1 million stood at 391,000 at the end of 1999, a staggering 83.5% increase from 213,000 in 1994, according to the Spectrem Group Inc., a New York consulting firm.

Massachusetts, the hub of the area’s economic growth, saw the number of millionaire households soar 89.3% during the same period.

It also had the highest concentration of wealth, with 103,000 millionaire households, says Spectrem.

“People are throwing around an extraordinary amount of cash,” says Jay Baker, general manager of Morton’s in Chicago, an upscale steakhouse that caters to many of Boston’s business elite at its trendy Back Bay location.

“They’re eating lobster as appetizers, and they aren’t shy about ordering top-end wine either.”

Not surprisingly, the majority of the newly rich made their fortunes in the region’s booming high-tech industry or through financial services, particularly venture capital.

Wealth reflected

Typical of the new millionaires is a 27-year-old who took public the software company that he started in his dorm at the Massachusetts

Institute of Technology.

Biotechnology and commercial real estate also have driven the surge in wealth, say experts.

At University Real Estate in Cambridge, Mass., the number of people buying luxury homes who are in their mid-20s or early 30s is rising.

“The percentage of people paying cash hasn’t gone up, but the average age of people able to pay cash has certainly gone down,” says Fred Meyer, who founded the real estate company 37 years ago.

Sales of homes worth more than $500,000 climbed 37.4% during the nine months ended Sept. 30, while sales under $300,000 dropped 14.4%, according to the Massachusetts Association of Realtors.

That wealth is also reflected in the city’s commercial real estate market, where rents now rank among the highest in the nation.

In September, a milestone was reached when the top two floors of One Post Office Square in the heart of the city’s financial district rented for $100 per square foot.

Even as the tech-heavy Nasdaq Composite Index was sinking by nearly 50%, average rents for prime space in Boston rose to $60.30 per square foot through September, up 19.6% from the beginning of the year, according to commercial real estate broker Cushman & Wakefield.

Last year commercial rents rose 13.7%.

“The New England economy is in the best shape that it’s been for the past two decades,” says David Ingram, a senior economist at Economy.com, an economic and research consultancy in West Chester, Pa.

For advisers, the explosion of wealth there has meant getting used to a younger, more aggressive group of customers.

“At least half of the people that I have met with during the past year have been under 40 years old,” says Stephen T. Gorman, a financial adviser in Hingham, Mass.

At Ballentine Finn & Co., a fee-only financial planning and wealth management firm in Wolfesboro, N.H., the average client is now about 40 years old, down from 60 five years ago.

Roy Ballentine, the firm’s president, says his younger clients are generally more interested in making money than planning for retirement.

“We have three clients with a net worth in excess of $1 billion, and all three of them are working on making their next billion,” he says.

“Preserving their wealth is not what is foremost in their minds.”

Another common thread among the newly rich in New England is a lack of diversification.

It’s not uncommon, say advisers, to run into clients with nearly all their net worth tied up in just one stock – typically the company that made them rich in the first place.

Many advisers have clients whose net worth may go up or down as much as 30% in a single day.

“By and large, the clients I deal with who have come into sudden wealth are coming to me because they want to diversify,” says Robert Glovsky, president of Mintz Levin Financial Advisors LLC in Boston.

“A lot of them are in very insecure businesses, so they want to take their investment money and make it very secure,” he says.

Convincing a thirty-something entrepreneur to defer to a professional financial adviser is no easy task, of course.

Emboldened perhaps by their own success, many clients attempt to manage their own assets before seeking outside help.

“These people, more than any other group I’ve dealt with, really need to hear about you through a trusted friend or adviser,” says Beth Gamel, a financial adviser at Pillar Financial Advisors in Waltham, Mass.

“You have to realize they are being bombarded with offers for financial advice the minute their company announces it is going public. It doesn’t take long for them to get to the point where they are not responding to e-mail or telephone calls,” she says.