Rich in L.A. – The Commonplace Millionaires

For the Incidentally Wealthy, Millions Mean A Middle-class Lifestyle

Not counting the cache of golf trophies in his basement, Jeff Nichols is the kind of guy that his La Habra neighbors don’t have much trouble keeping up with.

He bought his 4-bedroom tract house 28 years ago for $70,000 and reckons he’d be lucky to get $350,00 for it even in this market. He still clocks in every day at the plumbing company he started in 1974, although he doesn’t do much manual labor anymore, because at 55, he’s just not as spry as he used to be. He wears the same pair of shoes he wore at his wedding, partly because he hates to shop and partly because he can’t bear to throw anything away. In the afternoons, he swims at the Y and in the evenings, if he’s not working, he catches a Lakers game on TV. Jeff talks about retiring someday, but his wife knows better. “He’s a total workaholic,” she says. “I’m lucky if I can get him to stay home on Saturdays.”

All of which would suggest that this is your average middle income man. But look again. After starting his career digging ditches for $1.50 an hour, he is now worth a shade over $10 million, half of which he says is liquid. It’s something he and his wife don’t talk about much, something they would rather disguise than flash.

In fact, like the other quiet millionaires interviewed for this story, he was so concerned about drawing attention that he insisted that his name be changed.

When you ask him why, with all the money he’s amassed over the years, through work, savings and investments, he never traded up to a ritzier house, a snazzier car, or built himself a small pool for those afternoon laps, he says, “Why? It would just mean more to clean.”

Jeff is just one example of a first-generation millionaire, one of several newly minted, yet surprisingly modest Angelenos who are a lot wealthier than even their best friends would ever realize. Not Eli Broad or Marvin Davis wealthy but rich enough to feel secure in their retirement years, rich enough to provide for their children, rich enough to contribute sizable amounts to charity rich enough, in short, to take a three-week vacation to Europe and not worry about breaking the bank.

There are, in fact, 14,000 households in Los Angeles with a net worth above $5 million, up from 10,000 in 1995 and that excludes the value of their primary residence, which, if you’ve been following the real estate scene recently, can easily tack on another $1 million or so.

They accumulated their wealth in all kinds of ways: inheritance, the stock market, real estate and their jobs, be it straight salary, bonuses or options. They also might have sold off their business. And contrary to the prevailing image of Los Angeles as the epicenter of conspicuous consumption, they’re not all dropping their fortunes on BMW’s and botox injections. Many of them are middle class folks at heart and so is their lifestyle.

‘We’re very comfortable’

David and Roslyn Serpa made their millions (just over ten) when they retired and sold their educational materials company a decade ago. Now, in their early 70’s, they are enjoying the financial security they spent 30 years attaining.

Yet they still live in the same brick-and-stucco Northridge house they bought in 1969, determined to stay put (even when the ’94 earthquake fueled a mass exodus from the neighborhood) because it’s already paid for.

“All the people who were here when we bought years ago are gone,” she says. “But we’re very comfortable. We have a church that we love and lots of activities to keep us busy.”

“It’s just not that important to us at this point,” he says. “We have better things to do with our money.”

David, who spends 30 hours a week volunteering with Chrysalis, a non-profit agency that helps homeless people get back on their feet, splurged on a new car trading his ’95 Toyota Camry in for a Toyota Prius hybrid. “I wanted to do something about the petroleum shortage in the world,” he offers.

These attitudes towards wealth echo the findings of Thomas Stanley and William D. Danko’s 1996 bestseller, “The Millionaire Next Door.” Based on surveys with more than 1,000 millionaires, Stanley and Danko discovered that the typical millionaire isn’t often what people picture. “Most of the truly wealthy people in the country don’t live in Beverly Hills or on Park Avenue,” wrote Stanley, “They live next door.”

Stanley, who has studied the affluent for more than 20 years, estimates that more than half of the 300,000 neighborhoods in the United States are home to at least one millionaire most of whom live in homes that are valued between $150,000 and $450,000.

The idea of such sensible consumption might at first seem like a glaring anomaly in a town known for anything but.

“There’s no embarrassment about wealth in Los Angeles,” says Arnold Bernstein, co-founder of the Century City accounting firm of Bernstein, Fox and Whitman. “People on the East Coast are more self-conscious about their money. In L.A., they’ve made it and they use it, and there’s no shame about it.”

Effects of stock market

So what’s with the low-key breed, the ones who’ve got it, but don’t need to flaunt it?

One explanation is that wealth has spread at a dramatic rate in the past decade, touching more working class people along the way. In L.A., especially, two factors are at play: a seemingly indomitable real estate market, where houses purchased in the 1970s could easily be worth four or five times the original price; and a stock market that despite its recent skittishness has climbed steadily for almost 18 years.

This has created any number of inadvertent millionaires who continue to live by middle class values of conscientious consumption.

Lauren James, a Jamaican born immigrant who came to Los Angeles in 1979 to start her nursing career, estimates her worth at just under $3 million. “I’ve always worked hard and I’m very calculating about my finances,” says the 45-year old, who often chose to work double shifts just so she could make time and a half. “I figured out all the little ways I could make the most for my time.” But it wasn’t until she started her own midwifery practice in 1995, and began investing in mutual funds, that the money flowed in.

Today, James, a single woman who says privacy and security are the main reasons for remaining under the radar, owns a comfortable though not lavish 2-bedroom condo in Marina del Rey.

“As I get more money, the value of ‘things’ becomes less important,” she says. “There are times when I go to the store and I won’t buy a bottle of water for a dollar, because I think it’s stupid. It’s too much money.”

For many of these hidden millionaires, lifestyle is a reflection of the way the wealth was created. Only 15 percent of the wealthy have become so through inheritance; the majority of millionaires (two-thirds according to Stanley) are in some way self-made. Not surprisingly, these are the people more likely to be conservative with their money.

Len Brisco, a private wealth adviser with Merrill Lynch in Century City, says this modest millionaire group is best typified by somebody who built a company, ran it for 30 years and then sold it. “They’ve got a built-in history of working hard, maybe denying themselves, and pouring the excess money they earned back into the company to grow it,” says Brisco. “It’s hard for many people to break that habit. The harder the money comes, the more frugal and careful you are about how you treat it.”

“There’s probably some greed involved,” admits James. “I just don’t want to give up anything I’ve earned.”

Nurturing dreams

As the manufacturing and entrepreneurial capital of the country, L.A. is rife with such folks. “California has always been a place for people to come and nurture their dreams,” says Mary Meehan, a partner at Iconoculture, a market research firm specializing in trend analysis and cultural demographics. “Los Angeles, in particular, has that pioneer, go get it, be an American and create your own dream ethos to it.”

And it’s not just Hollywood starlets.

“Obviously the entertainment industry gets a lot of attention because it’s able to manufacture tremendous visibility. But it’s a misconception to think it’s the only pillar of wealth,” says Vin Cipolla, chief executive of HNW Inc., a marketing research company specializing in trend analysis of high net worth demographics. “The Southern California economy is much more diversified than it appears.”

According to the HNW’s research publication, California is home to more millionaires per capita than any other state in the country, and Los Angeles County boasts the nation’s most varied sources of income, as well as the most diverse affluent population.

All this makes L.A. a magnet for immigrant entrepreneurs, another group likely to carve out quiet fortunes. Rather than upgrading to mansions in Beverly Hills and Pacific Palisades, these folks tend to maintain their lifestyles in ethnic centers like Koreatown and the San Gabriel Valley, where friends and families tend to be close by.

“It’s a cultural thing,” says Jack Kyser, chief economist of the L.A. County Economic Development Corp. “Upper income Asians, for instance, don’t like flash and glitz and they look for areas like San Marino, Arcadia, and the Palos Verdes Peninsula that are low key and have good schools.”

The age at which people come into their wealth also plays a role in spending habits. At one point, when she was “young and stupid” James bought a Rolls Royce, which, in the end, had to be rented out for proms and weddings just so she could make the payments. Now she’s happy to drive her ’96 Honda Civic. “It’s comfortable, it’s low-profile, and it doesn’t look like I’m showing off,” she says.

Modest SUVs

While the modest millionaire is not a new phenomenon, several factors are contributing to its increasing presence. Certainly, tighter economic times play a role in shrinking consumption, as does the heightened sensitivity to security in a post 9/11 world. With the premium on personal safety at an all-time high, consumers are minimizing flashy displays of wealth, says Cippola.

Jon Bresson, sales manager at Galpin Ford in North Hills, says his top customers are those trading in luxury cars for more modest SUVs. “The excess of the late 90s just took everybody to extremes and they were suddenly forced to re-evaluate,” says Meehan. “People felt their lives spiraling out of control. It was just bigger and better and faster in every area of life.”

Ultimately, though, lifestyle isn’t something low-key millionaires strive to accomplish; it’s just something that’s been ingrained in them since they were counting the pennies in their piggy banks.

“I have a client who’s worth 40 million dollars whose dad was very frugal,” says Brisco. “So he goes to the Olympics and he’s there for the opening ceremonies, but he doesn’t go. When I asked him why he said, ‘They were asking $500 per ticket, and I didn’t want to spend that kind of money.’ Well this guy’s worth 40 million he could do that every day for the rest of his life and never run out of money.”

But don’t confuse modesty with miserliness. A recent study by the Social Welfare Research Institute at Boston College revealed that as more people attain financial security they’re more eager to impact the world around them thus fueling an increase in philanthropic pursuits.

“Most (wealth-holders) realize that deeper dimensions of happiness and effectiveness await them in giving their money away,” said Paul Schervish, director of the institute. “Never before have so many people, with so much wealth, energy, and entrepreneurial instinct concluded that applying (their) finances to meet the needs of others is a path of self-fulfillment.”

This year, the Nichols plan on giving $750,000 to friends and family. Lauren James surprised her sister with a new Mercedes 240 for Christmas. And David and Roslyn Serpa have set up a million-dollar fund through the California Community Foundation to be donated annually to the charities of their choice.

“The modest ones are very focused on the estate planning trying to do the right thing for their children and charities,” says Brisco. “A lot of them are involved in setting up education funding plans for their children and grandchildren but they’re also very concerned with how the money might affect their children.”

As baby boomers age, expect inheritances to play a greater role in net worth, predicts Brisco. According to a wealth simulation model Schervish developed with Boston College colleague John Havens, an unprecedented $40.6 trillion will change hands from 1998 to 2052.

Yet even in the face of a staggering wealth increase, Schervish believes affluent people will not only continue to maintain modest lifestyles they’ll be more likely to do so. “With so much wealth in play, more and more individuals come to recognize at an earlier age that their financial resources exceed the material needs of themselves and their family.”

It’s like Jeff Nichol’s dad used to say, “You can only eat one steak at a time.”